ETF via Shanghai-Hong Kong Stock Connect
For ETF products included into the Stock Connect, can investors participate in the subscription and redemption on primary market?
No, investors cannot participate in the subscription and redemption on primary market. They can only buy and sell products on the secondary market.
Under what circumstances will mainland ETF products be regularly adjusted out of the scope of Stock Connect?
ETFs from mainland market will be adjusted out of the scope of Stock Connect if one of the following circumstances exists on the deadline for regular review and adjustment:
(1) The average daily asset scale in the last six months is under RMB 1billion;
(2) Among the underlying index constituent securities tracked, the weight of the stocks listed on the SSE and SZSE is less than 85%, or the weight of the stocks of Shanghai Stock Connect and Shenzhen Stock Connect is less than 70%;
(3) The product no longer meets relevant conditions of its tracking index or its compiling scheme;
(4) Other circumstances as determined by the SSE.
What changes that occur to the underlying index or its compiling scheme tracked by a mainland ETF product will cause the ETF product to be adjusted out of the scope of Stock Connect?
The deadline for regular adjustment of mainland ETF products is consistent with the twice-yearly adjustment date for the underlying index. The index compiler may adjust the underlying index compilation scheme, and when the tracked underlying index or its compiling scheme no longer meets the following conditions, the ETF products of the tracked underlying index may be adjusted out of the scope of Stock Connect.
(1) For broad-based stock index, a single constituent equity weight is no more than 30%.
(2) For non-broad-based stock indices, all the following conditions shall be satisfied: (a) The number of constituent stocks shall be no less than 30; (b) the weight of single constituent securities shall not exceed 15% and the total weight of the top 5 constituent securities shall not exceed 60%, and (c) The average daily turnover of constituent stocks with a total weight of more than 90% shall be in the top 80% among the stocks listed on the stock exchange where they are listed in the past year.
Investors from mainland and Hong Kong can participate in the trading of ETFs in the other market only by auction, and they must comply with the trading rules of the other market. For mainland ETF products, with reference to the existing ETF trading rules of the SSE, it is basically the same as the trading rules of the Shanghai Stock Connect, but there are differences in the trading arrangements including the minimum declared price unit (0.01 yuan for stocks and 0.001 yuan for ETF), the maximum number of single declarations (1 million shares for main board, 100,000 shares for STAR Market, and 1 million for ETFs), and the effective auction range (with different limit up and limit down on price; 2% price cage applicable to SSE stocks, but not ETFs).
Margin trading adopts the existing arrangement of Shanghai-Hong Kong Stock Connect. Northbound investors are allowed to participate in margin trading of ETFs in mainland market.
In view of the fact that there is no limit for foreign investor’s ETF position, and the active trading of ETF is beneficial for market development, there is no total control over the ETF positions of northbound investors, and the shares of ETF held by them do not need to be included in the shareholding ratio of foreign investors in the corresponding ETF portfolio securities. The SSE does not make indicative disclosures on the proportion of ETFs held by foreign investors.