JPX and Shanghai Stock Exchange Establish ETF Partnership

The two exchange operators signed an MoU in October of last year

Japan Exchange Group (JPX) announced a new partnership with the Shanghai Stock Exchange (SSE) this Monday.

The deal will see the two exchange operators attempting to link together their respective exchange traded fund (ETF) markets.

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“I am very pleased to see the establishment of Japan-China ETF Connectivity,” said Akira Kiyota. “This scheme is the result of our negotiations with SSE and the Chinese and Japanese authorities as well as market participants.”

According to a statement released by JPX, the partnership is aimed at boosting access to Chinese markets for Japanese investors and vice versa.

Monday’s partnership comes six months after JPX and the SSE announced that they had signed a memorandum of understanding (MoU).

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JPX said that the new ETF partnership stemmed from negotiations that had taken place after the signing of that MoU.

Four-step process

The actual investment process will be more convoluted than one might expect, probably due to Chinese regulatory constraints on foreign investment.

Diagram illustrating how the trading process will take place under the new agreement (Source: JPX)

Thus, Chinese investors will have to put their cash into a ‘feeder’ ETF. In turn, this fund will invest in an ETF, with a focus on Japanese equity, listed on the Tokyo Stock Exchange.

For Japanese investors, the process will take place in the same way, although they’ll be investing in Chinese equity via an ETF on the SSE.

“We will continue to collaborate with SSE on this scheme and other ways to increase cross-border investment flows between China and Japan as we contribute to the continued development of the capital markets of both our countries,” added Kiyota.

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