Aug 03, 2019 04:52 AM

Hong Kong, Mainland Agree to Connect Dual-Class Share Trading

The Hong Kong stock exchange revised rules to allow dual-class shares to list in April 2018. Photo: IC
The Hong Kong stock exchange revised rules to allow dual-class shares to list in April 2018. Photo: IC

Stock exchange operators in Hong Kong, Shanghai and Shenzhen agreed on conditions that will allow mainland investors to trade Hong Kong-listed dual-class shares such as Xiaomi Corp. through the Stock Connect programs.

The Shanghai and Shenzhen stock exchange separately published draft rule changes Friday seeking comments in preparation for the inclusion of companies with weighted voting rights (WVR) in the Stock Connect program linking Hong Kong and mainland markets.

Also known as dual-class shares, WVR is a stockholding structure under which the voting power attached to a special share is greater than that attached to an ordinary share. They are favored by founders of tech and family-owned companies as a way of retaining control of their businesses after public listings.

Hong Kong Exchanges and Clearing Ltd. (HKEx), which operates the city’s stock exchange, in April 2018 revised its regulations to allow WVR companies to list after years of debate and the loss of Chinese technology giant Alibaba Group Holding Ltd.’s $25 billion IPO to the U.S. in 2014. Access to mainland capital through the Stock Connect program is a selling point to attract new listings.

But mainland exchange regulators in July 2018 decided that such stocks would be temporarily excluded from the Stock Connect programs, citing mainland investors’ lack of understanding of such assets and related risks.

Experts said the exclusion reflected heating competition between Hong Kong and mainland bourses to attract high-tech startups to list on their markets.

Beijing-based smartphone maker Xiaomi and online service giant Meituan Dianping are currently the only dual-class shares listed in Hong Kong. The two companies raised a combined HK$106.8 billion ($13.6 billion) from their initial public offerings last year.

Hong Kong Secretary for Financial Services and the Treasury James Henry Lau said earlier that authorities in Hong Kong and the mainland might work out plans for inclusion of dual-class shares by July. But the schedule was delayed amid fluctuation in the Hong Kong market.

According to the Friday statements (link in Chinese), regulators of the Hong Kong, Shenzhen and Shanghai bourses agreed on criteria for dual-class shares to be included in the Stock Connect programs for mainland investors to trade. The requirements include six months plus 20 trading days after the stock’s Hong Kong debut, at least HK$20 billion in average daily market cap during a 183-day period before assessment starts on inclusion and at least HK$6 billion total turnover during the period.

The rule revision also requires companies with dual-class structures and their major shareholders to fulfill all corporate governance and information disclosure requirements with no violation records before they are included in the Stock Connect program.

The exchanges are seeking comments on the revisions by Aug. 9.

If the new rules are approved, Xiaomi and Meituan Dianping will be eligible to joint the connect programs, based on their trading data provided by WindInfo. The average daily market value of Xiaomi reached HK$90.2 billion for the assessment period and Meituan Dianping, HK$316.6 billion.

Contact reporter Han Wei (

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