The Shanghai-Hong Kong Stock Connect, a scheme linking the stock exchanges of the two cities, will follow the “home market rules” of the exchange where the orders are matched and executed, Hong Kong Exchanges and Clearing Ltd. (00388.HK) said.
“We will apply Shanghai rules on the Hong Kong stock exchange and vice versa; however, the trading hours, settlement cycle, price limit and fees will be kept unchanged on the order-executing sides,” chief executive Charles Li said on Tuesday.
The Hong Kong and Shanghai bourses, Hong Kong Securities Clearing Co. Ltd. and the China Securities Depository and Clearing Corporation Ltd. (ChinaClear) will share revenues, responsibilities and rights equally, he added.
In an initiative to further open up its capital market to offshore investors, the State Council on April 10 unveiled a mutual market access mechanism involving the Shanghai and Hong Kong bourses, paving the way for greater cross-border investment and money flows. Li called the scheme a milestone in China’s efforts to internationalize the renminbi.
To limit market risks, regulators will set investment quotas and other curbs on investors. Cross-border trade will be capped at 250 billion yuan (US$40.48 billion) with a daily ceiling of 10.5 billion yuan for Hong Kong-listed stocks, and at 300 billion yuan with a daily ceiling of 13 billion yuan for Shanghai shares.
“The quota refers to the net volume, and trading will be halted if it reaches the limit, and the remaining quota will be posted on the exchange’s website in real time for transparency,” Li said. “The quota will be expanded depending on the activity of the market, investor sentiment and the system, as well as for other products.”
Hong Kong investors can resort to margin financing in buying A shares, Li said, although their mainland investors are now allowed to do so.
The cross-border trading scheme is expected to be launched in October. During the six-month period before the launch, the Hong Kong exchange will work on the operating procedures and other details while seeking regulatory approvals.
It will also make sure the information technology for the system will work well. “For example, stock codes in Shanghai are six digits while those in Hong Kong are five, so we have to get the system ready in the next two to three months and start intensive market rehearsals,” Li said.
The two exchanges will also coordinate on marketing and investor education as part of efforts to attract international investors, he said.
The Shanghai-Hong Kong Stock Connect is expected to boost the circulation of offshore renminbi in Hong Kong. “We estimate that a maximum of 10.5 billion yuan will come to Hong Kong through the Connect while a cap of 13 billion yuan will be going back to the mainland, aside from the trade accounts,” Li said.
“Hong Kong investors usually take a buy-and-hold attitude when it comes to yuan-denominated products such as dim sum bonds, so the currency is not circulated, but with the Connect, the currency has a way to go back to the mainland and circulate,” he added.
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