charltonslaw.com

Hong Kong Law

April 2014

Linking of Shanghai and Hong Kong Stock Exchanges

The China Securities Regulatory Commission (CSRC) and Hong Kong's Securities and Futures Commission (SFC) published a joint announcement (see archive) on 10 April 2014 of their approval, in principle, of a pilot programme - the Shanghai-Hong Kong Stock Connect (Pilot Programme) - for establishing mutual stock market access between Mainland China and Hong Kong. This followed comments by China's Premier Li Keqiang that China will put in place mechanisms to link the Hong Kong and Shanghai stock exchanges made earlier in the day at the Boao Forum for Asia Annual Conference 2014.

The long-awaited establishment of the so-called "through train" was welcomed by Hong Kong Exchanges and Clearing as an important milestone in the further opening up of Mainland China's capital markets and the internationalisation of Renminbi.

It is anticipated that preparatory work for formal launch of the Pilot Programme will take approximately six months.

Framework of the Pilot Programme

1. Operation of the Pilot Programme

The Pilot Programme will operate between the Shanghai Stock Exchange (SSE), the Stock Exchange of Hong Kong Limited (SEHK), China Securities Depository and Clearing Corporation Limited (ChinaClear) and Hong Kong Securities Clearing Company Limited (HKSCC).

2. Permitted Share Trading

The Pilot Programme comprises a "Northbound Trading Link" and a "Southbound Trading Link".

Under the Northbound Trading Link, investors, through their Hong Kong brokers and a securities trading service company to be established by SEHK, will be able to place orders to trade eligible shares listed on SSE by routing orders to SSE.

Under the Southbound Trading Link, eligible investors, through Mainland securities firms and a securities trading service company to be established by SSE, will be able to place orders to trade eligible shares listed on SEHK by routing orders to SEHK.

3. Eligible Shares

Through the Northbound Trading Link, shares eligible to be traded will comprise:

Through the Southbound Trading Link, eligible shares include:

The scope of the Pilot Programme is subject to further adjustment.

SEHK has issued an indicative list (see archive) of 266 SEHK-listed shares eligible to be traded through the Southbound Trading Link.

4. Quotas

Initially, the Northbound Trading Link will be limited to an aggregate quota of RMB300 billion and a daily quota of RMB13 billion, and the Southbound Trading Link will be limited to an aggregate quota of RMB250 billion and a daily quota of RMB10.5 billion. Quotas may be adjusted in future.

5. Eligible Investors

The SFC requires Mainland investors participating in the Southbound Trading Link to be limited to:

6. Rules and Regulations

Applicable trading, clearing and listing rules

Trading and clearing arrangements will be subject to the regulations and operational rules of the market where trading and clearing take place. Listed companies will continue to be subject only to the listing and other rules and regulations of the markets where they are listed. The Pilot Programme will only operate on a day which is a trading day of both SSE and SEHK and where the clearing arrangements are in order.

Clearing

ChinaClear and HKSCC will establish a direct link for the cross-border clearing. Each of them will become each other's clearing participant to provide clearing services for the Pilot Programme.

7. Cross-border Regulatory and Enforcement Cooperation

The SFC and the CSRC will take steps necessary to implement an effective regime under the Pilot Programme to respond to misconduct in either or both markets on a timely basis. The two regulators will improve their current bilateral agreement to strengthen enforcement cooperation in the following areas:

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Charltons - Hong Kong Law Newsletter - Issue 235 - 11 April 2014

Shanghai-Hong Kong Stock Connect

Hong Kong Stock Exchange

Shanghai Stock Exchange

China Securities Regulatory Commission CSRC

Hong Kong Securities and Futures Commission SFC

China Securities Depository and Clearing Corporation Limited ChinaClear

Hong Kong Securities Clearing Company Limited HKSCC

Northbound Trading Link

Southbound Trading Link

Direct link for the cross-border clearing

Shanghai-Hong Kong Stock Connect pilot programme
Cross-Border Regulatory And Enforcement Cooperation