People
&Markets
China reveals London Connect plans
Scheme will only allow for trading of depositary receipts
Investors are gearing up for the launch of
the long-awaited Shanghai-London Stock
Connect scheme after China’s securities
regulator published draft rules for the new
trading link and signalled its intention to
go live by year-end.
The draft rules, which were published
by the China Securities Regulatory
#OMMISSIONûONû!UGUSTû ûOFFERûTHEûlRSTû
detailed look at how Shanghai-London
Connect will operate since it was mooted
in 2015.
Unlike existing trading links between
Hong Kong and bourses in Shanghai and
Shenzhen, Shanghai-London Connect will
only allow investors to buy foreign stocks
indirectly in the form of depositary receipts.
Market observers welcomed the
announcement, although most held back
from predicting that the latest initiative
would rival Hong Kong’s existing links.
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similar trading hours with China and an
established track record.
“I think London will bring a certain
AMOUNTûOFûINCREMENTALûmOW ûBUTûHOWû
LARGEûTHATûmOWûWILLûBEûISûHARDûTOûTELLûATû
this stage,” said Nicholas Chui, senior
investment manager for China equities at
Aberdeen Standard Investments.
“It’s no use just creating the pipes if
underlying investors do not want to invest.
The recent improvements in corporate
governance in China should help deliver
MOREûmOWSû-3#)ûINCLUSIONûCOULDûACTûASûAû
catalyst as well. But with these schemes,
the devil is always in the detail.”SMOOTHER SAILING
According to the consultation draft,
companies listed on the LONDON STOCK
EXCHANGE will be able to issue Chinese
depositary receipts on the SHANGHAI STOCK
EXCHANGE, while SSE-listed companies will
issue global depositary receipts on the LSE.The major difference between the two
is that LSE-listed companies can only
issue CDRs backed by existing shares, at
least for the time being, whereas Chinese
companies are able to issue GDRs backed
by new shares.
The CSRC said that there would be
limitations on the maximum issuance
volume for both CDRs and GDRs, without
providing further details. Sources told IFR
that companies will be allowed to issue up
to 15% of their total share capital in GDR
format. It is unclear what restrictions will
be attached to CDR issues.Both CDRs and GDRs will be fully
convertible with an issuer’s listed shares,
although there will be a six-month lock-up
period after a GDR listing. Meanwhile, if
the controlling shareholder of the GDR
issuer participates in the GDR IPO, it will be
unable to sell the shares purchased for at
least 36 months.
5NLIKEûTHEûlRSTû(ONGû+ONGû#ONNECTû
scheme, which was plagued at its launch
BYûISSUESûAROUNDûBENElCIALûOWNERSHIPûANDû
taxation, market observers predict that the
launch of Shanghai-London Connect will be
much smoother now that these issues have
been resolved.
Chinese regulators temporarily exempted
foreign investors from a 10% tax on
capital gains shortly before the launch
of Shanghai-Hong Kong Stock Connect,
following gripes from investors, and issued
a similar exemption shortly before the
launch of the Shenzhen scheme.
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investors retained ownership of shares held
by a clearing house, as previous regulations
had concerned foreign fund managers
about whether they could enforce their
rights to shares.
“In terms of the nuts and bolts, I think
around 80% of the issues have already been
resolved through Hong Kong Connect,” said
Alexious Lee, head of China capital access
at CLSA.
“Remaining issues, such as currency,
trading hours and how the pre-market and
post-market trading structure will work,
still need to be addressed though.”TOP STORY REGULATIONWho’s moving where...
SCOTIABANK has
appointed Walter
Tas as head of Asia
Pacific after former
regional head Peter
Heidinger was tapped
as head of Europe.
Tas, who has been
with the Canadian
bank for more
than 20 years, will
continue to be based
in Hong Kong. He was
most recently chiefoperating officer and
chief financial officer
for APAC.
Heidinger replaces
John Kirwan, who
quit his job as head
of Europe and global
head of energy,
infrastructure power
and utilities. STANDARD
CHARTERED has
appointed Jiten Arora
as global head of
commercial banking,
effective August 30.
Arora, who reports
to Simon Cooper,
CEO for corporate,
commercial and
institutional banking,
was installed as
interim head in March
after Anna Marrsleft to join American
Express.
Arora joined
StanChart in 2001
and has held several
management
positions within the
transaction banking
division. He will
continue to be based
in Singapore in his
new role.“The recent improvements in
corporate governance in China
should help deliver more flows.
MSCI inclusion could act as a
catalyst as well. But with these
schemes, the devil is always in
the detail.”