Caixin
Oct 13, 2018 05:28 PM
FINANCE

Preliminary Rules for Shanghai-London Stock Connect Released

The securities regulator has released initial guidelines for the much-awaited Shanghai-London Stock Connect program, including a minimum cap of 20 billion yuan ($2.89 billion) of market capitalization for the U.K.-listed firms seeking to issue depositary receipts in China.

The China Securities Regulatory Commission (CSRC) issued the guidelines on Friday, paving the way for the launch of the program by the end of this year. The new investment channel will allow stocks listed in Shanghai and London to be traded in each other’s market by issuing depositary receipts.

The stock link, which was first considered in October 2015 after President Xi Jinping’s state visit to the U.K., is part of China’s effort to further open up its financial markets to foreign investors. It also marks Britain’s drive to strengthen London’s status as an international financial center and enhance economic ties with the world’s second-largest economy as the country faces uncertainties linked to the U.K.’s impending withdrawal from the European Union.

According to the new guidelines, London-listed firms have to have at least 20 billion yuan in market capitalization based on their average closing prices over the past 120 trading days to qualify for application to join the program. They also have to be listed on the London bourse for at least three years, with a minimum one year being with the premium board.

Also, the planned issue size of their Chinese depositary receipts (CDRs) on the Shanghai bourse should not be lower than 50 million units, offering a total value of at least 500 million yuan, the regulator said.

The guidelines also stipulate that to safeguard interests, only institutional investors and individuals who have more than 3 million yuan of equity assets are allowed to trade CDRs.

The release of the guidelines came after the CSRC solicited public opinions from Aug. 31 to Sept. 15, after issuing draft rules for the stock link, including specifics on the application documents required, the review and approval procedure, sponsorship and issuance caps.

The Shanghai-London program follows the opening of two similar trading links between the Hong Stock Exchange and the bourses in Shanghai and Shenzhen. The Shanghai-Hong Kong Stock Connect debuted in 2014, while the Shenzhen-Hong Kong Stock Connect was launched in 2016.

Global investors have been able to trade more than 2,000 eligible Chinese equities via the stock connects between the Chinese mainland and Hong Kong, with daily trading volumes in the billions of yuan, according to the Hong Kong Stock Exchange.

Wang Jun, an analyst with Huachuang Securities Co. Ltd., said the London trading link will have limited impact to create great volatility on the A-shares market compared to its Hong Kong peers, as the initial trading size is expected to be small.

China’s A-shares consist of more than 3,000 stocks with a total valuation of 435 trillion yuan, Wang said.

Contact reporter Jason Tan (jasontan@caixin.com)

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