17 November 2014 marked the first day of trading under the Shanghai-Hong Kong Stock Connect (the Shanghai-HK Connect), a mutual market access program that effectively opens the Hong Kong market to mainland Chinese investors. The Shanghai-HK Connect enables mainland Chinese investors to trade in securities listed on the HKEx in Renminbi (RMB) through broker members of the Shanghai Stock Exchange (SSE), and Hong Kong investors to trade in securities listed on the SSE through their HKEx brokers.

At least initially, the scope of the Shanghai-HK Connect is limited by an initial RMB250 billion 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). A rise in average daily trade on the Hong Kong exchange during recent months had been widely attributed to the impending commencement of the program. Daily turnover for the HKEx throughout the month of November 2014 was approximately HK$78.2 billion, an increase of over 25 per cent from the same month in 2013. Within the program’s first three weeks, shares in 263 HKEx-listed entities (out of a total of 266 eligible for trading under the program) had been traded by mainland Chinese investors.

While still in its early days, the Shanghai-HK Connect is an important step in the liberalization of China’s capital markets. The program boosts the appeal of Hong Kong as a listing venue for companies looking to tap Chinese investor demand. Both the Hong Kong and mainland Chinese sides have publicly stated that if it is successful in its initial pilot phase, it may be broadened in terms of the quotas, markets and securities covered.

 For further information, please contact:

Christopher Betts, Partner, Skadden
[email protected]

Edward Lam, Partner, Skadden
[email protected]

Alec Tracy, Partner, Skadden
[email protected]

Will Cai, Partner, Skadden
[email protected]