Shanghai-Hong Kong Stock Connect is a mutual market access program, through which investors in Hong Kong and Mainland China can trade and settle shares listed on the other market respectively via the exchange and clearing house in their local market.
We refer to buying eligible shares in the SSE market from Hong Kong as the Shanghai Stock Connect. Similarly, buying eligible shares listed on SEHK from Mainland China as Hong Kong Stock Connect.
Below are some highlights of the Shanghai-Hong Kong Stock Connect:
1. Scheme design to maximize investors' convenience
The scheme is based on investors' existing accounts with securities companies, which means that institutional and individual investors will not have to open new accounts specifically for Stock Connect trading.
2. Mutual market access, closed-loop fund flow
The Shanghai-Hong Kong Stock Connect is a scheme lead by the two Exchanges by establishing direct mutual access and becoming each other's exchange participant. Once Hong Kong and international investors sell their A shares or Mainland investors sell Hong Kong shares, the funds flow back to their home market bank accounts and cannot be used for speculation in other asset classes in the destination market.
3. Trading subject to quota control
At the initial stage, trading is subject to daily and overall quota for both directions. This is to ensure successful launch and smooth running of the program. Subject to regulatory approvals, these restrictions are subject to change over time. On 16 August, 2016, the overall quota mechanism was abolished according to the Joint Announcement of China Securities Regulatory Commission and the Securities & Futures Commission of Hong Kong.
4. Currency conversion in net to minimize currency risk
For Shanghai Stock Connect trades, there will be no currency risk since quotes and settlements will both be in RMB. For Hong Kong Stock Connect trades, where quotes are in HKD and settlements are in RMB, currency conversion will be conducted on net basis. Therefore the aggregate conversion cost will be averaged out over total number of trades.
5. Clearing and settlement arrangements to achieve prudent risk management
Under the clearing and settlement arrangements of the Stock Connect, HKSCC and ChinaClear will become each other's clearing participant and perform their settlement obligations. This will make it easier for clearing risk management.
6. Home Market Rules apply to minimize interference
The trading and clearing rules and practices of the home market where the trades are executed will not be altered because of the program.
Development of the Stock Connect: Key Milestones
Below is a list of milestone events during the development of the Stock Connect and expected events for the coming up months:
• April 10: CSRC and SFC made Joint Announcement
• April 29: SSE, CSDC and HKEx released exposure draft of Implementation Measures for the Shanghai-Hong Kong Stock Connect
• May 12-16: SSE and CSDC host business and technical training in Shanghai, Beijing and Shenzhen for Members on the Stock Connect, attended by more than 650 professionals from Members
• May 20: SSE established Leadership Team and Specialized Business Teams
• May 23: SSE notified all members, requiring members planning to participate in the Stock Connect to establish work team and submit information of contact persons
• Jun 13: CSRC released Provisions for Pilot Program for Establishing Mutual Market Access between the Shanghai and Hong Kong Stock Exchanges
• July: Implementation Rules for the Shanghai-Hong Kong Stock Connect is reported to the CSRC; Drafts for the relevant agreements finalized; technical system development and internal testing of members finished.
• August: Finish joint testing under round-the-clock testing environment; road show in Hong Kong
• September: Whole market drilling; global road show
• October: Projected time for official launch of Shanghai-Hong Kong Stock Connect