Shanghai Stock Exchange Outlines Key Developments for Chinese Market

China's restricted financial-markets environment is gradually opening up to global standards. The Shanghai Stock Exchange has been a pioneer in


Shanghai Stock Exchange (Photo: Bloomberg)
Shanghai Stock Exchange (Photo: Bloomberg)

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The world’s second-largest economy is ready to compete with established participants in the world of banking and finance. The country’s leading equities trading venue, the Shanghai Stock Exchange (SSE), outlined key developments in relation to self-regulation in a recently issued paper. The developments signify China’s commitment to becoming a leader in financial industries.

The SSE has published a white paper on reforms that could take China’s developing financial markets sector to new heights. After creating the first free-trade zone followed by the the Shanghai-Hong Kong connect, global interest has increased and the country now needs to ensure that it offers investors globally recognised standards.

SSE & Regulations

The exchange has been moving ahead with self-regulation, implementing a range of measures and practises that support the development of the exchange.

Seven key measures were outlined in the report, these include being: law-based, transparent, active, technological, balanced, coordinated and service-oriented. Now, the SSE’s self-regulation is ready to enter a new stage in its development.

The SSE notification states that: “The report holds that as a major body of market self-regulation, the SSE plays an important role in ensuring fairness, standardization and stability of the market as it is on the frontline of market regulation with such advantages as being promptly and flexibly responsive to market changes.”

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Ongoing Reforms

China is no stranger to economic and financial reform. Since the 70s the country has taken a range of steps to create a more efficient and transparent investment environment. The latest developments follow those that emerged from the National Peoples’ Congress in 2014 and, more recently, from the release of the “Guiding Principles for the Healthy Development of Capital Markets” by the State Council.

Additionally, the SSE found that the implementation of self-regulation has yielded positive results that bolster the overall perception of China’s stock and capital markets. The SSE reported that in 2014 a total of 271 abnormal transactions were investigated and handled, and over 100 cases of insider trading and market manipulation were reported, providing ample clues for inspection and law enforcement.

Positive Steps

The recent collaboration between mainland China and Hong Kong is expected to increase activity in Chinese equities from institutional investors. In addition to the opening up of the capital markets, the Shanghai–Hong Kong Stock Connect Scheme, which increases both inward and outward investment quotas and relaxes foreign shareholder limits in listed companies, could very soon help inject more liquidity into the local China A-share market.

Institutional investors can invest in China under the QFII scheme which allows firms to access restricted financial products. Hong Kong has been assigned the highest quota of $44 billion.

Following the ground-breaking success of the Shanghai–Hong Kong Stock Connect Scheme, the special administrative region’s leader is keen to extend its role with the Shenzhen Stock Exchange, with Hong Kong acting as a melting pot for incoming investors.

China is on track to becoming a powerhouse in the global financial markets as new reforms help it compete with established players. Furthermore, its stance on becoming a regional financial hub means the government is fully supportive of the country’s ambitions.

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