CHINA: Shanghai-Hong Kong Stock Connect to open China A-share market to foreign investors

Thursday September 25 2014

The Stock Exchange of Hong Kong Limited (SEHK) and Hong Kong Securities Clearing Company Limited (HKSCC) have signed an agreement with the Shanghai Stock Exchange (SSE) and China Securities Depository and Clearing Corporation Limited (ChinaClear) for the establishment of Shanghai-Hong Kong Stock Connect, a scheme that will allow investors with access to one market to buy and sell eligible shares listed on the other market.

In summary, the Four-party Agreement provides that:

(a) subject to limited exceptions, SSE will accept all the constituent stocks of the SSE 180 Index and SSE 380 Index, and all the SSE-listed Shares that are not included as constituent stocks of these indices but which have corresponding shares accepted for listing and trading on SEHK as SSE Securities for trading by Northbound Investors through the Northbound Trading Link;

(b) subject to limited exceptions, SEHK will accept all the constituent stocks of the Hang Seng Composite LargeCap Index and Hang Seng Composite MidCap Index, and all the H Shares that are not included as constituent stocks of these indices but which have corresponding shares accepted for listing and trading on SSE as SEHK Securities for trading by Southbound Investors through the Southbound Trading Link;

(c) the scope of shares accepted for trading through the Trading Links may be amended as agreed by SSE and SEHK after consulting each other and after obtaining the consent of the relevant regulatory bodies;

(d) Northbound Investors will trade SSE Securities and settle the trades in RMB only; and Southbound Investors will trade SEHK Securities quoted in HKD only and will settle the trades with ChinaClear or its clearing participants in RMB;

(e) each of SSE and SEHK agrees that it will not, without the other’s written consent, develop any options, futures or other derivative products that are based on any stock or stock index listed on the other exchange’s market. In the event that any issuer proposes to issue any warrants or other derivative products (including CBBCs) that are based on any stock or stock index listed on either SSE’s or SEHK’s market for listing on the other exchange’s market, such arrangement will be subject to separate agreement by SSE and SEHK. Where written consent is obtained from or separate agreement is reached with the other party in relation to any product referred to above, the income derived by SSE or SEHK (as the case may be) from the product will, subject to exceptions, be shared between them equally.

SEHK Participants and their clients will be accepted as Northbound Investors. Institutional investors and those individual investors who hold an aggregate balance of not less than RMB500,000 in their securities and cash accounts will be accepted as Southbound Investors.

In the initial phase of operation of Shanghai-Hong Kong Stock Connect, the Southbound Trading Link will be subject to a daily quota of RMB10.5 billion and an aggregate quota of RMB250 billion; and the Northbound Trading Link will be subject to a daily quota of RMB13 billion and an aggregate quota of RMB300 billion.

The Stock Exchange of Hong Kong has now completed the second round market rehearsal (MR2) for Shanghai-Hong Kong Stock Connect. A Shanghai-Hong Kong Stock Connect practice session was available for Participants on 20 and 21 September 2014.

The official launch is expected in mid-October 2014.

Click on the above link for details.