The Shanghai-Hong Kong Stock Connect is a successful attempt for a new scheme, which establishes trading link between two separate stock exchanges.

It is also a significant breakthrough in the opening up of China’s capital market, allowing mainland investors to access Hong Kong shares (Southbound), Hong Kong and overseas investors to participate in the trading of A shares (Northbound).

Timeline of the Project

In December 2012, the Exchange’s well-thought-out proposal for interconnecting the stock markets of Shanghai and Hong Kong received a positive response from the HKEX. Afterwards, with the great support of the CSRC, the SFC, relevant ministries and Shanghai Municipal Government and other parties, the Exchange and the HKEX conducted program design and discussions on various aspects of Shanghai-Hong Kong Stock Connect, such as its implementation paths and mechanism framework, in a highly confidential way.

On April 10, 2014, Premier Li Keqiang officially announced the Shanghai-Hong Kong Stock Connect program at the Boao Forum for Asia. In the subsequent six months, the Exchange, together with the SEHK, the CSDC and the SCC, achieved fruitful results in preparing for implementing the program, completing the preparatory work in such areas as rules, protocols, business, technology, market, surveillance and risk control.

Since its official launch on November 17, 2014, Shanghai-Hong Kong Stock Connect has been in smooth operation and has realized the expected objectives.

Highlights of the Shanghai-Hong Kong Stock Connect

1. Scheme design to maximize investors' convenience

The scheme is based on investors' existing accounts with securities companies, which means that institutional and individual investors will not have to open new accounts specifically for Stock Connect trading.

2. Mutual market access, closed-loop fund flow

The Shanghai-Hong Kong Stock Connect is a scheme lead by the two Exchanges by establishing direct mutual access and becoming each other's exchange participant. Once Hong Kong and international investors sell their A shares or Mainland investors sell Hong Kong shares, the funds flow back to their home market bank accounts and cannot be used for speculation in other asset classes in the destination market.

3. Trading subject to quota control

At the initial stage, trading is subject to daily and overall quota for both directions. This is to ensure successful launch and smooth running of the program. Subject to regulatory approvals, these restrictions are subject to change over time. On 16 August, 2016, the overall quota mechanism was abolished according to the Joint Announcement of China Securities Regulatory Commission and the Securities & Futures Commission of Hong Kong.

4. Currency conversion in net to minimize currency risk

For Shanghai Stock Connect trades, there will be no currency risk since quotes and settlements will both be in RMB. For Hong Kong Stock Connect trades, where quotes are in HKD and settlements are in RMB, currency conversion will be conducted on net basis. Therefore the aggregate conversion cost will be averaged out over total number of trades.

5. Clearing and settlement arrangements to achieve prudent risk management

Under the clearing and settlement arrangements of the Stock Connect, HKSCC and ChinaClear will become each other's clearing participant and perform their settlement obligations. This will make it easier for clearing risk management.

6. Home Market Rules apply to minimize interference

The trading and clearing rules and practices of the home market where the trades are executed will not be altered because of the program.

Strategic Significance