IRELAND: Applications for Investment in Shenzhen-Hong Kong Stock Connect available for Irish UCITS and AIFs

Tuesday December 13 2016

The Central Bank of Ireland has advised that it is able to accept applications from Irish domiciled UCITS and AIFs to invest through the Shenzhen-Hong Kong Stock Connect (“Shenzhen Connect”) programme, which launched on 5 December 2016.

Shenzhen Connect is a joint initiative between the Stock Exchange of Hong Kong (“SEHK”) and the Shenzhen Stock Exchange (“SZSE”), as well as their respective clearing entities, and enables international investors to purchase shares listed on the SZSE. The market infrastructure arrangements under Shenzhen Connect replicate those provided for under the original Shanghai-Hong Kong Stock Connect (“Shanghai Connect”) model, launched in November 2014.

Following a submission made by Irish Funds, the Central Bank has agreed to accept applications allowing Irish UCITS and AIFs to invest via Shenzhen Connect on the same basis as provided for under Shanghai Connect. The applicable conditions are set out in the Central Bank’s UCITS Q&A at ID 1015 and AIFMD Q&A at ID 1094.

Both Q&As address the issues concerning the depositary arrangements and advise that before an Irish authorised UCITS or AIF acquires Chinese shares through the Shanghai-Hong Kong Stock-Connect infrastructure for the first time, its depository would need to satisfy itself that the manner in which the shares were to be held allowed that depository to meet its legal obligation under the UCITS or AIFM Regulations and any conditions imposed by the Central Bank. In particular, depositories will need to consider both the terms on which they or a sub-custodian could become participants in HKSCC and the arrangements in place from time to time between HKSCC and ChinaClear and the applicable law.

The Central Bank states that the legal obligations of a depositary cannot be met without at least being a participant in HKSCC. There are a number of options in terms of level of participation within HKSCC, namely General Clearing Participant, Direct Clearing Participant or Custodian Participant. The Central Bank does not provide an opinion regarding the appropriate level of participation- this legal obligation applies directly upon the depository as well as the legal obligation to review and keep under review the Stock Connect infrastructure arrangements.

These Q&As currently refer only to the “Shanghai-Hong Kong Stock infrastructure” but the Central Bank has advised that it intends to update the Q&As in early 2017 to reflect the recent addition of Shenzhen Connect. Furthermore, pending the update to the Q&As, the Central Bank is currently in a position to accept applications from Irish domiciled UCITS and AIFs in respect of Shenzhen Connect.

Click on the above link for further information.