SSE Meets the Press on Revision of Implementation Measures of the Shanghai Stock Exchange for Shanghai-Hong Kong Stock Connect Business

On March 3, 2023, the Shanghai Stock Exchange (SSE) released the Implementation Measures of the Shanghai Stock Exchange for Shanghai-Hong Kong Stock Connect Business (2023 Revision) (hereinafter referred to as the Implementation Measures) and plans to implement it on March 13. Officials of the SSE met the press on relevant issues.

I. Q: Please introduce the background and process of revising the Implementation Measures.

A: Previously, the China Securities Regulatory Commission (CSRC) and the Securities and Futures Commission of Hong Kong issued a joint announcement, which in principle approved to further expand the range of stock connect targets. In order to implement the consensus reached by the securities regulatory commissions of the two places on expanding the range of stock connect targets and constantly optimize the Stock Connect mechanism, the SSE revised the Implementation Measures of the Shanghai Stock Exchange for Shanghai-Hong Kong Stock Connect Business (2022 Revision) (hereinafter referred to as the original Implementation Measures) and publicly solicited opinions from the market. During the solicitation period, no revision suggestions were received. With the approval of the CSRC, the SSE hereby formally issues the Implementation Measures.

II. Q: Please briefly introduce changes in the selection criteria of eligible stocks under Shanghai Stock Connect before and after revising the Implementation Measures.

A: The SSE has adhered to the general principle of "wide openness, sound judgement, and effective regulation" for the revision of the Implementation Measures. On the basis of preventing business risks, it further enhances the inclusiveness of the selection criteria for Shanghai Stock Connect stocks, includes more stocks of SSE listed companies into eligible stocks under Shanghai Stock Connect, and achieves a higher standard opening-up. The main changes are as follows:

First, the benchmark indexes of Shanghai Stock Connect stocks have been expanded from SSE 180 Index and SSE 380 Index to SSE A-share Index. The coverage of constituent stocks will be further expanded from large and mid-cap stocks on the SSE to mid and small-cap stocks. The stocks available in each sector will no longer be subject to quantity or other restrictions, and the number of constituent stocks will see a notable increase; Second, based on the principle of putting risks under control, the SSE has set requirements for inclusion, namely an average daily market value of RMB 5 billion yuan, an average daily turnover of RMB 30 million yuan, and a trading suspension ratio of fewer than 50% of days; Third, the SSE has set an adjustment buffer mechanism with lower exclusion conditions than inclusion conditions to reduce the frequent transfer-in/out of eligible stocks. Specifically, during the semi-annual regular adjustment inspections, if the average daily market value of the Shanghai Stock Connect stock, which is non-A+H stocks, is found to be less than RMB 4 billion yuan or the average daily turnover is less than RMB 20 million yuan or the total number of days for which trading is suspended accounts for more than 50%, it will be transferred out of the Shanghai Stock Connect. Fourth, in reference to the initial inclusion arrangement for stocks of companies with weighted voting rights structures under Hong Kong Stock Connect, the SSE has clarified the initial inclusion arrangement for stocks of companies with weighted voting rights arrangements under Shanghai Stock Connect.

III. Q: Please briefly introduce changes in the adjustment mechanism of Shanghai Stock Connect targets before and after revising the Implementation Measures.

A: In order to better adapt to the trading habits of Shanghai Stock Connect investors, combined with the adjustment practice of constituent stocks of the SSE A-share Index, in the revised Implementation Measure, the SSE has set up semi-annual and monthly regular inspection mechanisms and a temporary adjustment mechanism for Shanghai Stock Connect. First, a semi-annual regular inspection mechanism is established to inspect constituent stocks of the SSE A-share Index at the end of May and November each year. The list of targets will normally be announced and adjustment implemented in the following month (subject to adjustment in case of holidays, see relevant announcements by the securities trading services company of the Stock Exchange of Hong Kong). Second, a monthly inspection mechanism is established to inspect, at the end of each month, stocks newly included in the SSE A-share Index for that month. Eligible stocks will generally be included in the range of Shanghai Stock Connect in the following month. Third, the temporary adjustment mechanism is continued. The current arrangement will be followed for the transfer-in/out of the stocks in A+H stocks, as well as the temporary transfer-out of risk alert stocks, delisting period stocks, etc.

The new adjustment mechanism further improves the timeliness of inspections. During the monthly and semi-annual regular inspections, the list of eligible stocks will be announced on the second Friday of the month following the inspection date (subject to adjustment in case of holidays) and will take effect on the next trading day of Shanghai Stock Connect after the Friday after the announcement date.

IV. Q: Please briefly introduce arrangements for the transition between old and new rules.

A: To ensure a smooth transition between old and new rules, the SSE has made the following arrangements. For details, please refer to the release notice of the Implementation Measures:

1. Transitional arrangements for the transfer-out of former Shanghai Stock Connect stocks: Former Shanghai Stock Connect stocks that has been included before the implementation date of the Implementation Measures will be retained on the implementation date; After implementing the Implementation Measures, former Shanghai Stock Connect stocks that are not A+H stocks and have not been included as constituent stocks of SSE A-share Index will not be transferred out, provided that the corresponding transfer-out situations are not triggered before they are included as constituent stocks of SSE A-share Index; After the relevant stocks are included as constituent stocks of SSE A-share Index, the above transitional arrangements will no longer apply, and their transfer-in/out arrangements will be subject to the Implementation Measures.

2. Transitional arrangements for the adjustment and inclusion of Shanghai Stock Connect stocks: As of the inspection date of the first batch of Shanghai Stock Connect stocks, the stocks of SSE listed companies that meet relevant provisions of the Implementation Measures will be the first batch of new Shanghai Stock Connect stocks. Also, in order to ensure the orderly transition between old and new rules, the SSE plans to include stocks newly included as constituent stocks of the SSE A-share Index between the inspection date of the first batch of Shanghai Stock Connect stocks and the implementation of the Implementation Measures into the scope of the next monthly regular adjustment inspection.

Please note that the list of the first batch of Shanghai Stock Connect stocks and the effective date of adjustment will be announced separately by the securities trading services company of the Stock Exchange of Hong Kong.

V. Q: Please briefly introduce changes in the selection criteria of Hong Kong Stock Connect stocks before and after revising the Implementation Measures.

A: According to the arrangements in the joint announcement of the securities regulatory commissions of the two places, on the basis of the existing stock range, Hong Kong Stock Connect stocks under the Shanghai-Hong Kong Stock Connect will newly include constituent stocks of the Hang Seng Composite Small-Cap Index with an average month-end market value of HK$5 billion and above. Corresponding to Shanghai Stock Connect stocks, a buffer mechanism has also been set for the transfer-out of Hong Kong Stock Connect stocks. That is, Hong Kong Stock Connect stocks that are constituent stocks of the Hang Seng Composite Small-Cap Index and are not A+H stocks will be retained if the average month-end market value of the Hong Kong stock is HK$4 billion and above.

In addition, according to arrangements in the joint announcement of the securities regulatory commissions of the two places, stocks of foreign companies primarily listed at the HKEX that meet relevant provisions of the Implementation Measures will also be included as Hong Kong Stock Connect stocks. Investors should be aware that some foreign companies may have special requirements on taxes and corporate action that differ from those for the current Hong Kong Stock Connect stocks, such as the need to pay financial transaction tax to foreign governments and to pay dividends with different tax rates to investors. As current market operations and technical systems do not support these special arrangements, the stocks of those companies eligible for inclusion in the Hong Kong Stock Connect will not be covered in this round of expansion of eligible stocks under the Shanghai-Hong Kong Stock Connect. All parties will continue to push forward the work in this regard.

VI. Q: Please briefly introduce changes in the adjustment mechanism of Hong Kong Stock Connect stocks before and after revising the Implementation Measures.

First, in order to tie in with the inclusion of the small-cap index, the SSE has added adjustment arrangements for the Hang Seng Small-Cap Index.

Second, the regular adjustment arrangement under Hong Kong Stock Connect has been canceled. According to the Notice on Matters Concerning Launching the Pilot Program of Shanghai-Hong Kong Stock Connect (Shang Zheng Fa [2014] No. 69 Document), currently the transfer-in/out of Hong Kong Stock Connect stocks under Shanghai-Hong Kong Stock Connect is generally carried out through regular adjustments. After the implementation date of the Implementation Measures, the above arrangements for regular adjustment of Hong Kong Stock Connect stocks will no longer apply, and relevant stocks will be transferred in or out according to provisions of the Implementation Measures. The effective date of the transfer-in/out of Hong Kong Stock Connect stocks will be subject to the time announced by the securities trading services company of the SSE.