Stock Connect

Shanghai and London stock exchanges take a step closer to setting up trading link

The two bourses complete a feasibility study on a connect scheme in sign of progress two years on from the first talks on the idea

PUBLISHED : Sunday, 17 December, 2017, 9:02pm
UPDATED : Sunday, 17 December, 2017, 11:03pm

The stock exchanges of Shanghai and London have completed a feasibility study on a trading link, in a sign that the idea, first proposed two years ago but which has not seen much progress, may be back on the official agenda.

In a statement on Sunday, the Shanghai Stock Exchange said that the study has been submitted to the authorities in China and Britain for review. It was the first time that the Shanghai exchange had made public remarks about the plan since Britain’s decision to leave the European Union in mid 2016.

A joint task force set up by the two exchanges “has overcome obstacles including differences in languages, time zones, trading mechanisms and legal systems before completing a feasibility study report”, the statement said.

It added that a depositary receipt system would be adopted to facilitate cross-border trading on the two exchanges, because of the low risks and ease of implementation. Under a depository receipt system, part of a company’s shares are transferred to a custodian bank, which sells them on an exchange abroad.

Who are the winners in mainland-Hong Kong stock connect trading?

The Shanghai exchange is already linked to the Hong Kong bourse under the Shanghai-Hong Kong Stock Connect scheme, launched three years ago as part of China’s efforts to open up its markets. The scheme allow international investors to trade A shares listed in Shanghai via any brokers licensed by bourse operator Hong Kong Exchanges and Clearing, while providing mainland Chinese with a means to trade Hong Kong-listed stocks.

“The determination of Chinese authorities to further open up the A-share market is obvious,” said Haitong Securities analyst Zhang Qi. “Support from higher-level state authorities is also important for the securities regulators to accelerate the internationalisation pace.”

Shanghai Stock Exchange spreads its net further through joint trading of ‘D-shares’ with Frankfurt

The link had been discussed at a recent Sino-UK economic dialogue held in Beijing, according to British Chancellor of the Exchequer Philip Hammond on Saturday.

There has been speculation over the past year that Brexit could prolong the preparatory work for the London-Shanghai scheme, since Chinese regulators would have to revisit the framework due to potential changes in legal matters and market sentiment.

China is also looking to connect its domestic exchanges with other bourses around the globe.

Early this year, the Shanghai exchange unveiled a plan to launch a so-called D share market in Frankfurt, Germany, for foreigners to trade offshore yuan-denominated products, including stocks, bonds and exchange-traded funds.