Premier Li Keqiang says in his keynote speech at the Boao Forum for Asian Annual Conference 2014 this morning, “We will actively create conditions to establish a Shanghai-Hong Kong Stock Exchanges Connectivity Mechanism (SHSECM), and further promote two-way opening-up and sound development of the capital markets in China’s Mainland and Hong Kong.”
This noon, the China Securities Regulatory Commission and the Securities and Futures Commission (SFC) of Hong Kong release a “Joint Announcement”, which approves, in principle, the development of the SHSECM pilot program by the Shanghai Stock Exchange (SSE), the Hong Kong Exchanges & Clearing Ltd. (HKEx), and China Securities Depository and Clearing Corporation Limited (CSDC). The move is an important breakthrough in the opening-up of the capital market in China’s Mainland and also a major innovation for realizing the goal of “promoting two-way opening-up of the capital markets” put forward at the 3rd Plenary Session of the 18th CPC Central Committee. It will propel the development of the capital markets in China’s Mainland and Hong Kong as well as the progress of RMB’s internationalization.
After the launching of the SHSECM pilot program, investors in the markets of China’s Mainland and Hong Kong can entrust local securities companies (brokers) to trade eligible shares listed on the other’s market through the order-routing service to be provided by the SSE and the Stock Exchange of Hong Kong Ltd. (SEHK). Clearing institutions of both sides will establish a direct link for cross-boundary clearing. Each of them will become each other’s clearing participant and provide clearing services for the SHSECM pilot program as a nominal holder of the stocks to be purchased by investors of both sides.
This innovative mechanism will help to introduce international investors into the Shanghai market, further improve the investor structure there, and attract more overseas capital, so as to inject new vitality for the sustainable growth of the Shanghai market and facilitate the investment of investors in China’s Mainland in overseas capital markets.
The SSE will, in line with the “Joint Announcement”, negotiate with relevant parties for reaching cooperation agreements on trading and clearing as soon as possible and make preparations for relevant rules, business lines, and technologies, with an aim to officially launch the business of the SHSECM pilot program within 6 months.
