Ahead of the launch of the Shanghai-London Stock Connect, which is set to be launched today, the Financial Conduct Authority (FCA) and the China Securities Regulatory Commission (CSRC) have jointly announced their approval of the scheme this Monday.
Via the stock connect, companies will sell shares through dual listings on the exchanges, providing firms in the United Kingdom and China with mutual access to each other’s capital markets.
The Shanghai-London Stock Connect will allow companies listed on the SSE to apply to be admitted to trading on a newly formed Shanghai Segment of LSE’s Main Market. For the UK, companies with a premium listing will be able to apply for admission to the Main Board of the SSE.
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For both the UK and China, the securities traded will be in the form of depositary receipts, a common way of facilitating overseas companies access to institutional investors. While this structure is not new for British investors, it is new to China, giving Chinese investors exposure to international securities via an exchange located in their own country and currency.
For investors located in the UK, the scheme offers them larger opportunities to access the Chinese A-share market. Historically, this has been restricted to western institutions which had a ‘Qualified Foreign Institutional Investor’ status.
FCA and CSRC Sign MoU to Support Scheme
In order to further support the scheme, the British and Chinese regulators have signed a memorandum of understanding (MOU). This agreement sets out a framework for cooperation between the two agencies to further support the success of the scheme.
One of the key aims of the MoU is to protect investors as well as combat cross-border market abuse and other serious misconduct, among other things, the joint statement released today said.
Commenting on the announcement, Andrew Bailey, FCA’s Chief Executive, said: “This new scheme will deepen and strengthen connectivity between UK and China capital markets to the advantage of both countries. We both believe in the positive contribution regulators can make in international capital markets, and the new co-operation we’re announcing today will be an important contributor to the success of the scheme.”