Introduction
The Shanghai-Hong Kong Stock Connect programme ("Stock Connect") has moved rapidly forward since we last updated you in our briefing published in April which can be found at the following link Shanghai-Hong Kong Cross-Border Share Trading Plan.
As the plans for Stock Connect developed, it became clear that there were a number of issues which required further work by the authorities in Hong Kong and China. On 26 September, 2014, the Shanghai Stock Exchange ("SSE") and China Securities Depository and Clearing Corporations Ltd ("ChinaClear") issued detailed rules to implement stock trading under Stock Connect. The Hong Kong Exchange and Clearing Limited ("HKEx") published on the same day a number of approved amendments to its rules and FAQs to clarify certain key aspects of Stock Connect. These documents provide industry participants with welcome clarifications in a number of key areas.
This briefing will summarize the developments and focuses on Stock Connect from the perspective of investors seeking to access China A Shares via the Northbound Trading Link as opposed to investors seeking to access H shares from mainland China.
Quotas
Trading under Stock Connect will initially be subject to a maximum cross-border investment quota, together with a daily quota that will be monitored on a real time basis. A Northbound Trading Link will be established which will permit Hong Kong investors to place orders to trade eligible shares quoted on the SSE ("SSE Securities") subject to an aggregate quota of RMB300 billion and a daily quota of RMB13 billion. A Southbound Trading Link will also be established which will permit mainland Chinese investors to place orders to trade eligible shares listed on the SEHK subject to an aggregate quota of RMB250 billion and a daily quota of RMB10.5 billion.
While the quotas under Stock Connect are not as large as some of the quotas granted under the QDII, QFII and RQFII programs, we understand that the SEHK intends to discuss allocating further quota with SSE and ChinaClear once the above quotas are 80% utilised. It would appear that the authorities are amenable to expanding the scheme provided that there is sufficient demand.
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