Linking the Mainland's and Hong Kong's financial markets would bring big advantages, Monetary Authority Chief Executive Joseph Yam says.

In his latest Viewpoint article on the authority's website, Mr Yam said the wider and deeper the market, the more liquid it is, and the more efficient the price-discovery process. The less market concentration there is, which is often true of big markets, the smaller the scope for market manipulation.

"By contrast, the situation of smaller, open markets is less benign. There is often much greater and sharper volatility, to the extent of threatening financial stability or even the viability of the financial system. Such volatility may undermine market integrity by making financial stability much more difficult to maintain and shifts in regulatory policy more likely," he added.

Noting bigger markets are better than smaller ones, and there is an overlap in the instruments traded in Mainland and Hong Kong markets, Mr Yam said there would be obvious advantages for the country as a whole in linking the two.

"It is clear, at least to me, that there would be big advantages if the two markets for these instruments were linked: Overall liquidity would be increased, price discovery would be made more efficient, market discipline would be promoted, and it would be easier for market players, intermediaries and the authorities to manage risk," Mr Yam added.

"Let me make it clear that I am not talking about unification - that is not an option, at least for the foreseeable future - but rather the creation of a channel between the two markets that will allow them to function as one and enjoy the benefits of one, much larger market."