On 19 December 2022, CSRC and the Securities and Futures Commission (SFC) released a joint announcement, approving in principle the further expansion of the scope of underlying stocks eligible for trading under the Chinese Mainland-Hong Kong Stock Connect mechanisms. To further interpret the specific arrangements and clarify market expectations, the relevant official of SZSE answered reporters’ relevant questions.
1. Q: Could you give an introduction to the background of the expansion of the scope of underlying stocks eligible for trading under the Mainland-Hong Kong Stock Connect mechanisms?
A: Since the launch of the Shenzhen-Hong Kong Stock Connect, to better adapt to the market development of both Chinese mainland and Hong Kong and meet the growing investment needs of investors in the two markets, the scope of underlying stocks eligible for trading under the Chinese Mainland-Hong Kong Stock Connect mechanisms has been constantly expanded according to the overall guidance of CSRC. In recent years, with the joint efforts of relevant parties, the HKEX-listed companies with a WVR structure, the biotech companies, and the corresponding H-share companies of those issuing A+H shares on the SSE STAR Market have been included into the scope of underlying stocks eligible for the southbound trading under the Hong Kong Connect, and the ETFs listed in Chinese mainland and Hong Kong have been included as underlying stocks eligible for trading under Chinese Mainland-Hong Kong Stock Connect. The “capacity” of Shenzhen-Hong Kong Stock Connect has been constantly expanded, with more and more diversified investment types. Such expansion has significantly improved the efficiency and convenience of cross-border investment.
In earlier days, CSRC announced that it actively discussed with the SFC on the expansion of the scope of underlying stocks eligible for trading under the Chinese Mainland-Hong Kong Stock Connect mechanisms and came to an agreement. To make it easier for the investors in and outside Chinese mainland to participate in each other’s market, under the guidance of CSRC, SZSE reached a consensus with Shanghai Stock Exchange, HKEX, CSDC and HKSCC on the overall plan for expanding the scope of underlying stocks eligible for trading under the Chinese Mainland-Hong Kong Stock Connect mechanisms. We believe that this expansion of the scope of underlying stocks is another effective measure to deepen the pragmatic cooperation between Chinese mainland and Hong Kong capital markets. It is of positive significance to promoting the coordinated development of the two markets and will assist the mainland capital market realizing higher-standard two-way opening up.
2. Q: Could you give an introduction to the specific adjustments to the scope of underlying stocks eligible for the northbound trading under the Shenzhen Connect?
A: In this expansion, the constituent stocks of the SZSE Composite Index that have a market capitalization of CNY 5 billion or above and meet certain liquidity criteria will be selected to replace the constituent stocks of the Shenzhen Index and the SZSE Small/Mid Cap Innovation Index that have a market capitalization of CNY 6 billion or above under the Shenzhen Connect. The relevant requirements on companies that have issued both A shares and H shares will remain unchanged. After this adjustment, more diversified stocks will be included, so it can better meet investors’ investment needs and further enhance the influence of the A-share market.
3. Q: Could you give an introduction to the specific adjustments to the scope of underlying stocks eligible for the southbound trading under the Hong Kong Connect? In particular, foreign companies will be included into the scope, and what are the inclusion criteria for those companies?
A: The scope of underlying stocks eligible for the southbound trading under the Hong Kong Connect will be expanded on its current basis to include the stocks of foreign companies primarily listed in Hong Kong which meet relevant criteria, while the existing scope of other underlying stocks eligible for the same will remain unchanged. The specific criterion is that such foreign companies primarily listed in Hong Kong shall be the constituents of the Hang Seng Composite LargeCap Index, or the constituents of the Hang Seng Composite MidCap Index, or the constituents of the Hang Seng Composite SmallCap Index with a market capitalization of HKD 5 billion or above). Those companies can be included in the said scope of underlying stocks eligible for the Hong Kong Connect according to the existing rules on Shenzhen-Hong Kong Stock Connect.
4. Q: Could you give an introduction to the arrangements for the implementation of the expansion of the scope of underlying stocks eligible for trading under the Chinese Mainland-Hong Kong Stock Connect mechanisms?
A: Later, SZSE will work with relevant parties to revise and refine relevant business rules and complete relevant business and technological preparations as soon as possible to ensure smooth implementation of relevant plans. It is expected to take about three months to make relevant preparations.
