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Shanghai-London Stock Connect launch imminent

China's securities watchdog has released draft rules for consultation for the cross-border programme.

The Shanghai-London Stock Connect programme, a plan that started in 2015 to link the Shanghai Stock Exchange (SSE) and the London Stock Exchange (LSE), is coming closer to fruition.

However, unlike the Shanghai- and Shenzhen-Hong Kong Stock Connect programmes, where investors are able to directly buy and sell foreign stocks, the Shanghai-London scheme enables investors to buy stocks indirectly through depositary receipts, according to a separate statement from the SSE.

The SSE explained that LSE-listed companies will list Chinese depositary receipts (CDRs) on the SSE, while A-share companies on the SSE will be listed as global depositary receipts (GDRs) on the LSE.

The SSE noted that A-share companies can raise fresh money in London via their GDRs. However, London-listed firms would have to establish initial liquidity for their CDRs before they can trade on the SSE, which means they are not able to raise fresh funds for their CDRs.

“The provisions stipulate normative requirements for market entities as well as their activities under Shanghai-London Stock Connect, committed to the principles of protecting the legitimate interests and rights of investors, maintaining market order and containing financial risks,” the China Securities Regulatory Commission (CSRC) said in the statement.

The CSRC’s public consultation is an indicator that the Shanghai-London Stock Connect programme will be implemented soon and that “preparations have entered the last stage before the official launch”.

Fang Xinghai, CSRC’s vice chairman, said the operational arrangements are underway and that the programme is set to go live within the year, according to local media reports.

“Going forward, the SSE will release the business rules as soon as possible and coordinate the final preparations for the market,” the SSE said.

Shanghai-Hong Kong Stock Connect has gained much interest from investors since its launch in 2014. As of 31 August, the programme had recorded an accumulative trading turnover of nearly RMB 10trn ($1.46bn), with the average daily trading amount at RMB 10bn, according to a more recent SSE statement.

Part of the Mark Allen Group.