4-Party Agreement On Shanghai-Hong Kong Stock Exchanges Connectivity Mechanism Signed On Sep 4

A 4-party agreement on the Shanghai-Hong Kong Stock Exchanges Connectivity Mechanism (SHSECM) is signed at the Shanghai Stock Exchange (SSE) on September 4.

The agreement, a fundamental document about the cooperation of the SSE, the Stock Exchange of Hong Kong Ltd. (SEHK), China Securities Depository & Clearing Corp., Ltd. (CSDC), and Hong Kong Securities Clearing Company Ltd. (HKSCC) in the business lines of the SHSECM, specifies rights and obligations of the 4 parties and involves details of major business lines about the SHSECM. The agreement is signed by Huang Hongyuan, SSE President, Li Xiaojia (Charles Li), Chief Executive of Hong Kong Exchanges & Clearing Ltd. (HKEx), and Dai Wenhua, General Manager of CSDC. Also attending the signing ceremony are Gui Minjie, SSE Chairman of the Governors, CHOW Chung Kong, HKEx Chairman, and Zhou Ming, CSDC Board Chairman.

 The agreement is formulated according to the principles put forward in the “Joint Announcement” released by the China Securities Regulatory Commission (CSRC) and the Securities and Futures Commission (SFC) of Hong Kong on April 10, 2014. It was specified in the “Joint Announcement” that the CSRC and the SFC approved in principle the pilot program of the SHSECM by the 4 parties, and an array of principles that should be followed when the SHSECM project is implemented as scheduled were given as well.

Gui says at the signing ceremony that the agreement, finally signed today upon long-term research and repeated negotiation by all the sides, builds a complete agreement framework for the SHSECM business cooperation, specifies all the obligations and rights of the 4 sides in stock trading, clearing, deposit, market supervision for the SHSECM, and symbolizes that the two exchanges and the two clearing companies, which undertake the market organization business for the SHSECM, have reached an array of consensuses in term of all the mechanism arrangements. Next, we will accelerate technical preparations for business lines, promptly release all the business rules, and carry out tests for technical systems, in a bid to provide better conditions for the official debut of the SHSECM.

“The signing of the agreement is a new milestone for the building of the SHSECM. We have made good progress since the ‘Joint Announcement’ in April, and we are confident that we can reach our goal as planned,” says CHOW Chung Kong.

“The signing of the agreement shows that the SHSECM project has completely entered a fast traffic lane, and it also paves a solid foundation for smooth implementation of the project. Besides, the SHSECM project is an important move of CSDC to go global. Upon approval by the CSRC, CSDC has launched preparations for establishing a wholly-owned subsidiary in Hong Kong, which will spare no efforts to ensure safe and high-efficient operation of the SHSECM business lines,” says Zhou Ming.

The 4 parties stress that the agreement should be implemented with relevant conditions met. For example, all rules for the relevant arrangements are given, and relevant documents of business operation are signed and come into force. For the launch of the SHSECM business lines, a series of factors such as completion of technical systems and investors’ preparations should be considered apart from completion of relevant rules.

The agreement respectively makes arrangements for the Shanghai-Hong Kong Stock Exchanges Trading Mechanism (SHSETM) and the Shanghai-Hong Kong Stock Exchanges Clearing Mechanism (SHSECM). Major stipulations on the SHSETM are as follows:

I. The arrangements for order routing will be made.

1. Under the precondition of abiding by applicable laws, the SSE and SSE Securities Trading Service Company (the subsidiary of the SSE for short), as well as SEHK and SEHK Securities Trading Service Company (the subsidiary of SEHK for short) will make following arrangements:

(1) An arrangement for order routing will be made, so that participants of SEHK, who are entrusted by investors buying and selling stocks of SSE-listed companies to buy and sell stocks of SSE-listed companies, could submit buying and selling orders to the SSE through the subsidiary of SEHK; and

(2) An arrangement for order routing will be made, so that members of the SSE, who are entrusted by investors buying and selling stocks of SEHK-listed companies to buy and sell stocks of SEHK-listed companies, could submit buying and selling orders to SEHK through the subsidiary of the SSE.

2. The SSE, through the subsidiary of the SSE to be established in Hong Kong, will receive orders of buying and selling stocks of SEHK-listed companies from the SSE members, and submit the orders to the SEHK trading platform for trading on SEHK, in a bid to realize and facilitate the trading of SEHK-listed stocks. The SSE should urge the subsidiary of the SSE to get the recognition of the service provider of automatic trading in the “Securities and Futures Ordinance” of the SFC upon application and the recognition of the special participant of SEHK for doing business in Hong Kong. The SSE should make all reasonable efforts to get all other necessary approvals and make the subsidiary of the SSE to operate itself in Hong Kong and China’s Mainland according to the contents to be formulated in the agreement. Furthermore, the SSE should apply for the recognition of the service provider of automatic trading for its future activities related to trading stocks of SSE-listed companies in Hong Kong according to requirements possibly put forward by the SFC.

3. SEHK should establish a wholly-owned company in Shanghai as soon as possible to receive orders of buying and selling stocks of SSE-listed companies from participants of SEHK, and submit the orders to the SSE trading platform for trading on the SSE, in a bid to realize and facilitate the trading of SSE-listed stocks. SEHK should urge the subsidiary of SEHK to get the business license under applicable laws in China’s Mainland upon application for doing business in China’s Mainland and get the recognition of the special trading participant of the SSE, as well as get the recognition of the service provider of automatic trading in the “Securities and Futures Ordinance” of the SFC upon application for doing business in Hong Kong. SEHK should make all reasonable efforts to get all other necessary approvals, and ensure the establishment of the subsidiary of SEHK and make it operate in China’s Mainland and Hong Kong according to the contents to be formulated in the agreement. Furthermore, SEHK should apply for any approval for its future activities related to trading stocks of SEHK-listed companies in China’s Mainland according to requirements possibly put forward by the CSRC.

II. The tradable securities under the SHSETM

1. The SSE will accept constituent stocks of the SSE 180 index and the SSE 380 index as well as SSE-listed stocks (not included into the above constituent stocks) of the issuers issuing shares on both the SSE and SEHK as the SSE-listed stocks tradable for investors in Hong Kong. However, all the SSE-listed stocks not quoted in RMB and all the SSE-listed stocks imposed with risk alerts will not be included temporarily.

2. SEHK will accept constituent stocks of Hang Seng Composite LargeCap Index (HSLI) and Hang Seng Composite MidCap Index (HSMI) as well as H shares (not included into the above constituent stocks) of the issuers issuing shares on both the SSE and SEHK as the SEHK-listed stocks tradable for investors in China’s Mainland.

However, all the SEHK-listed stocks not quoted in HK$ and H stocks of the issuers issuing shares on both any stock exchange (excluding the SSE) in China’s Mainland and SEHK will not be included temporarily. Furthermore, if SSE-listed stocks of the issuers issuing both shares on both the SSE and SEHK are imposed with risk alerts, H shares of the issuers will not be included temporarily no matter whether the H shares are constituent stocks of HSLI or HSMI.

3. Investors can not buy but can sell the stocks which were once included as the SSE-listed stocks tradable for investors in Hong Kong or the SEHK-listed stocks tradable for investors in China’s Mainland but do not meet the above conditions later.

4. The SSE and SEHK can negotiate and amend the scope of the SSE-listed stocks tradable for investors in Hong Kong and that of the SEHK-listed stocks tradable for investors in China’s Mainland upon agreement of the two sides and approvals of relevant regulators.

III. Currencies for trading

If the investors in Hong Kong buy and sell the tradable SSE-listed stocks, trading and delivery are RMB-denominated only; if the investors in China’s Mainland buy and sell the tradable SEHK-listed stocks, quotation is HK$-denominated only, and delivery with CSDC or other clearing participants is RMB-denominated.

IV. Off-exchange trading prohibited

The SSE should stipulate in its rules that the subsidiary of the SSE and the SSE members should not transfer the stocks held under the SEHK-listed Stocks Clearing Mechanism or provide transfer service outside SEHK, excluding some otherwise stipulated by the CSRC; SEHK should stipulate in its rules that the subsidiary of SEHK and participants of SEHK should not transfer the stocks held under the SSE-listed Stocks Clearing Mechanism or provide transfer service outside the SSE, excluding some otherwise stipulated by the CSRC.

V. Development and listing of derivatives

Any party of the SSE and SEHK, without a written consent of the other party, should not develop options, futures, and other derivatives on the basis of the stocks or stock indexes listed on the other party; if an issuer plans to issue warrants or other derivatives (including callable bull/bear contract [CBBC]) on the basis of the stocks or stock indexes listed on any party of the SSE and SEHK and list them on the other party, relevant issues should be negotiated by the SSE and SEHK otherwise. Before negotiation, any party of the SSE and SEHK should not arrange for listing of the above products, but the above products already listed on the two parties should not be subject to the limit.

If one party, upon getting a written consent of the other party, develops and lists the abovementioned derivatives or arranges for listing of the abovementioned derivatives developed by issuers, the two parties should share alike the incomes from the derivatives under the precondition that no other stipulation on profit distribution is made.

VI. Applicable laws and rules

All orders submitted to the SSE or implemented on the SSE through the mechanism of trading SSE-listed stocks in Hong Kong should abide by the business rules and procedures of the SSE and applicable laws in China’s Mainland; All orders submitted to SEHK or implemented on SEHK through the mechanism of trading SEHK-listed stocks in China’s Mainland should abide by the business rules and procedures of SEHK and applicable laws in Hong Kong. The SSE and SEHK will respectively urge the subsidiary of the SSE and the subsidiary of SEHK to abide by applicable laws, the 4-party agreement, and the operation document.

7. Rules and procedures will be amended for the SHSETM.

The SSE and SEHK need to adjust their rules and procedures respectively in response to the arrangements made by them for the SHSETM. The SSE and SEHK will negotiate the above adjustments, and amend and add indispensable clauses and articles in their rules and procedures under the precondition of abiding by applicable laws and getting indispensable approvals, in a bid to implement, facilitate, support the establishment, implementation, and smooth and orderly operation of the SHSETM.

VIII. Agreements on the SHSETM and the SHSECM will be signed.

The SSE, SEHK, the subsidiary of the SSE, and the subsidiary of SEHK will further negotiate and sign an agreement on the SHSETM, involving an array of arrangements for detailed issues of the SHSETM. CSDC and HKSCC will further negotiate and sign an agreement on the SHSECM, involving an array of arrangements for clearing and delivery services as well as registration and depository services of the SHSECM.

IX. Sharing of Incomes

The SSE and SEHK will, in the principle of fair treatment, share alike the incomes in form of trading fees resulted from the SHSETM. Besides, CSDC and HKSCC will, in the principle of fair treatment, share alike the incomes in form of clearing fees resulted from the SHSECM.

X. Conditions for implementation

The 4-party agreement should be implemented before the following conditions are met:

1. All indispensable approvals have been obtained;

2. All applicable laws, which are indispensable to implement all the arrangements mentioned in the 4-party agreement or to be discussed, have been formulated or amended and come into force; and

3. The operation document has been signed and come into force.

The implementation of the SHSETM and that of the SHSECM condition each other.
    
  

On September 4, Huang Hongyuan (Middle), SSE President, Li Xiaojia (left),  HKEx Chief Executive, and Dai Wenhua, CSDC General Manager signed the 4-party agreement.

 Source: Shanghai Stock Exchange