In a joint statement, the Securities and Futures Commission of Hong Kong and the China Securities Regulatory Commission, said they have approved, in principle, the development of a pilot programme for establishing mutual stock market access between the Mainland and Hong Kong.
The programme, called the “Shanghai-Hong Kong Stock Connect”, is seen as an important step in the “opening up” of the China capital market by the regulators and also in enhancing capital market connectivity between Mainland China and Hong Kong.
“The pilot programme will provide a unique opportunity for Hong Kong and Mainland investors to participate in the other’s market,” said SFC chairman, Carlson Tong.
“The SFC looks forward to working closely with the CSRC in facilitating this mechanism for the benefit of both markets and the investing public.”
According to the statement, the programme will deepen cooperation and communication between the stock markets in Shanghai and Hong Kong, expand cross-boundary investment channels, and enhance the competitiveness of both markets.
The regulators said it will further enhance the attractiveness of both markets to international investors, promote the development of Shanghai as an international financial centre and reinforce Hong Kong’s position as a destination for Mainland investors.
Furthermore, the regulators said the arrangement will help to promotie the internationalization of the renminbi (RMB) and the development of Hong Kong as an offshore RMB business centre. It will also expand investment channels for offshore RMB funds and facilitate an orderly flow of RMB funds between the two markets.
China has recently taken measures to promote the renminbi as an international currency. In October, it expanded the renminbi qualified foreign institutional investor (RQFII) pilot scheme beyond Hong Kong, allocating RMB80bn ($12.87bn £7.68bn) for London-based firms and RMB50bn ($8.05bn £4.80bn) for Singapore-based organisations.
The launch of the pilot stock market access programme is subject to finalisation of all necessary regulatory approvals, market readiness, and relevant operational arrangements.
The regulators expect to announce the formal launch within six months and said the stock exchanges and clearing corporations of the two countries will liaise with market participants for all rules, systems and technical requirements relevant to their operations.
When launched, the programme will operate between the Shanghai Stock Exchange (SSE), the Stock Exchange of Hong Kong (SEHK), China Securities Depository and Clearing Corporation (ChinaClear), and Hong Kong Securities Clearing Company (HKSCC).
Shanghai and Hong Kong exchanges will enable investors to trade eligible shares listed on the other’s market through local securities firms or brokers.
“Shanghai-Hong Kong Stock Connect” comprises a northbound trading link and a southbound trading link. Under the northbound trading link, investors, through their Hong Kong brokers and a securities trading service company, to be established by SSE, will be able to place orders to trade stocks listed on SSE.
Under the southbound trading link, eligible investors, through Mainland securities firms and a securities trading service company, to be established by SSE, will be able to place orders to trade eligible shares listed on SEHK.
Shares eligible to be traded through the northbound trading link will comprise all the constituents of the SSE 180 Index and SSE 380 Index, and shares of all SSE-listed companies which have issued both A shares and H shares.
Shares eligible to be traded through the southbound trading link comprise all the constituents of the Hang Seng Composite LargeCap Index and Hang Seng Composite MidCap Index, and shares of all companies listed on both SSE and SEHK.
Initially, the SFC requires Mainland investors participating in the Southbound Trading Link to be limited to institutional investors, and those individual investors who hold an aggregate balance of not less than RMB500,000 ($80,000, £48,000) in their securities and cash accounts.
The SFC and the CSRC said they will also take all necessary measures to ensure an effective regulatory regime to respond to all misconduct in either or both markets on a timely basis and to strengthen cross-boundary enforcement cooperation.