On November 10, the China Securities Regulatory Commission (CSRC) announced that the pilot program of the Shanghai-Hong Kong Stock Exchanges Connectivity Mechanism (SHSECM) will be launched on November 17. On the same day, the Shanghai Stock Exchange (SSE) released the notice of the launch of the SHSECM pilot program, the notice of strengthening the information disclosure work of SSE-listed companies involved in the SHSECM business and relevant issues, and the notice of releasing the “Implementation Guide to Participation of Hong Kong Securities Clearing Company Ltd. (HKSCC) in Online Voting of Listed Companies Involved in Program of Buying and Selling Stocks of SSE-listed Companies”; besides, China Investment Information Services Ltd. (CIIS), as the securities trading service company (a SPV company for the program of buying and selling shares listed on the Stock Exchange of Hong Kong Ltd. [SEHK]) established by the SSE, issued the list of the first batch of securities companies participating in the business of the SEHK-listed shares tradable for investors in China’s Mainland (the “Gang’gutong” shares), the list of the “Gang’gutong” shares, the arrangement for the trading days in 2014 for the “Gang’gutong” shares, and the notice on collecting the routing service charge for the orders of the “Gang’gutong” shares.
According to the unified arrangement, the process test for the trading system of the “Gang’gutong” shares will be conducted on November 15. CIIS has designated the SSE’s website (www.sse.com.cn) to release the arrangement for the trading days of the “Gang’gutong” shares, the list of the underlying “Gang’gutong” shares, the list of the securities companies participating in the business of the “Gang’gutong” shares and other information, which market participants can have access to in the SHSECM business column on the SSE’s website.
In the early period of the pilot program, the total-volume management will be implemented for the amounts of RMB cross-border investment, with the total line of the “Gang’gutong” shares up to RMB250 billion and the daily line being RMB10.5 billion; the total amount of the program of buying and selling stocks of SSE-listed companies will be RMB300 billion, with its daily line being RMB13 billion. The first batch of 89 SSE members will participate in the business of the 268 “Gang’gutong” shares.
To support the cross-border settlement business for the SHSECM, China Securities Depository & Clearing Corp., Ltd. (CSDC) and Hong Kong Securities Clearing Company Ltd. (HKSCC) have jointly set up the business linkage between China’s Mainland and Hong Kong, and established the effective risk management mechanism so as to provide efficient, convenient and safe settlement services for investors in China’s Mainland and Hong Kong participating in the SHSECM.
SSE Chairman of the Governors Gui Minjie says that the launch of the SHSECM is an important attempt for the SSE to promote the RMB internationalization and the two-way opening-up of the capital market, as well as a significant milestone in the course of the SSE pushing forward the internationalization strategy. “The introduction of the SHSECM is a starting point instead of an end point. The SHSECM mechanism will be gradually improved in the practice, as deficiencies will appear when the SSE tries to adapt to the international market. Therefore, the SSE will continue to better its work and strengthen internal management so as to catch up with the top international exchanges,” says Gui.
SSE President Huang Hongyuan says that the SHSECM is the result of sincere cooperation between the SSE and the SEHK under the guidance of the regulators in China’s Mainland and Hong Kong, embodying the wisdom and great efforts of the two sides and kicking off the efforts of the SSE in deepening the internationalization strategy. The original systematical design of the SHSECM has opened a chapter for the two-way opening-up of China’s capital market. The SSE will continue to make every effective effort before the launch of the SHSECM and focus on avoiding and defusing potential market risks, so as to ensure the smooth introduction and steady operation of the SHSECM.
The SHSECM is a mechanism for the connectivity of stocks trading between the SSE and the SEHK. Through the mechanism, the investors in China’s Mainland and Hong Kong can buy and sell the stocks listed on each other’s exchange through the securities companies in their local markets.
The arrangement for the trading days in 2014 of buying and selling the “Gang’gutong” shares has been announced with the 268 underlying “Gang’gutong” shares.
Today the SSE releases the arrangement for the trading days in 2014 of the “Gang’gutong” shares and the list of the “Gang’gutong” shares. The SHSECM will only be opened on the trading days of both Shanghai and Hong Kong when meeting the arrangement for settlement. It is noteworthy that in less than 2 months this year, in addition to the market closure on the two-day weekends that is implemented on both the A shares and “Gang’gutong” shares, trading of the “Gang’gutong” shares will not be opened during the Christmas period, including the afternoon of December 24 (Wednesday), whole day of December 25 (Thursday), and whole day of December 26 (Friday). Whether the service for trading of the “Gang’gutong” shares will be provided during the 2015 New Year’s Day holidays from December 29 (Monday) to December 31 (Wednesday) will be separately announced after the CSRC finalizes the arrangement for the holidays and market closure in 2015.
Multiple parties have made concerted efforts in the last two years.
The widely concerned SHSECM will finally set sail soon. It will be a historic moment for China's capital market on November 17.
From the day on, the two-way investment in Shanghai and Hong Kong will enter a new era with not only the convenience of cross-border investment significantly improved but more importantly the "glass door" for the investment market broken, as the dividends for the systematical transformation in the two sides’ markets and the achievements of the economic transformation and development will be shared.
The background for the introduction of the idea of the SHSECM is closely related to China’s economic development and financial situation. The 18th CPC National Congress has made it clear to “steadily promote the market-oriented reform for interest rate and exchange rate and gradually realize convertibility of RMB capital items", while the 3rd plenary session of the18th CPC Central Committee clearly proposed to “promote the two-way opening-up of the capital market and improve the convertibility of cross-border capital and financial transaction in an orderly way”.
In this context, the SSE has made in-depth analysis in facilitating the investment activities of investors in China’s Mainland and Hong Kong, promoting the two-way opening-up of the capital market, and making use of and serving the RMB internationalization, hitting it off with the management of the SEHK. The two sides discussed the feasibility of using information technology means to achieve the connectivity of the trading of the stocks on the two sides’ markets, and agreed on the framework for the principles for the closed trading operation, trade settlement in RMB, respecting trading habits of investors, and launching the pilot on the basis of controlling risks. The discussions made a start for the development of the SHSECM.
On April 10, 2014, the CSRC and the Securities and Futures Commission (SFC) of Hong Kong jointly released the announcement to approve in principle the pilot program of the SHSECM. Thereafter, the SSE and CSDC, under the unified leadership and deployment of the CSRC, established and improved the working mechanism, set up the leading group and specialized groups for the SHSECM business lines, and formulated the “plan for promoting the preparation for the introduction of the SHSECM”, effectively pushing forward the preparations for the SHSECM in all aspects such as business programs, rules and agreements, industry preparation, supervision and risk control, investor education and overseas promotion, publicity, operation management, emergency plans, and technological development and tests.
During the process, the CSRC issued the “Some Regulations on Pilot Program of SHSECM”, and the SSE successively issued the relevant business rules and operational guidelines such as the “SSE Measures for Pilot Program of SHSECM” and the “SSE Guidance of Investor Suitability Management for Buying and Selling Stocks of SEHK-listed Companies”. On September 4, the SSE, the SEHK, CSDC, and HKSCC signed the “Four-party Agreement” on the SHSECM in Shanghai. In addition, the two exchanges and two clearing companies in Shanghai and Hong Kong have organized the market tests and exercises for many times, carrying out the activities of investor education and news publicity at multiple levels in an all-round way.
During the two-year process of planning and preparation, under the direct leadership and coordination and arrangement of the CSRC and with the strong support of the People's Bank of China and the Hong Kong and Macao Affairs Office of the State Council, the SSE has completed a series of preparatory efforts such as project assessment, formulation of rules, technology development, and market mobilization. In addition, the SHSECM has been vigorously supported by the Ministry of Finance, the State Administration of Taxation, and the Legal Affairs Office of the State Council and other departments. Providing the strong support for the SHSECM were also the Shanghai Municipal Government, Financial Services and the Treasury Bureau of the Government of Hong Kong SAR, the SFC, the Hong Kong Monetary Authority and other departments.
The SHSECM: the first train for A shares to go global
The launch of the SHSECM will not only elevate the statuses of Shanghai and Hong Kong as international financial centers, but also bring about more profound enlightenments and impacts to the market.
Wu Qiaoqiu, Head of Finance and Securities Research Office of Renmin University of China, holds that the SHSECM contributes to propelling internationalization of RMB and supporting Hong Kong to develop into an offshore RMB business center. Thanks to the SHSECM, domestic investors will directly use RMB to invest in the Hong Kong market, another investment channel will be added for overseas RMB capital, and orderly flow of RMB in China’s Mainland and Hong Kong will be facilitated. Besides, the SHSECM, conducive to boosting the RMB internationalization and the convertibility of RMB capital items, is a breakthrough for China’s capital market.
Hu Yuyue, Head of Securities and Futures Research Office of Beijing Technology and Business University, says that the SHSECM will facilitate the financial reform and opening-up of China, fuel the two-way flow in China’s capital market, and vitalize the market. It was seen that on the day when the SHSECM was announced, the SSE Composite Index went up to 2,146 from 2,098, with an increase of over 1.38%; the increasing trend has lasted up to now, and the SSE Composite Index has increased by 14% within 6 months.
Cao Fengqi, Chief of Finance and Securities Research Center of Peking University, and Hua Sheng, Honorary Dean of School of Economics and Management of Southeast University, say that the SHSECM will contribute to building the multi-layer capital market and the blue-chip market. The SSE, the exchange where most of the best enterprises in China have been listed, has committed to building a world-class exchange with blue chips clustered. The SEHK, the exchange boasting its high internationalization, has clustered a great number of international institutional investors and served as a major exchange for overseas listing of domestic enterprises. The SHSECM provides a road to the overseas stock market in a short time. Similarly, the SSE will “build” a stock market in Hong Kong: 268 quality blue chips will be added, and about 2 million investors (including a lot of world-class institutional investors) in Hong Kong will be available, which will help to change the investor structure of the A-share market, usher in overseas well-known institutional investors and funds, and enhance the vitality of the A-share blue chip market. Thus, the SHSECM is a positive try to jointly enhance the influence of China’s capital market in the world.
Lin Caiyi, Chief Economist of Guotai Jun’an Securities, says that the SHSECM will consolidate the statuses of Shanghai and Hong Kong as international financial centers. Furthermore, it will help to increase attractiveness of the two markets in Shanghai and Hong Kong for international investors, improve the investor structure in the Shanghai market, and further boost the building of Shanghai’s international financial center. And it will help Hong Kong to develop itself into an important overseas investment market for investors in China’s Mainland and to consolidate and elevate its status as an international financial center.
The systematical design of the SHSECM provides an enlightenment to innovation for the convenience of investors. The innovative system does not change the existing laws and regulations as well as regulatory system, nor does it change the organizational structure of the securities market, with the two clearing authorities in China’s Mainland and Hong Kong both involved and the clearing risks in the two markets separated as well. Investors will continue to use their existing securities accounts, brokers, and clearing services, instead of changing their trading habits and increasing their trading costs. The SHSECM will provide safe, high-efficient, and convenient services for overseas investors investing in the A-share market and domestic investors investing in the Hong Kong stock market.
Attractions for Investors, New Opportunities for Securities Dealers
The SHSECM has attracted attentions from both institutional and individual investors.
How to use the SHSECM will become the “starting point for us in designing products”, according to China Asset Management Co., Ltd. It is learnt that the company has designed ETF for Hang Seng Index of the SHSECM, which, based on the advantages in terms of system and efficiency of the SHSECM, is expected to boast better operational efficiency than present cross-boarder ETFs. Product application has been submitted to the CSRC.
E Fund Management Co., Ltd. says that, the company is thinking about developing fund products for trading such as split-capital funds specially oriented for the SHSECM. Besides, the company is also considering changing transaction methods of the E Fund ETF for Hang Seng H shares managed by the company, because of the overlap between the SEHK-listed shares invested by this ETF and the presently announced underlyings available for investment. “This means investment through the SHSECM for some of the shares will enjoy more efficiency and save more costs than through the QDII channel according to the present calculation,” according to the company.
Individual investor Mr. Qi says that he places high expectations on the investment opportunities for the SEHK-listed shares. The SHSECM provides a great platform and investment channel. Presently, he has preliminarily selected some SEHK-listed shares, which, he hopes, will supplement the A shares. “Now, I have more underlying choices in industries such as TMT and medical care,” says Qi.
Mr. Pan, another individual investor now investing in SEHK-listed shares, says that, before the SHSECM is launched, he has to open accounts at the Hong Kong branches of domestic securities dealers to invest in the SEHK-listed shares. Besides, his limited sum of capital for investing in these shares mainly came from the exchange on his own and with the help of his family members, which was very inconvenient. For all this, “I think the SHSECM will bring great convenience to investment in SEHK-listed shares,” tolds Pan.
Besides, securities dealers are also going all out to prepare for the new opportunities coming with the SHSECM.
According to Xia Zeyan, Director of the Executive Office of the Brokerage Business Committee of Guotai Jun’an Securities Co., Ltd., the company has independently developed its counter system and Fuyi trading system for the “Gang’gutong” shares, in a bid to ensure the smooth launch of the “Gang’gutong” shares business. Besides, the company has held an array of educational activities for investors of the “Gang’gutong” shares for its potential target clients, introducing basic rules and characteristics of the “Gang’gutong” shares business, as well as the research service system of the company, in order to provide supports and services for its clients’ investment in the Hong Kong market.
All sides of the market are expecting the opening day of the SHSECM