China's stock connect between Hong Kong and Shenzhen will commence on December 5, allowing investors to buy and sell shares on each other's bourse, as part of the latest move to improve connectivity between the two capital markets. The China Securities Regulatory Commission (CSRC) and the Hong Kong Securities and Futures Commission (SFC) have approved the deal between the Shenzhen Stock Exchange, the Stock Exchange of Hong Kong, China Securities Depository and Clearing Corporation, and Hong Kong Securities Clearing Company, assuring mutual trading access between the Shenzhen and Hong Kong stock markets, the CSRC and SFC said in a joint statement.
The trading, clearing and other rules, as well as the daily quota mechanism and other regulatory and operational arrangements have been finalized, the statement said. "The stock exchanges and the clearing houses have completed a series of market rehearsals with participants in both markets reporting that systems are ready and contingency plans in place. Market training and investor education programs have also been conducted," the statement said.
The CSRC and SFC have agreed on the principles and arrangements for cross-boundary regulatory and enforcement cooperation relating to Shenzhen-Hong Kong Stock Connect, and have signed a memorandum of understanding on regulatory and enforcement cooperation. "This strengthens the enforcement cooperation between the CSRC and the SFC and signifies their joint commitment to take effective action against cross-boundary illegal activities and market misconduct to maintain an orderly market and protect investors," the statement said. All parties who intend to participate in the Shenzhen-Hong Kong Stock Connect must familiarize themselves with applicable regulatory requirements and operational rules, and ensure that proper internal controls and risk management procedures are in place, cautioned the two market regulators.
A similar link between the Shanghai and Hong Kong bourses was launched in November 2014. Both schemes allow investors on the mainland and those in Hong Kong to trade selected stocks on each other's exchanges within a fixed daily quota. The Shanghai-Hong Kong Stock Connect allows overseas investors to buy A-shares in Shanghai via Hong Kong stock brokers, while mainland investors can invest in Hong Kong stocks via mainland brokers. The Shenzhen-Hong Kong Stock Connect will strengthen Hong Kong's role as an international financial center, opening a new chapter for interconnectivity of capital markets between China's mainland and Hong Kong, Leung Chun-ying, chief executive of Hong Kong Special Administrative Region, said earlier this month. The expanded trading link will further strengthen mutual access between the two stock markets. Similar to the arrangements for the Shanghai-Hong Kong Stock Connect, the two regulators "have established mechanisms to protect the integrity of both markets" under the Shenzhen-Hong Kong Stock Connect, Carlson Tong, the SFC's chairman, said in a statement Friday. A total of 417 stocks on the Stock Exchange of Hong Kong are eligible for trading, and 881 stocks are eligible on the Shenzhen Stock Exchange, the two bourses said.