Stock Borrowing and Lending Framework in Hong Kong

Covered short selling only

Short selling in Hong Kong must be covered: the seller must have a presently exercisable and unconditional right to vest the securities in the buyer at the time of sale, usually through a confirmed borrow. Naked short selling is a criminal offence. Only securities designated by the exchange as eligible for short selling can be sold short, and the list is reviewed periodically.

Short position reporting

The SFC requires holders of net short positions above a set threshold, expressed both as a percentage of issued share capital and as a Hong Kong dollar value, to report weekly. The SFC publishes aggregated short positions by stock. Firms should check the SFC's current rules for exact thresholds and the list of specified shares before relying on any summary.

Stamp duty relief for stock borrowing

Hong Kong stamp duty normally applies to transfers of Hong Kong stock. Qualifying stock borrowing and lending transactions can benefit from relief under the Stamp Duty Ordinance, provided conditions are met and the transaction is properly notified to the Inland Revenue Department's Stamp Office. Lenders and borrowers keep records to demonstrate the relief applies.

Stock Connect lending mechanics

Practical checklist for desks

• Confirm the security is on the current designated short selling list.
• Ensure a borrow is in place before order entry and flag short orders correctly.
• Monitor net short positions daily against SFC reporting thresholds.
• Document stamp duty relief and lodge required notifications.
• Agree recall and corporate action handling in the master agreement.

• GMSLA and GMRA worldwide
• Regulatory reporting matrix