Industry welcomes Shanghai-Hong Kong stock trading link

Approval has been given by regulators for a pilot programme that establishes stock market access between the mainland and Hong Kong.

Asian industry associations have welcomed regulatory approval of the Shanghai-Hong Kong trading link, a pilot programme for establishing stock market access between the mainland and Hong Kong, which has been given by Hong Kong’s Securities and Futures Commission (SFC) and the China Securities Regulatory Commission (CSRC). Terms have been set out in a joint announcement from the two regulators. The pilot programme is subject to finalisation of regulatory approvals and operational arrangements.

The new 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).

“We welcome this development as one that has the potential to benefit funds and their investors,” said Qiumei Yang head of Asia Pacific at ICI Global. “Recently released ICI Global research indicates that deep and liquid capital markets have been an important factor in the growth and globalisation of funds during the past 20 years. Further opening of capital markets in the Asia Pacific region could offer investors more options and funds more opportunity. We will be awaiting further details of this development.” 

It is hard to say whether Hong Kong or Shanghai will be the biggest beneficiary of the arrangement. It is not the so-called ‘through train’ in the sense of unfettered access to both markets  – given the continuation of quotas on both sides. Whilst it therefore represents connectivity rather than full liberalisation, it is being regarded positively by the industry.

“The Shanghai Hong Kong trading link is a coup for Hong Kong,” Nick Ronalds, the head of equities at Asia Securities Industry and Financial Markets Association.  “It solidifies Hong Kong’s position as a global financial centre that’s also a gateway to China. Mainland investors benefit because they get access to a diverse universe of stocks and the means to diversify their portfolios, reduce risk, and potential increase returns. Hong Kong and foreign investors will get a better channel than they have now to access mainland Chinese stocks. The mutual access link is a classic win-win”.

SSE and SEHK will enable investors to trade eligible shares listed on the other’s market through local securities firms or brokers. The arrangement will consist of a Northbound trading link and a Southbound trading link.

Under the Northbound trading link, investors will be able to place orders to trade eligible shares listed on SSE by routing orders to SSE investors through Hong Kong brokers and a securities trading company yet to be established by SEHK. The Southbound link will be the reciprocal arrangement, through which eligible investors, via mainland securities firms and a securities trading service company to be established by SSE, can trade eligible shares listed on SEHK.

The link is also designed to further the internationalization of the RMB and development of Hong Kong as an offshore RMB business centre by allowing mainland investors to directly participate in the Hong Kong stock market using RMB.

Trading and clearing arrangements will be subject to the regulations and operational rules of the specific market where trading and clearing take place. Listed companies will continue to be subject to the listing and other rules and regulations of the markets where they are listed. ChinaClear and HKSCC will establish a direct link for cross--boundary clearing.

Shares eligible to be traded through the Northbound trading link will comprise all the constituents of the SSE 180 Index and SSE 380 Index and shares of all SSE-listed companies which have issued both A shares and H shares. Shares eligible to be traded through the Southbound trading link comprise all the constituents of the Hang Seng Composite LargeCap Index and Hang Seng Composite MidCap Index, and shares of all companies listed on both SSE and SEHK.

Trading will initially be subject to a maximum cross-boundary investment quota, together with a daily quota. 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.

Initially, the SFC will require mainland investors participating in the Southbound trading link to be limited to institutional investors and those individual investors who hold an aggregate balance of not less than RMB 500,000 in their securities and cash accounts.

The two regulators said they would establish a liaison mechanism for Shanghai-Hong Kong link in order to tackle issues arising during the pilot programme which may require joint resolution. SSE, SEHK, ChinaClear and HKSCC will collaborate with each other to develop the operational and other components of the programme before launch.