First Chapter - What is Shanghai-Hong Kong Stock Connect? Shanghai-Hong Kong Stock Connect is a securities trading and clearing links programme to be developed by Hong Kong Exchanges and Clearing Limited (HKEx), Shanghai Stock Exchange (SSE) and China Securities Depository and Clearing Corporation Limited (ChinaClear), aiming to achieve a breakthrough in mutual access between the Mainland and Hong Kong. Under Shanghai-Hong Kong Stock Connect, The Stock Exchange of Hong Kong Limited (SEHK) and SSE will establish mutual order-routing connectivity and related technical infrastructure to enable investors of their respective market to trade designated equity securities listed in the other s market. The Hong Kong Securities Clearing Company Limited (HKSCC) and ChinaClear will be responsible for the clearing, settlement and the provision of depository, nominee and other related services of the trades executed by their respective market participants and investors. 1.1 Illustration of Order Flow
1.2 Basic Information for Shanghai Hong Kong Stock Connect Northbound trading Southbound trading Participant All HK and overseas investors Mainland institutional investors and individual investors who hold an aggregate balance of more than RMB 500,000 in their securities and cash account Eligible stocks All the constituent stocks of the SSE 180 Index and SSE 380 Index, A shares with corresponding H shares listed on SEHK Constituent stocks of the Hang Seng Composite LargeCap Index and Hang Send Composite MidCap index, and H shares with corresponding A shares listed on SSE Excluding stocks Share under risk alert board Shares that are not traded in RMB A+H on other Mainland exchange Shares that are not traded in HKD Quota Aggregate Quota: RMB 300 billion Daily Quota: RMB 13 billion Aggregate Quota: RMB 250 billion Daily Quota: RMB 10.5 billion No. of eligible stocks About 570 About 270 Trading hours Opening Call Auction: 09:15 09:25 Continuous Auction: 09:30 11:30 / 13:00 15:00 Allow order input 5 minutes prior to opening of each trading session Pre-opening period: 09:00 09:30 Continuous trading period: 09:30-12:00 13:00-16:00 Trading and settlement Currency RMB Trade with HKD Settle in RMB Order Types Limit orders only pre-opening : at-auction limit order only Continuous trading: enhanced limited order only
Day trading Not allowed Allowed Block Trade Not allowed Not allowed IPO participating Not allowed Not allowed Lot size 100 shares Depends on individual share Maximum size order 1 million shares Depends on individual share Tick size RMB 0.01 Depends on individual share ± 10% of previous closing price ± 5% of previous closing price for stocks under special treatment During Continuous Action, buy order Price limit at a price below its current best bid price by 3% will be rejected (the percentage may be adjusted from time to time subject to market conditions) No price limit Settlement cycle T+1 T+2 Voting Vote via CCASS s existing voting functions ChinaClear is responsible for submit the votes Chapter 2 Frequently Asked Question 2.1. If the SSE-listed security is removed from the Shanghai-Hong Kong Stock Connect, can we trade the security? Investors will only be allowed to sell that SSE Security but restricted from further buying. In addition, Investors will only be allowed to sell an SSE Security but restricted from further buying if: (a) the SSE Security subsequently ceases to be a constituent stock of the relevant indices; and/or (b) the SSE Security is subsequently under risk alert ; and/or (c) the corresponding H share of the SSE Security subsequently ceases to be traded on SEHK, as the case may be Investor will only be allowed to sell an SEHK Security but restricted from further buying if:
(a) the SEHK Security subsequently ceases to be a constituent stock of the relevant indices; and/or (b) the corresponding A share of the SEHK Security ceases to be traded on SSE; and/or (c) where the SEHK Security is an H share and the share of the issuer of such SEHK Security is subsequently listed on an exchange in the Mainland other than SSE, as the case may be. 2.2. How does the Aggregate Quota work? At the end of each trading day, SEHK will calculate the remaining balance of the Northbound Aggregate Quota: Aggregate Quota Balance = Aggregate Quota Aggregate Buy Trades + Aggregate Sell Trades If Aggregate Quota Balance is less than Daily Quota, Northbound buying will be suspended on the next trading day. However, investors can continue to sell SSE Securities, which will then increase the Aggregate Quota Balance. SEHK will re-open Northbound buying once the Aggregate Quota balance returns to the Daily Quota level or above. Southbound Aggregate Quota is monitored by SEHK. 2.3. How does the Daily Quota work? SEHK monitors the usage of Northbound Daily Quota on a real time basis. The Northbound Daily Quota Balance is updated each time when a Northbound order is received and executed: Daily Quota Balance = Daily Quota Buy Orders + Sell Trades + Adjustments* Daily Quota will be refreshed and remain the same every day, subject to the balance of Aggregate Quota. Unused Daily Quota will NOT be carried over to next day s Daily Quota. Once the Northbound Daily Quota Balance drops to zero or is exceed during a continuous auction session (Continuous Trading), no further buy orders will be accepted for the remainder of the day. Once the Northbound Daily Quota Balance drop to zero or the Daily Quota is exceeded during the opening call session, new buy orders will be rejected. However, as order cancellation is common during opening call auction, the Northbound Daily Quota Balance may resume to a positive level before the end of the opening call auction. When that happens, SEHK will again accept Northbound buy orders. Southbound Daily Quota is monitored by SEHK
* Daily Quota Balance will be increased when a) a buy order is cancelled; b) a buy order is rejected by the other exchange; or c) a buy order is executed at a better price. 2.4. How will the cross-boundary regulatory enforcement issues arising from the program be dealt with? According to the Joint Announcement, both the CSRC and the SFC will actively enhance cross-boundary regulatory and enforcement cooperation. Each of them will take measures to establish an effective regime under the Shanghai-Hong Kong Stock Connect to respond to all misconduct in either or both markets on a timely basis, The CSRC and the SFC will improve the current bilateral agreement to strengthen enforcement cooperation in respect of the following areas: * Referral and information exchange mechanisms concerning improper activities; * Investigatory cooperation in relation to cross boundary illegal activities including disclosure of false or misleading information, insider dealing and market manipulation; * Bilateral enforcement exchange and training; and * Enhancement of general standards of cross-boundary enforcement cooperation. The Joint Announcement further notes that the two Commissions will establish a dedicated liaison mechanism for Shanghai-Hong Kong Stock Connect to deal with any issues that may encountered during the pilot program which may require joint resolution. 2.5. Are we protected by the investor compensation fund? Hong Kong investors participating in the Shanghai-Hong Kong Stock Connect through SEHK Participants will continue to be protected by Hong Kong laws. Similar to any overseas investment which involves a sub-custody arrangement, investors will also be facing the counterparty risks of ChinaClear. Similarly for the trading and settlement activities, Hong Kong investors will continue to deal with SEHK Participants and be protected by the SFO. It should however be noted that the current Investor Compensation Fund will not cover any Northbound activities. Chapter 3: Trading Arrangement FAQ 3.1. Are there any disclosure obligations for trading SSE-listed Shares?
Under the current PRC rules, when an investor holds or controls up to 5% of the issued shares of an SSE-listed issuer, the investor is required to disclose his interest within three working days. Such invertor may not buy or sell the shares in the listed issuer within the three-day period. For such investor, every time when there is an increase or decrease in his shareholding by 5% or the shares held by him falling below 5% of the issued shares in the listed issuer, the investor is required to disclose the information within three working days. 3.2. What is the pre-trade checking requirement? Mainland investors are only allowed to sell A shares which are available in their stock accounts at the end of the previous day When placing sell orders, investors must ensure they have sufficient shares in their accounts on T-1 in order to sell their shares on T day. 3.3. What is the holiday arrangement? Investors will only be allowed to trade on the other market on days where both markets are opened for trading, and banking services are available in both markets on the corresponding settlement days. 3.4. What is the contingency arrangement under severe weather conditions? Scenarios Northbound Trading of SSE Securities T8 / Black rainstorm issued before HK market opens (i.e. 09:00 a.m.) Not Open T8 issued between 09:00 a.m. and 09:15 a.m. Not Open T8 issued after SSE market opens (i.e. 09:15 a.m.) Trading will continues for 15 minutes after T8 issuance, thereafter, only order cancellation is allowed till SSE market close Black rainstorm issued after HK market opens (i.e. 09:00 a.m.) Trading continues as normal T8 / Black rainstorm discontinued at or before 12:00 noon Trading resumes after 2 hours
T8 / Black rainstorm discontinued after 12:00 noon Not Open 3.5. Can investors trade through their existing broker(s) in Hong Kong? Hong Kong and overseas investors can trade SSE Securities through any EPs, so long as the chosen EP is eligible to participate in Shanghai-Hong Kong Stock Connect. 3.6. Do investors need to open any additional account with any party to trade SSE Securities under Shanghai-Hong Kong Stock Connect? Investors should discuss with their brokers on the detailed arrangements of participating in Shanghai-Hong Kong Stock Connect, including whether they need to open a separate account for trading SSE Securities, in addition to the one for trading Hong Kong shares. Chapter 4: Clearing Settlement and Risk Management Arrangement 4.1. What are the clearing risk management measures in place under Shanghai-Hong Kong Stock Connect? ChinaClear will generally apply its existing risk management measures on HKSCC s unsettled positions on SSE Securities. HKSCC will in turn adapt ChinaClear s risk management measures and impose them on CPs and trading SSE Securities. These risk management measures are largely similar to those imposed by ChinaClear on its other clearing participants. To avoid risk spill-over across the border, ChinaClear will not contribute to the HKSCC Guarantee Fund and ChinaClear will not be required to share and default loss of CPs. CPs Guarantee Fund contributions will not be utilized to offset close-out loss in ChinaClear default. Should the remote event of ChinaClear default occur and ChinaClear be declared as a defaulter. HKSCC s liabilities in Northbound trades under its market contracts with CPs will be limited to assisting CPs in pursuing their claims against ChinaClear. HKSCC will in turn distribute the stocks or monies recovered to CPs on a pro-rata basis. 4.2. Is the RMB Equity Trading Support Facility (TSF) available for obtaining RMB funding to trade SSE-listed shares under Shanghai-Hong Kong Stock Connect? TSF, which serves as a back-up facility to enable investors to buy RMB-denominated shares on SEHK with HKD, will not cover SSE Securities initially. Hence, investors will need to use their RMB to trade and settle SSE Securities.
4.3. How would SSE Securities under Shanghai-Hong Kong Stock Connect be custodised for Hong Kong and overseas investors? Can investors hold SSE Securities acquired through Shanghai-Hong Kong Stock Connect in physical form? Since SSE Securities are issued in scripless form, physical deposits and withdrawals of SSE Securities into/from the CCASS Depository will not be available. As explained above, Hong Kong and overseas investors can only hold SSE Securities through their brokers/custodians. Their ownership of such is reflected in their brokers/custodians own records such as client statements. Chapter 5: Fees and Levies 5.1. How much does it cost to trade and settle SSE Securities under Shanghai-Hong Kong Stock Connect? Fees and taxes applicable to a Northbound trade: Items Rate Charged by Handling Fee 0.00487% of the consideration of a transaction per side SSE Securities Management Fee 0.002% of the consideration of a transaction per side CSRC Transfer Fee 0.002% of the consideration of a transaction per side ChinaClear Stamp Duty 0.1% of the consideration of a transaction on the seller SAT Taxes to the relevant regulators/authorities: Items Description Charged by Income tax Income tax would be temporarily exempted for 3 years SAT Dividend tax will be withheld by issuer and ChinaClear upon dividend payment. The New CCASS Fee, if implemented, will be collected in HKD on a monthly basis.
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