shanghai-london stock connect · shanghai stock connect and the listing of global depository...
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Shanghai-London Stock Connect
Karen Northey, Head of China, International Markets
London Stock Exchange Group
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China-UK Joint Statement 2015
“Both sides support the Shanghai Stock Exchange and the
London Stock Exchange to carry out a feasibility study on
a stock connect.”
Shanghai- London Stock Connect2015-2019: A journey from feasibility study to launch
10th UK-China Economic and Financial Dialogue, 2019
“Both sides welcome the official launch of the London-
Shanghai Stock Connect and the listing of Global Depository
Receipts (GDR) on the London Stock Exchange (LSE) by
Huatai Securities as the first GDR product under the London-
Shanghai Stock Connect and welcome qualified LSE-listed
companies to list China Depositary Receipt (CDR) on
Shanghai Stock Exchange”.
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Working in partnership
…to support Issuers, Advisors and Investors
Infrastructure
Authorities
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West to East and East to WestA two-way depositary receipt programme
LSE Premium listed
corporates issue CDRs
listed on SSE
SSE listed corporates
issue GDRs listed on
LSE
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A new type of Connect
An issuer led connect
Two connected liquidity
pools
A network of designated
cross-border brokers
Local trading and
settlement rules apply
High quality blue chips with
an international strategy
One valuation, two markets
Delivers fungibility
Embedding foreign securities
in domestic portfolio
management
First time foreign companies can
list in China to access the
domestic investor base
First time securities fungible with
Chinese A Shares can be traded
outside China
Enabling qualifying Chinese
domestic investors to diversify
their equity holdings in RMB
without using quota licences
Specially designed UK-China
ecosystem with global and
Chinese financial intermediaries
partnering on primary and
secondary markets
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Shanghai-London Stock ConnectA comparison with other programmes
QFII/RQFIIHong Kong-Shanghai Stock
ConnectShanghai-London Stock Connect
Primary Market
ActivitiesNot available Not available
Initiated by mutual cross listings of issuers,
either by capital raising or technical listing.
Local Liquidity Pool Not available Not available
Investors can trade GDRs issued by
Chinese companies on LSE in USD, during
London trading hours, under English law
and UK rules and vice-versa.
Cross-border trading,
clearing & settlement
One-way: Executed between QFII/RQFII
investors and their local Chinese brokers
and custodians.
Two-way: Investors trade directly in each
other’s market. Clearing and settlement
centralised by HKSCC and CSDC.
Two-way: Designated Brokers can trade,
clear and settle directly in each other’s
market.
Eligible traders and
investorsSelected institutional investors.
SSE Members, institutional investors and
eligible individual investors Southbound,
and HKEX members and their clients
Northbound.
SSE Members, institutional investors and
eligible individual investors for CDRs.
LSE members and their clients for GDRs.
Eligible Securities
Shares, bonds and warrants listed on
exchanges, CIBM bonds, stock futures and
mutual funds.
Constituents of SSE 180, SSE 380 and
certain A+H Northbound shares.
Constituents of HSLI, HSMI and HSSI
(>HKD5bn) indexes and certain A+H
Southbound shares.
DRs issued by companies in each other’s
markets.
Quotas No quota restrictionsQuota applied to the whole market daily
trading.
NO quota for investors. Quota applies to
creation of new CDRs and GDRs.
Trading regime
Chinese rules apply including pre-funding.
pre-delivery, securities settled in T0, cash
in T1
No intraday trading, limited short-selling, all
trading subject to exchange rate, all trades
prefunded. Chinese rules apply to cross
border trading.
Host rules apply to local trading.
Home rules apply to underlying.
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Stock Connect ParametersEnabling Chinese investors to invest globally free from FX quotas
The total size of the
Depositary Receipt
Programme
Aggregate Quotas
RMB250 billion (CDRs)
RMB300 billion (GDRs)
Overall Issuance
Maximum depositary receipt
programme size
Case by case basis
(Guidance ~10-15% of
market capitalisation )
Issuer Headroom
Maximum value of assets
held by each designated
broker in the foreign market
RMB 500 million
Inventory Quota
Reporting obligations on
foreign exchange flows by
issuers, depositary receipt
banks and designated
brokers
Designated brokers to
request individual limit for
GDR and CDR creation
Foreign Exchange
Overseen by PBOC and
SAFE
Administrative Measures for
cross-border fund
management of Depositary
Receipts - No. 8 [2019] of
PBOC and SAFE
Determined by CSRC
The Shanghai London
Stock Connect – 17 June
2019, Joint Announcement
by the CSRC and UK FCA
Determined by CSRC
Provisions for Shanghai-
London Stock Connect - No.
30 [2018] of CSRC
Article 8 (CDR)
Article 20 (GDR)
Monitored by CSRC
The Shanghai London
Stock Connect – 17 June
2019, Joint Announcement
by the CSRC and UK FCA
Designated BrokersDesignated BrokersIssuerWhole Programme
Description
Applies To
Size
Authority
Relevant Rules
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Stock Connect Issuer EligibilityWho can list CDRs and GDRs via the Stock Connect?
CDR issuers
on the
Shanghai
Main Board
GDR issuers
on the
Shanghai
Segment of
the Main
Market
⎯ Minimum market capitalisation of RMB 20bn (approx. £2.3bn)
⎯ Listed on Shanghai Stock Exchange
⎯ CSRC follow-on offering approval
⎯ New shares raised admitted to listing on SSE
⎯ Meets UKLA Listing Rules
⎯ GDRs to meet 25% free float requirement
⎯ LSE Admission and Disclosure Standards apply
⎯ Minimum market capitalisation of RMB 20bn (approx. £2.2bn)
⎯ LSE listed for at least 3 years and Premium listed for at least 1 year
⎯ Initially non-capital raising DRs (initial capital to be built up through purchasing
underlying)
⎯ Minimum requirement of 50 million units of CDRs representing RMB 500 million
worth of underlying shares
Source: LSE, company website, FactSet, June 2019
LSE data 18th Sept 2019
Huatai SecuritiesOur first Stock Connect GDR Issuer
Listing Highlights
― The Company successfully raised $1.69bn (including over-
allotment facility) making it the largest UK GDR offering since
2012.
― Huatai has seen strong trading since IPO with an average
$13.4m traded daily through LSE’s International Order Book.
Huatai has been one of LSE’s most traded Asian stocks.
― Since issuance the discount between the GDR and underlying
A Share has decreased from ~27% to ~10%.*
Huatai Securities Story
Huatai is a leading technology enabled securities group in
China with over 28 years of history.
The group operates four principal business segments, namely
wealth management, institutional services, investment
management and international business.
“Our London listing is the next step in our creation of a truly
global business, expanding our international presence and
providing new resources to support our growth strategy”- Huatai Securities Chairman and President – Zhou Yi
Company name Huatai Securities Co. Ltd.
LSE market Main Market
FTSE ICB sector Financial Services
Main countries of operation China
Admission date 17 June 2019
Money raised at admission $1,692 million
Market cap at admission $25,516 million
Underlying to GDR ratio 10:1
BookrunnerJP Morgan, Huatai HK, Morgan Stanley,
Credit Suisse, HSBC
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Why List CDRs in China?
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Benefits of the Stock ConnectWhy list CDRs on Shanghai Stock Exchange
1 Grow and consolidate your China footprint
The Stock Connect offers a unique opportunity to step up
expansion in terms of customer base and brand recognition in
one of the world’s fast growing and largest markets.
5 Leverage historic milestone in China’s opening up
Uniquely, the Stock Connect represents the first time in history
that non-Chinese companies can ‘go public’ in Mainland China
and access onshore investors.
Tap the fastest growing asset management geography globally, access Chinese
investors of the highest quality, and diversify your investor base2
Chinese AuM is set to become world’s 2nd largest after US.*
Only institutional and high net worth individuals are eligible to
hold CDRs.
Presence in two distinct markets with joint price formation4SSE-listed CDRs are fungible with underlying LSE-listed
Premium shares.
Bespoke treatment for LSE-listed CDR issuers3
Dedicated rules for London CDRs provides accelerated listing
timetables and maximum compatibility with UK rules, including
on disclosures.
*Source: Deloitte, 2018
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Cross-Border & Local Trading
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A Network of Designated BrokersLocal vs cross-border trading
UK China
UK Broker 2
UK Broker 3
UK Broker 4
UK Broker 5
UK Broker 6
UK Broker 7
UK Broker 8
UK Broker 9
UK Broker 10
UK Broker 1
CN Broker 2
CN Broker 3
CN Broker 4
CN Broker 5
CN Broker 6
CN Broker 7
CN Broker 8
CN Broker 9
CN Broker 10
CN Broker 1
SSE
Members
Chinese
Investors
LSE
LSE
Members
SSE
Cross Border Trading
Foreign exchange flows
guided by individual
broker limits
Designated
Brokers
Designated
Brokers
UK Investors
Local Trading
on IOB – No
quota applies
Local Trading
on SSE – No
quota applies
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Trading Across BordersCross-border creation and redemption
Timeline
CDR Creation:
⎯ Standard T+3 cycle
⎯ Can be streamlined to T+1 by using OTC or
stock borrowing and lending (SBL).
CDR Redemption:
⎯ Standard T+2 cycle
Execution
⎯ CDR Designated Brokers must open at least
one securities account with LSE members to
access the underlying shares
⎯ UK rules apply when trading the underlying
⎯ Designated Brokers can hold up to 500 million
RMB worth of cash and securities in the other
market to manage their risk
⎯ Designated Brokers apply to SAFE for a foreign
exchange quota that applies to net creation of
CDRs
Institutions
⎯ Only CDR Designated Brokers are able to
initiate and carry out cross-border conversion
⎯ CDR Designated Brokers need to apply for
approval from SSE
⎯ 14 CDR Designated Brokers are currently
approved
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Local Trading of CDRs on SSESummary of rules and trading hours
Trading
Rules
⎯ ± 10% price limits
⎯ RMB denominated
⎯ Pre-funding and pre-delivery required
⎯ No intra-day trading
⎯ No OTC trading
⎯ Block trading allowed on SSE
⎯ At least 3 market makers appointed
⎯ Institutional investors
⎯ High net worth individuals (securities account + cash account > RMB 3m)
⎯ SSE estimate eligible investor universe constitutes 50% of SSE average daily turnover
⎯ Investors can use A Share securities accounts for trading and settling CDRs
Eligible
investors
⎯ Securities settled T0 at the end of the trading day and cash settled T+1 in the morning
⎯ Settlement in RMB in CSDCSettlement
09:15-09:25
opening
call auction
09:30-11:30
continuous
auction
11:30-13:00
lunch break
13:00-15:00
continuous
auction
15:00-15:30
block
trading only
15:30 block
trading
ends
Beijing Time 09:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00
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Depository Receipts &
Depository Banks
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1st DR Issuer
1927
Depositary receipts (DRs) are securities certificates issued by depositary
banks to represent a company's publicly traded securities which can be
listed and traded independently from the underlying shares.
The Six Chinese DR Banks(alphabetical order)
Role of the DR Bank
• Transmitting Corporate Actions (dividends, rights
issues, voting etc.)
• Monitoring headroom limits
• Safekeeping of the underlying
• Creation and cancellation of DRs• Agricultural Bank of China
• Bank of China
• Bank of Communications
• China Construction Bank
• China Merchant Bank
• Industrial & Commercial Bank of China
Depositary ReceiptsA well established product
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League Tables
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China ECM League TablesTop 15 Large cap advisors by deal volume 2014-19*
(ranked alphabetically)
Shanghai Main Market - Legal Advisors
*Leagues tables are based on Wind data. Time period is 1 January 2014 to 22 July 2019.Large Cap = Mkt Cap >20 billion RMB on 22 July 2019.
Allbright Law (Shanghai)
Century Tongren Law Firm (Jiangsu)
Commerce & Finance Law Offices (Beijing)
Deheng Law Offices (Beijing)
East Concord (Beijing)
Grandall (Hangzhou)
Grandall Law Firm (Shanghai)
Grandway Law (Beijing)
Haiwen Law (Beijing)
Jia Yuan Law Firm (Beijing)
Jingtian (Beijing)
KWM (Beijing)
Tiance Law Firm (Zhejiang)
Tianyuan Law Firm (Beijing)
Zhonglun (Beijing)
Shanghai Main Market - Sponsor
BOCI
China Investment Securities
China Merchant Securities
China Securities
CITIC Securities
CICC Financial Holdings
Guangda
Guangfa
Guosen
Guotai Junan Securities
Haitong
Huatai Securities
Huatai United
Shenwan Hongyuan
UBS
Dr Martina GarciaHead of International Markets Strategy
+44 (0) 20 7797 1975
London
Karen NortheyHead of China, International Markets
+44 (0)20 7797 2050
London
Qian JiangSenior Manager, International Markets
+44 (0)20 7797 1475
London
Thomas AbbottManager, International Markets
+44 (0)20 7797 2049
London
Min QiManager, International Markets
+44 (0)20 7797 3940
London
To find out more about Shanghai-London Stock Connect, please contact one of the team directly or email
We would be delighted to speak with companies, advisors, trading firms, investors and other market participants
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