Jurisdiction - Hong Kong
Reports and Analysis
Hong Kong – The Shanghai-Hong Kong Connect.

22 September, 2014

 

 
In April this year the SFC and its Chinese counterpart, the China Securities Regulatory Commission (CSRC) issued a joint announcement regarding the establishment of the Shanghai-HK Connect pilot program (the Shanghai-HK Connect). The aim of the Shanghai-HK Connect is to provide a mechanism for Hong Kong investors to trade Shanghai-listed securities through Hong Kong-based brokers that are participants of the HKEx, and for mainland Chinese investors to trade Hong Kong-listed securities in Renminbi (RMB) through broker members of the Shanghai Stock Exchange.
 
To begin with, Chinese investors will only be able to invest in constituent stocks of the Hang Seng Composite LargeCap Index , the Hang Seng Composite MidCap Index, and the H shares of any other PRC-incorporated companies that have corresponding listed A shares in Shanghai. Trading will also be restricted to the secondary market (i.e., Chinese investors will be not be able to subscribe for shares in initial public offerings in Hong Kong) and Chinese investors will not be able to short sell, engage in margin financing or stock borrowing or lending. There will also be an initial RMB 250bn cap on the aggregate quota of HKEx-listed securities that may be purchased under the program by mainland Chinese investors (together with a daily cap of RMB10.5 billion) and a corresponding RMB 300bn aggregate quota on the purchase of Shanghai-listed securities by Hong Kong investors. The RMB 250bn cap, equivalent to just over USD 40bn, represents just over 2% of the turnover on the HKEx during the previous twelve months.

China Securities Depository and Clearing Corporation Limited (ChinaClear) will be responsible for settling trades in HKEx-listed securities and converting the RMB funds received from Chinese investors into Hong Kong dollars for settlement through the Central Clearing and Settlement System (CCASS) operated by the Hong Kong Securities Clearing Company Limited (HKSCC). ChinaClear will also hold all HKEx-listed securities as nominee on behalf of Chinese investors. HKSCC will play a similar role to ChinaClear for “northbound” trades in Shanghai-listed securities by Hong Kong investors.

On 4 September 2014 the HKEx, HKSCC, SSE and ChinaClear entered into a four-party agreement to implement the Shanghai-HK Connect, which followed an initial market readiness test during August that the HKEx announced had proceeded smoothly. Implementation of the Shanghai-HK Connect remains subject to the satisfaction of numerous conditions including regulatory approvals, and although the April announcement indicated a possible implementation timetable of six months, no fixed date has yet been set for the commencement of trader under the program.

 

Skadden

 

For further information, please contact:

 

Christopher Betts, Partner, Skadden
christopher.betts@skadden.com


Edward Lam, Partner, Skadden
edward.lam@skadden.com


Alec Tracy, Partner, Skadden
alec.tracy@skadden.com


Will Cai, Partner, Skadden
will.cai@skadden.com

 

Skadden Capital Markets Practice Profile in Hong Kong

  

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