Asset management quarterly - Asia

Regulators announce Shenzhen- Hong Kong Stock Connect

Authors Psychie Tai, Winnie Chan and Terence Lau

The SFC and the CSRC have recently announced the approval, in principle, of the establishment of Shenzhen-Hong Kong Stock Connect. The SFC and CSRC have also agreed to include ETFs as eligible securities under the mutual market access scheme, the launch date of which is said to be announced separately after the Shenzhen- Hong Kong Stock Connect has been in operation for a period of time and upon the satisfaction of relevant conditions.

On August 16, 2016, the Securities and Futures Commission of Hong Kong (SFC) and the China Securities Regulatory Commission (CSRC) jointly announced the approval, in principle, of the establishment of Shenzhen-Hong Kong Stock Connect, which will provide mutual stock market access between Hong Kong and Shenzhen via a northbound Shenzhen trading link and a southbound Hong Kong trading link.

The principal arrangements of the Shenzhen-Hong Kong Stock Connect are based on those under the Shanghai- Hong Kong Stock Connect with reference to laws, regulations and operational models governing in each market. In respect of the eligible shares

• For the northbound Shenzhen trading link, they include any constituent stock of the SZSE Component Index and SZSE Small/ Mid Cap Innovation Index which has a market capitalisation of RMB 6 billion or above and all SZSE-listed shares of companies which have issued both A shares and H shares. At the initial stage, only institutional professional investors are eligible to trade shares that are listed on the ChiNext Board of SZSE.
• For the southbound Hong Kong trading link, they include constituent stocks of the Hang Seng Composite LargeCap Index and Hang Seng Composite MidCap Index, any constituent stock of the Hang Seng Composite SmallCap Index which has a market capitalisation of HK$5 billion or above, and all SEHK-listed shares of companies which have issued both A shares and H shares.

In respect of the investment quota, there will be no aggregate quota under the Shenzhen-Hong Kong Stock Connect. The daily quota will be the same as that currently under the Shanghai-Hong Kong Stock Connect, that is, a daily quota of RMB13 billion is set for the northbound Shenzhen trading link and a daily quota of RMB10.5 billion is set for the southbound Hong Kong trading Link under the Shenzhen-Hong Kong Stock Connect. In addition, the aggregate quota under the Shanghai- Hong Kong Stock Connect is abolished as of August 16, 2016.

The SFC and CSRC have also agreed to include exchange-traded funds (ETFs) as eligible securities under the mutual market access scheme, the launch date of which is said to be announced separately after the Shenzhen-Hong Kong Stock Connect has been in operation for a period of time and upon the satisfaction of relevant conditions.

With the launch of the Shenzhen-Hong Kong Stock Connect, there will be two mutual stock market access points between the Mainland and Hong Kong including Shanghai-Hong Kong Stock Connect which was launched in November 2014.

The launch of the Shenzhen-Hong Kong Stock Connect is subject to the finalisation of all necessary regulatory approvals, market readiness and relevant operational arrangements. Preparations are expected to take approximately four months and a separate announcement on the commencement of the Shenzhen-Hong Kong Stock Connect will be made in due course for the formal launch date.