A pedestrian walks outside the Hong Kong Stock Exchange on Monday. Photo: VCG

An investor identification system for southbound trading under Stock Connect programs between the Chinese mainland and Hong Kong is expected to be implemented by the end of 2019, Tim Lui Tim-leung, chairman of the Securities and Futures Commission (SFC), said on Tuesday at a forum in Hong Kong.

A draft document related to the system for southbound trading (trading of Hong Kong-listed stocks at mainland stock exchanges) has already been released, according to Lui.

The system is likely to make operations between the SFC and China Securities Regulatory Commission more orderly and offer better investor protection, Dong Dengxin, director of the Finance and Securities Institute at the Wuhan University of Science and Technology, told the Global Times on Wednesday.

"The identification mechanism in trading serves as a strong safeguard against fraud, money laundering and insider trading, among other types of financial misconduct," Dong said, noting that the system can also closely monitor the cash flows of investors' accounts.

"Hong Kong and mainland stock exchanges operate under different supervisory regulations," Dong said, noting that this discrepancy may lead to misconduct if investors' identities are not sufficiently disclosed.

The identification system for northbound trading has been in place since September 2018. Under the northbound identification model, brokers are required to report the identity of clients to the mainland stock exchanges, related regulatory authorities and law enforcement agencies.

The southbound identification is expected to be conducted in similar fashion, according to an announcement on the SFC website in October.

Stricter supervision is a requirement, given the growing trade between the mainland and Hong Kong, Dong said. 

Since its launch, cumulative northbound turnover between the mainland and Hong Kong reached 17.41 trillion yuan ($2.88 trillion) by the end of October, the Xinhua News Agency reported.