On 17 November 2014, Shanghai-Hong Kong Stock Connect (the
"Stock Connect"), a pilot programme for establishing
stock market trading links between Shanghai and Hong Kong, was
launched following its in-principle approval by the China
Securities Regulatory Commission ("CSRC") and the
Securities and Futures Commission of Hong Kong ("SFC") on
10 April 2014. The programme marks an important two-way opening up
of the Shanghai and Hong Kong capital markets. Further, it aims to
enhance the competitiveness of Shanghai and Hong Kong and paves the
way to internationalization of RMB.
The Stock Connect comprises a Northbound Trading Link and a
Southbound Trading Link. For the first time, Hong Kong and overseas
investors may trade shares listed on a Mainland exchange, while
Mainland investors are allowed to trade foreign-listed shares. Some
of the key features of the programme are set out below:
Trading Links and Clearing Links
The Stock Connect is jointly operated by 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") under a
four-party agreement signed on 4 September 2014.
Pursuant to the agreement:
SSE and SEHK will provide mutual order-routing connectivity and
related technical infrastructure to enable investors in their
respective markets to trade shares listed on the other's
ChinaClear and HKSCC will provide arrangements for the clearing
and settlement of trades and the provision of depository, nominee
and other related services to investors in Mainland China and Hong
Applicable Trading, Clearing and Listing Rules
Listed issuers in Shanghai and Hong Kong will continue to be
subject only to the listing and other rules and regulations of the
market where their shares are listed. Trading and clearing
arrangements will also be subject to the regulations and
operational rules of the market where trading and clearing take
Only eligible shares are accepted for trading through the Stock
As at 31 December 2014, a total of 273 SEHK-listed shares were
eligible for trading through the Southbound Trading Link and a
total of 569 SSE-listed shares were eligible for trading through
the Northbound Trading Link.
Northbound trading of SSE-listed shares is open to all Hong Kong
and overseas investors including institutional and individual
investors. For Southbound trading, only institutional investors and
those individual investors who hold an aggregate balance of not
less than RMB 500,000 in their securities and cash accounts will be
accepted for Southbound trading.
As a pilot programme, quota controls have been set up for the
initial phase of operation of the Stock Connect:
The above quotas are applied on a "net buy" basis.
Under this principle, no new buy orders will be accepted once the
quota is used up but investors will always be allowed to sell their
shares regardless of the quota balance.
Hong Kong and overseas investors will trade and settle
SSE-listed shares in RMB only. Mainland investors will trade
SEHK-listed shares quoted in Hong Kong dollars only and settle the
trades with ChinaClear or its clearing participants in RMB.
The CSRC and the SFC have strengthened their cross-boundary
cooperation regarding any misconduct in connection with trades
under the Stock Connect. On 17 October 2014, the CSRC and the SFC
signed a "Memorandum of Understanding between the CSRC and the
SFC on Strengthening of Regulatory and Enforcement Cooperation
under Shanghai-Hong Kong Stock Connect" which sets out
enhanced cooperation arrangements on identification, notification
and investigation of cross-boundary market misconduct, including
disclosure of misleading information, insider dealing, market
manipulation and other fraudulent activities.
According to statistics released by SEHK, the average daily
turnover in Northbound trading was RMB 5.84 billion and the average
daily turnover in Southbound trading was RMB 757 million for the
first 20 trading days from 17 November 2014. On average, 25.3% of
the Northbound daily quota and 4.5% of the Southbound daily quota
were used during the same period. While some market participants
have commented that the trading volumes have failed to live up to
market expectation, the Stock Connect represents a major move in
the opening up of capital markets in China. The infrastructure
linking the two markets is likely to add momentum to the long-term
development of the Hong Kong capital market, and increase the
attractiveness of Hong Kong as a listing venue of choice for
international companies targeting the Mainland market.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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