[ U P D AT E ]
Securities
services industry
bullish on
London-Shanghai
Stock Connect
IT IS NOW MORE THAN LIKELY
THAT THE LONDON-SHANGHAI
STOCK CONNECT TRADING
SCHEME WILL BE UP AND
RUNNING, WITH A GO-LIVE
DATE PENCILLED IN FOR DE-
CEMBER.
O
nly six months ago, experts were
railing against London-Shanghai Stock
Connect, deriding it as totally unfeasible
citing time-zone challenges, Chinese curbs
on short selling, the use of RMB in settle-
ments, capital controls and frequent share
trading suspensions on the mainland.
The scheme was a nice idea, but not a
tangible one, or so the thinking went. Those
cynics have been dumbfounded, as it now
16
Global Custodian
Winter 2018
looks likely that London-Shanghai Stock
Connect will be up and running imminently,
with a go-live date pencilled in for Decem-
ber.
“The China Securities Regulatory Commis-
sion (CSRC) has published the final govern-
ing rules, while Shanghai Stock Exchange
(SSE) and China Securities Depository and
Clearing Corporation (CSDCC) have both
released draft rules with detailed guidance
in areas such as listing, trading, cross-bor-
der conversion and account openings. We
are confident these draft provisions will
be finalised shortly,” said Margaret Har-
wood-Jones, global head of securities ser-
vices and transaction banking at Standard
Chartered, speaking at SIBOS in Sydney.
The London-Shanghai take on Stock
Connect is conspicuously different to the
Hong Kong-Shanghai Stock Connect, which
launched in 2014. “The purpose of Lon-
don-Shanghai Stock Connect is to facilitate
cross-border listings of selected issuers in
both markets. The major difference is that
the latest scheme brings UK issuers to
China’s investor market through Chinese De-
positary Receipts (CDR), and Chinese issuers
to London via Global Depository Receipts
(GDR). Brokers in each market will create the
CDRs and GDRs,” she explained.
Gauging mainland investor interest in
the latest Connect scheme is not straight-
forward as it has yet to launch, but also
because local market conditions – namely
capital controls – could act as a deterrent.
“However, there are high quality blue chips
which could be attractive as GDRs that list
and trade in London as some investors may
want single line exposure to China’s issuers,
rather than having exposure to the entire
market,” said Harwood-Jones.
There are a handful of outstanding issues
which still need to be ironed out. “There are
some cross-border trading and operational
issues because of the differences in the
settlement cycle and movement of funds
between the two markets, which are being
fixed. The stock exchanges, central secu-
rities depositories (CSDs) and depository
receipt banks are actively involved in setting
the framework and addressing these issues.
We believe a resolution will be forthcoming
before the official launch of the scheme,”
she added.
China’s regulators have been busy over the
last few years, expanding foreign investor
access channels to mainland bond and
equity markets.
The reforms are far from complete, with a
number of other Connect-esque initiatives
in the pipeline between China and Hong
Kong, including ETF (exchange traded fund)
Connect and Primary Connect, the latter
of which will enable investors to subscribe
to initial public offerings (IPOs) in both
markets.