Shanghai-Hong Kong Stock Connect Programme Gets the Green Light

The China Securities Regulatory Commission (CSRC) and the Hong Kong Securities and Futures Commission (HKSFC) have confirmed a go-live date for the long-awaited Stock Connect mutual market access program, designed to connect securities trading in Hong Kong with mainland China.

On April 10th, 2014, the Securities and Futures Commission (SFC) and China Securities Regulatory Commission (CSRC) jointly announced the in principle approval for the development of the Pilot Programme (Shanghai-Hong Kong Stock Connect) for the establishment of mutual stock market access between Mainland China and Hong Kong.

The four-party Agreement was signed on September 4th, 2014, by subsidiaries of HKEx, the Shanghai Stock Exchange and China Securities Depository and Clearing Corporation Limited for the establishment of Shanghai-Hong Kong Stock Connect. HKEx published a statement earlier today, welcoming a go-live date of November 17^th 2014.

What’s New

At inception, Stock Connect will only encompass secondary market trading. Primary market activities, such as initial public offerings will not be supported, according to HKEx. This means foreign participation in Chinese IPOs and vice versa, will not be possible for the time being.

At the time of writing, the China Connect project is touting 73 exchange participants and 75 clearing participants who will be the first entities to participate in trading activities. In terms of European and US participants, the current members include UBS, Goldman Sachs, Merrill Lynch, JP Morgan, HSBC and Deutsche Bank.

Among the different types of SSE-listed securities, only A shares will be included in the Shanghai-Hong Kong Stock Connect in the initial stage. Other product types such as B shares, Exchange Traded Funds (ETFs), bonds and other securities will not be included.

Daily and monthly trading statistics will be made available as of November 17th, via a dedicated Stock Connect portal on the HKEx website.

Going Forward

"Through unprecedented cooperation, we established Shanghai – Hong Kong Stock Connect so that investors in the Mainland will be able to buy and sell shares listed on our market and investors here in Hong Kong and overseas will be able to buy and sell shares listed in Shanghai," said HKEx Chairman, CK Chow. Adding, "Twenty years ago, our Stock Exchange welcomed H-share listings and provided investors with a new opportunity to share in Mainland China's growth. With Shanghai-Hong Kong Stock Connect, we will be offering individuals and institutions another way to invest in Mainland companies, and more importantly, it will broaden the investor base of the Hong Kong market."

HKEx Chief Executive, Charles Li said, "The launch of Shanghai-Hong Kong Stock Connect will be a very significant breakthrough in the opening of China’s capital markets for both domestic and international investors as well as a landmark in the internationalisation of Renminbi." Adding, "This development is also a landmark in further consolidating HKEx as a global exchange leader in Asia, not as a competitor of, but in close collaboration and partnership with Chinese domestic securities and futures exchanges."

Stock Connect creates a dedicated channel for cross-border RMB flow and allows a broad range of investors to participate, effectively, a gateway between the West and the East. HKEx hopes to be at the epicentre of RMB activity as China continues to internationalise its currency. Hong Kong is likely to benefit from the uplift in market Liquidity , the expansion of offshore RMB business and its overall solidified position as the gateway to the Mainland for the rest of the world.