II． Optimization of Stock Connect
Enhancements and Amendments to Clearing Rules for Stock Connect by ChinaClear
ChinaClear’s Implementation Rules under Stock Connect is concurrently applicable to Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect, which does not, in principle, differ from the arrangements of registration, depositary, clearing and other services subject to Implementing Rules on Registration, Depository and Clearing Services under the Shanghai-Hong Kong Stock Connect Pilot Program. The main amendments include:
1. It clarifies that nominee services provided by ChinaClear shall also relate to subscriptions for scrip shares, rights issues and open offers within the prescribed limit and also sets forth the processing approaches for relevant services. The service arrangement relating to subscription for scrip shares by ChinaClear is consistent with the current service arrangement relating to bonus shares, that is, according to the time of receipt of shares from HKSCC. ChinaClear will process the shares on the same day or the next day as of the receipt of shares, and such shares will be available for trading on the next trading day of the Southbound Hong Kong Trading Links after the processing day. The first day on which investors under the Southbound Hong Kong Trading Links may sell the shares is one trading day under the Southbound Hong Kong Trading Links later than investors in Hong Kong market. Based on the time of receipt of shares from rights issue and open offers in HKSCC, ChinaClear will process the shares on the same day as of the receipt of shares, and such shares will be available for trading on the next trading day under the Southbound Hong Kong Trading Links.
2. The arrangement after the delisting of eligible shares is added, that is, where the eligible shares are delisted due to takeover or other reasons, ChinaClear can continue to provide nominee services to investors under the Southbound Hong Kong Trading Links by reference to relevant requirements of CSRC and the agreements between ChinaClear and HKSCC.
It supplements that where ChinaClear is unable to carry out business for the Southbound Hong Kong Trading Links due to natural disasters or other causes, the clearing and settlement arrangement with HKSCC follows the agreements between ChinaClear and HKSCC, whereas the clearing and settlement arrangement between the Mainland clearing participants will be processed by reference to the clearing and settlement arrangement for A shares.
III． Updates for Shanghai-Hong Kong Stock Connect
Rules on Shanghai-Hong Kong Stock Connect issued by SSE have been updated according to Joint Announcement on Shenzhen-Hong Kong Stock Connect and Provisions on Stock Connect, including but without limitation, the removal of contents relating to aggregate quota and the clarification that provisions on the settlement currency issued by relevant regulators shall prevail if such provisions are required otherwise. Meanwhile, clarification has been made with respect to certain provisions, including but not limited to (i) shares suspended from listing on SSE are excluded from shares for the Northbound Shanghai Trading Link, and their corresponding H shares are excluded from the eligible shares for the Southbound Hong Kong Trading Link; and (ii) where the daily quota for the Southbound Hong Kong Trading Link is used up during the pre-opening session in SEHK and SSE Securities Trading Service Company suspends the acceptance of any further buy orders, SSE Securities Trading Service Company will resume the acceptance of buy orders after the commencement of continuous trading session in SEHK. Only if the daily quota balance resumes to a positive level due to the cancellation of buy orders, the rejection by SZSE or the execution of sell orders.
Further, Mandatory Provisions for Client Agreements for the Southbound Hong Kong Trading Link by Shanghai Stock Exchange sets forth that investors participating in Shanghai-Hong Kong Stock Connect may appoint securities companies merely to trade eligible shares through the Southbound Hong Kong Trading Link under Shanghai-Hong Kong Stock Connect. Securities acquired through the Southbound Hong Kong Trading Link under Shanghai-Hong Kong Stock Connect cannot be sold through the Southbound Hong Kong Trading Link under Shenzhen-Hong Kong Stock Connect for now. Mandatory Provisions for Risk Disclosure Statements for the Southbound Hong Kong Trading Link by Shanghai Stock Exchange also makes relevant amendments so as to intensify risk disclosure.
IV．Principle Arrangements for Shenzhen-Hong Kong Stock Connect
Fundamental operation of Shenzhen-Hong Kong Stock Connect is consistent with that of Shanghai-Hong Kong Stock Connect. The Northbound Shenzhen Trading Link means that investors appoint Hong Kong brokers to trade eligible shares under Shenzhen-Hong Kong Stock Connect listed on SZSE by routing orders to SZSE via a securities trading service company incorporated by SEHK in Shenzhen (“SEHK Securities Trading Services Company”). The Southbound Hong Kong Trading Link under Shenzhen-Hong Kong Stock connect means that investors appoint Mainland securities companies to trade eligible shares under Shenzhen-Hong Kong Stock Connect listed on SEHK by routing orders to SEHK via a securities trading service company incorporated by SZSE in Hong Kong (“SZSE Securities Trading Services Company”).
The Scope of Eligible Shares for Shenzhen-Hong Kong Stock Connect
Market Capitalization as a Screening Criterion for Eligible Shares under Shenzhen-Hong Kong Stock Connect
Market capitalization has been introduced as a screening criterion for eligible shares under Shenzhen-Hong Kong Stock Connect. SZSE has delivered explanation regarding the screening criterion in Interpretation on Measures of Shenzhen Stock Exchange for the Implementation of Shenzhen-Hong Kong Stock Connect Program, that is, the review period and calculation method are consistent with the periodic adjustment of constituents of relevant indices. As such, the market capitalization of eligible shares for the Northbound Shenzhen Trading Link shall be calculated and adjusted with reference to Compilation Scheme for SZSE Component Index Series (《深证成份指数系列编制方案》) and Compilation Scheme for Small/Mid Cap Innovation Index (《中小创新指数编制方案》), and the market capitalization shall be calculated using the average daily market capitalization in the 6 months prior to the deadline for periodic review of the relevant indices.
As one of the eligible shares for the Southbound Hong Kong Trading Link under Shenzhen-Hong Kong Stock Connect, constituent stocks of Hang Seng Composite SmallCap Index shall be calculated and adjusted with reference to Index Methodology for Managing the Hang Seng Composite Index Series, and the market capitalization shall be calculated using average month-end market capitalization of SEHK-listed shares in the 12 months prior to the deadline for periodic review of the index.
Pertinent criterion of market capitalization merely applies at the periodic adjustment of constituent stocks of relevant indices, with relevant shares included under or excluded from Shenzhen-Hong Kong Stock Connect on the date of the periodic adjustment.
Rules on Inclusion and Exclusion as Eligible Shares under Shenzhen-Hong Kong Stock Connect
For the eligible shares under the Northbound Shenzhen Trading Link and the Southbound Hong Kong Trading Link, as a result of constituent stocks adjustment implemented by relevant indices or other factors, certain stocks that meet the criterion of eligible shares for the Northbound Shenzhen Trading Link (or the Southbound Hong Kong Trading Link) will be accepted as eligible shares, whereas stocks which are no longer eligible will be removed from eligible shares.
Under Shenzhen-Hong Kong Stock Connect, market capitalization screening does not apply to A shares and H shares of A+H companies, and rules on the acceptance of such shares are listed as following.
1. In the case where an SEHK-listed company (as H shares) seeks listing on SZSE (as A shares), or an SZSE-listed company (as A shares) seeks listing on SEHK (as H shares), or a company seeks listing on both SZSE (as A shares) and SEHK (as H shares) on the same trading day, the relevant A shares will be accepted as eligible shares for the Northbound Shenzhen Trading Link after the A shares have been listed on SZSE for 10 trading days and the corresponding H shares have passed the price stabilization period;
2. In the case where an SZSE/SSE-listed company (as A shares) seeks listing on SEHK (as H shares), or an SEHK-listed company (as H shares) seeks listing on SZSE/SSE (as A shares), or a company seeks listing on both SZSE/SSE (as A shares) and SEHK (as H shares) on the same trading day, the relevant H shares will be accepted as eligible shares for the Southbound Hong Kong Trading Link after the H shares’ price stabilization period has expired and the corresponding A shares have been listed on SZSE/SSE for 10 trading days.
Investors are able to sell stocks removed from eligible shares under the Northbound Shenzhen Trading Link (or the Southbound Hong Kong Trading Link), notwithstanding that investors are not able to buy them. The effective time of inclusion or exclusion as eligible shares under the Northbound Shenzhen Trading Link or the Southbound Hong Kong Trading Link shall be respectively subject to the timeline disseminated by SEHK Securities Trading Service Company or SZSE Securities Trading Service Company.
Quota Calculation
Daily quota balance is calculated as follows: Daily Quota Balance for the Northbound Shenzhen Trading Link (or the Southbound Hong Kong Trading Link) = Daily Quota - Buy Orders + Sell Trades + Buy Orders Cancelled or Rejected by SZSE (or SEHK) + Difference between the execution price and bid price of buy orders. As the approach for quota calculation, orders, turnover and others parameters in trading session will be applied as calculation basis for quota control purposes. Detailed measures in respect of quota control are set forth as below.
1. As for the Northbound Shenzhen Trading Link, where the Northbound Daily Quota Balance is used up during the opening call auction session of SZSE, SEHK Securities Trading Service Company will suspend the acceptance of any further buy orders, notwithstanding that it still accepts sell orders. Subsequently, before the commencement of the continuous auction session, where the Northbound Daily Quota Balance resumes to a positive level due to the cancellation of buy orders, rejection by SZSE or execution of sell orders, SEHK Securities Trading Service Company will resume the acceptance of further buy orders. Where Northbound Daily Quota Balance is used up during the continuous auction session or the closing call auction session, SEHK Securities Trading Service Company will cease to accept any further buy orders for the remainder of the day, notwithstanding that it still accepts sell orders. In the case where buy orders cease to be accepted during the continuous auction session or the closing call auction session, the acceptance of buy orders will not resume for the remainder of the day, unless it is otherwise required by SZSE.
2. As for the Southbound Hong Kong Trading Link, where the Southbound Daily Quota Balance is used up during the pre-opening session of SEHK, SZSE Securities Trading Service Company will suspend the acceptance of any further buy orders and will not resume the acceptance before the end of such session, notwithstanding that it still accepts sell orders. Where the Southbound Daily Quota Balance resumes to a positive level due to the cancellation of buy orders, rejection by SEHK or execution of sell orders, SZSE Securities Trading Service Company will resume the acceptance of further buy orders upon the commencement of the continuous trading session of SEHK. Where Southbound Daily Quota Balance is used up during the continuous trading session or the closing auction session of SEHK, SZSE Securities Trading Service Company will cease to accept any further buy orders for the remainder of the day, notwithstanding that it still accepts sell orders. In the case where buy orders cease to be accepted during the continuous trading session or the closing auction session of SEHK, the acceptance of buy orders will not resume for the remainder of the day, unless it is otherwise required by SZSE.
Taxation Policies
Taxation policies for Shenzhen-Hong Kong Stock Connect are basically identical to those for Shanghai-Hong Kong Stock Connect, namely, there is no material difference between them. The Notice on Relevant Taxation Policies Concerning the Pilot Program of Mutual Stock Market Access Between Shenzhen and Hong Kong clarifies issues about stamp duties for securities (stocks) transactions generated from covered short selling of stocks by Hong Kong investors participating in the Northbound Shanghai Trading Link and the Northbound Shenzhen Trading Link, i.e. stamp duties for securities (stocks) transactions are temporarily exempted for stock borrowing and returning involved therein.
Enhancements and Amendments to Clearing Rules for Stock Connect by ChinaClear
ChinaClear’s Implementation Rules under Stock Connect is concurrently applicable to Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect, which does not, in principle, differ from the arrangements of registration, depositary, clearing and other services subject to Implementing Rules on Registration, Depository and Clearing Services under the Shanghai-Hong Kong Stock Connect Pilot Program. The main amendments include:
1. It clarifies that nominee services provided by ChinaClear shall also relate to subscriptions for scrip shares, rights issues and open offers within the prescribed limit and also sets forth the processing approaches for relevant services. The service arrangement relating to subscription for scrip shares by ChinaClear is consistent with the current service arrangement relating to bonus shares, that is, according to the time of receipt of shares from HKSCC. ChinaClear will process the shares on the same day or the next day as of the receipt of shares, and such shares will be available for trading on the next trading day of the Southbound Hong Kong Trading Links after the processing day. The first day on which investors under the Southbound Hong Kong Trading Links may sell the shares is one trading day under the Southbound Hong Kong Trading Links later than investors in Hong Kong market. Based on the time of receipt of shares from rights issue and open offers in HKSCC, ChinaClear will process the shares on the same day as of the receipt of shares, and such shares will be available for trading on the next trading day under the Southbound Hong Kong Trading Links.
2. The arrangement after the delisting of eligible shares is added, that is, where the eligible shares are delisted due to takeover or other reasons, ChinaClear can continue to provide nominee services to investors under the Southbound Hong Kong Trading Links by reference to relevant requirements of CSRC and the agreements between ChinaClear and HKSCC.
It supplements that where ChinaClear is unable to carry out business for the Southbound Hong Kong Trading Links due to natural disasters or other causes, the clearing and settlement arrangement with HKSCC follows the agreements between ChinaClear and HKSCC, whereas the clearing and settlement arrangement between the Mainland clearing participants will be processed by reference to the clearing and settlement arrangement for A shares.
III． Updates for Shanghai-Hong Kong Stock Connect
Rules on Shanghai-Hong Kong Stock Connect issued by SSE have been updated according to Joint Announcement on Shenzhen-Hong Kong Stock Connect and Provisions on Stock Connect, including but without limitation, the removal of contents relating to aggregate quota and the clarification that provisions on the settlement currency issued by relevant regulators shall prevail if such provisions are required otherwise. Meanwhile, clarification has been made with respect to certain provisions, including but not limited to (i) shares suspended from listing on SSE are excluded from shares for the Northbound Shanghai Trading Link, and their corresponding H shares are excluded from the eligible shares for the Southbound Hong Kong Trading Link; and (ii) where the daily quota for the Southbound Hong Kong Trading Link is used up during the pre-opening session in SEHK and SSE Securities Trading Service Company suspends the acceptance of any further buy orders, SSE Securities Trading Service Company will resume the acceptance of buy orders after the commencement of continuous trading session in SEHK. Only if the daily quota balance resumes to a positive level due to the cancellation of buy orders, the rejection by SZSE or the execution of sell orders.
Further, Mandatory Provisions for Client Agreements for the Southbound Hong Kong Trading Link by Shanghai Stock Exchange sets forth that investors participating in Shanghai-Hong Kong Stock Connect may appoint securities companies merely to trade eligible shares through the Southbound Hong Kong Trading Link under Shanghai-Hong Kong Stock Connect. Securities acquired through the Southbound Hong Kong Trading Link under Shanghai-Hong Kong Stock Connect cannot be sold through the Southbound Hong Kong Trading Link under Shenzhen-Hong Kong Stock Connect for now. Mandatory Provisions for Risk Disclosure Statements for the Southbound Hong Kong Trading Link by Shanghai Stock Exchange also makes relevant amendments so as to intensify risk disclosure.
IV．Principle Arrangements for Shenzhen-Hong Kong Stock Connect
Fundamental operation of Shenzhen-Hong Kong Stock Connect is consistent with that of Shanghai-Hong Kong Stock Connect. The Northbound Shenzhen Trading Link means that investors appoint Hong Kong brokers to trade eligible shares under Shenzhen-Hong Kong Stock Connect listed on SZSE by routing orders to SZSE via a securities trading service company incorporated by SEHK in Shenzhen (“SEHK Securities Trading Services Company”). The Southbound Hong Kong Trading Link under Shenzhen-Hong Kong Stock connect means that investors appoint Mainland securities companies to trade eligible shares under Shenzhen-Hong Kong Stock Connect listed on SEHK by routing orders to SEHK via a securities trading service company incorporated by SZSE in Hong Kong (“SZSE Securities Trading Services Company”).
The Scope of Eligible Shares for Shenzhen-Hong Kong Stock Connect
Market Capitalization as a Screening Criterion for Eligible Shares under Shenzhen-Hong Kong Stock Connect
Market capitalization has been introduced as a screening criterion for eligible shares under Shenzhen-Hong Kong Stock Connect. SZSE has delivered explanation regarding the screening criterion in Interpretation on Measures of Shenzhen Stock Exchange for the Implementation of Shenzhen-Hong Kong Stock Connect Program, that is, the review period and calculation method are consistent with the periodic adjustment of constituents of relevant indices. As such, the market capitalization of eligible shares for the Northbound Shenzhen Trading Link shall be calculated and adjusted with reference to Compilation Scheme for SZSE Component Index Series (《深证成份指数系列编制方案》) and Compilation Scheme for Small/Mid Cap Innovation Index (《中小创新指数编制方案》), and the market capitalization shall be calculated using the average daily market capitalization in the 6 months prior to the deadline for periodic review of the relevant indices.
As one of the eligible shares for the Southbound Hong Kong Trading Link under Shenzhen-Hong Kong Stock Connect, constituent stocks of Hang Seng Composite SmallCap Index shall be calculated and adjusted with reference to Index Methodology for Managing the Hang Seng Composite Index Series, and the market capitalization shall be calculated using average month-end market capitalization of SEHK-listed shares in the 12 months prior to the deadline for periodic review of the index.
Pertinent criterion of market capitalization merely applies at the periodic adjustment of constituent stocks of relevant indices, with relevant shares included under or excluded from Shenzhen-Hong Kong Stock Connect on the date of the periodic adjustment.
Rules on Inclusion and Exclusion as Eligible Shares under Shenzhen-Hong Kong Stock Connect
For the eligible shares under the Northbound Shenzhen Trading Link and the Southbound Hong Kong Trading Link, as a result of constituent stocks adjustment implemented by relevant indices or other factors, certain stocks that meet the criterion of eligible shares for the Northbound Shenzhen Trading Link (or the Southbound Hong Kong Trading Link) will be accepted as eligible shares, whereas stocks which are no longer eligible will be removed from eligible shares.
Under Shenzhen-Hong Kong Stock Connect, market capitalization screening does not apply to A shares and H shares of A+H companies, and rules on the acceptance of such shares are listed as following.
1. In the case where an SEHK-listed company (as H shares) seeks listing on SZSE (as A shares), or an SZSE-listed company (as A shares) seeks listing on SEHK (as H shares), or a company seeks listing on both SZSE (as A shares) and SEHK (as H shares) on the same trading day, the relevant A shares will be accepted as eligible shares for the Northbound Shenzhen Trading Link after the A shares have been listed on SZSE for 10 trading days and the corresponding H shares have passed the price stabilization period;
2. In the case where an SZSE/SSE-listed company (as A shares) seeks listing on SEHK (as H shares), or an SEHK-listed company (as H shares) seeks listing on SZSE/SSE (as A shares), or a company seeks listing on both SZSE/SSE (as A shares) and SEHK (as H shares) on the same trading day, the relevant H shares will be accepted as eligible shares for the Southbound Hong Kong Trading Link after the H shares’ price stabilization period has expired and the corresponding A shares have been listed on SZSE/SSE for 10 trading days.
Investors are able to sell stocks removed from eligible shares under the Northbound Shenzhen Trading Link (or the Southbound Hong Kong Trading Link), notwithstanding that investors are not able to buy them. The effective time of inclusion or exclusion as eligible shares under the Northbound Shenzhen Trading Link or the Southbound Hong Kong Trading Link shall be respectively subject to the timeline disseminated by SEHK Securities Trading Service Company or SZSE Securities Trading Service Company.
Quota Calculation
Daily quota balance is calculated as follows: Daily Quota Balance for the Northbound Shenzhen Trading Link (or the Southbound Hong Kong Trading Link) = Daily Quota - Buy Orders + Sell Trades + Buy Orders Cancelled or Rejected by SZSE (or SEHK) + Difference between the execution price and bid price of buy orders. As the approach for quota calculation, orders, turnover and others parameters in trading session will be applied as calculation basis for quota control purposes. Detailed measures in respect of quota control are set forth as below.
1. As for the Northbound Shenzhen Trading Link, where the Northbound Daily Quota Balance is used up during the opening call auction session of SZSE, SEHK Securities Trading Service Company will suspend the acceptance of any further buy orders, notwithstanding that it still accepts sell orders. Subsequently, before the commencement of the continuous auction session, where the Northbound Daily Quota Balance resumes to a positive level due to the cancellation of buy orders, rejection by SZSE or execution of sell orders, SEHK Securities Trading Service Company will resume the acceptance of further buy orders. Where Northbound Daily Quota Balance is used up during the continuous auction session or the closing call auction session, SEHK Securities Trading Service Company will cease to accept any further buy orders for the remainder of the day, notwithstanding that it still accepts sell orders. In the case where buy orders cease to be accepted during the continuous auction session or the closing call auction session, the acceptance of buy orders will not resume for the remainder of the day, unless it is otherwise required by SZSE.
2. As for the Southbound Hong Kong Trading Link, where the Southbound Daily Quota Balance is used up during the pre-opening session of SEHK, SZSE Securities Trading Service Company will suspend the acceptance of any further buy orders and will not resume the acceptance before the end of such session, notwithstanding that it still accepts sell orders. Where the Southbound Daily Quota Balance resumes to a positive level due to the cancellation of buy orders, rejection by SEHK or execution of sell orders, SZSE Securities Trading Service Company will resume the acceptance of further buy orders upon the commencement of the continuous trading session of SEHK. Where Southbound Daily Quota Balance is used up during the continuous trading session or the closing auction session of SEHK, SZSE Securities Trading Service Company will cease to accept any further buy orders for the remainder of the day, notwithstanding that it still accepts sell orders. In the case where buy orders cease to be accepted during the continuous trading session or the closing auction session of SEHK, the acceptance of buy orders will not resume for the remainder of the day, unless it is otherwise required by SZSE.
Taxation Policies
Taxation policies for Shenzhen-Hong Kong Stock Connect are basically identical to those for Shanghai-Hong Kong Stock Connect, namely, there is no material difference between them. The Notice on Relevant Taxation Policies Concerning the Pilot Program of Mutual Stock Market Access Between Shenzhen and Hong Kong clarifies issues about stamp duties for securities (stocks) transactions generated from covered short selling of stocks by Hong Kong investors participating in the Northbound Shanghai Trading Link and the Northbound Shenzhen Trading Link, i.e. stamp duties for securities (stocks) transactions are temporarily exempted for stock borrowing and returning involved therein.