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Shanghai-Hong Kong Connect/Shenzhen-Hong Kong Connect

Overview

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 market access between the Mainland and Hong Kong.

The structure and operation of Shanghai and Shenzhen-Hong Kong Stock Connect

To facilitate Hong Kong and overseas investors trading in SSE Securities through Shanghai Connect (i.e. Northbound trading), SEHK has established an SEHK Subsidiary in Shanghai and Qianhai Shenzhen respectively, whose principal function is to receive orders to trade in SSE Securities from SEHK Participants and route them onto SSE’s trading platform for matching and execution on SSE.  Upon trade execution, trade confirmation received from SSE will be sent to SEHK Partcipants.

Same as the current arrangement for trading Hong Kong stocks, investors who want to participate in Shanghai and Shenzhen Connect will trade through SEHK Participants.  Investors should check with their SEHK Participants on any specific conditions that their SEHK Participants may require them to satisfy before accepting their Northbound orders. Northbound trades are executed on the SSE/SZSE platform, and therefore follow the SSE/SZSE market practices in general.

Northbound Trading

Hong Kong and overseas investors:
Under Shanghai stock Connect and Shenzhen stock Connect, SSE Securities and SZSE Securities that are eligible for trading(Shanghai stock Connect and Shenzhen stock Connect are called Northbound Trading)

Southbound Trading

Mainland investors:
able to trade selective SEHK Securities through SSE members and SZSE members(Hong Kong Connect is called Southbound Trading)

Shanghai Stock Connect


Investors and Stocks Eligibility

Eligible investors:
- All Hong Kong and overseas individual investors;
- All Hong Kong and overseas institutional investors.

 

Eligible stocks(Shanghai Stock Connect securities)
Component Index stocks SSE 180 Index
SSE 380 Index
Stocks listed on two stock exchange A share of listed PRC company on both SSE and SEHK*

*  SSE-listed shares which are under risk alert and SSE-listed shares which are not traded in RMB are excluded.

Shenzhen Stock Connect


Investors and Stocks Eligibility

Eligible investors:
- All Hong Kong and overseas individual investors;
- All Hong Kong and overseas institutional investors.

 

Eligible stocks  (Shenzhen Stock Connect securities)
Component Index stocks All the constituent stocks of the SZSE Component Index
SZSE Small/Mid Cap Innovation Index which have a market capitalization of not less than RMB 6 billion
ChiNext Board of SZSE (initial stage only for institutional professional investors)
Stocks listed on two stock exchange SZSE-listed A shares and SEHK -listed H hares

*SZSE-listed shares which are under risk alert or under delisting arrangement;and not traded in RMB.

Hong Kong Stock Connect


Investors and Stocks Eligibility

Eligible investors:
- Individual investors who hold an aggregate balance of not less               than RMB 500,000 in their securities and cash accounts;
- Mainland institutional investors.

Eligible stocks(Hong Kong Stock Connect securities)
Listed-main board securities Hang Seng Composite LargeCap Index (HSLI)
Hang Seng Composite MidCap Index (HSMI),
H shares which have corresponding A shares listed on SSE

* Hong Kong shares that are not traded in Hong Kong dollars (HKD); which have corresponding shares listed and traded on any exchange in Mainland China other than SSE; and H shares which have corresponding A shares put under risk alert.

The list of Exchange Participants, and ChinaClear Participants which fulfil the requirements is uploaded on HKEX website.

Eligible stocks list

Please refer to Eligible Stocks list(HKEX website). (The stock numbers Shanghai Connect and Shenzhen Connect are both 6-digit.)

Sell-only Securities

Only be allowed to sell an SEHK Security but restricted from further buying,Investors will only be allowed to sell but restricted from buying such SSE and SZSE Securities if:

  • such securities subsequently cease to be a constituent stock of the relevant indices;
  • placed under risk alert;
  • the corresponding H shares of such securities are subsequently delisted from SEHK (as the case may be);
  • such securities are, based on any subsequent periodic review, determined to have a market capitalisation of less than RMB 6 billion;(SZSE stock only)

Comparative Glossary of China and Hong Kong Financial Terms

As different market terms in the Mainland and Hong Kong, in order to facilitate Mainland investors in gaining a grasp of Hong Kong’s market information, the HKEX compiles the frequently-used financial terms in Hong Kong and Mainland China into a glossary of terms.Please visit the HKEX website for more details .Please visit the HKEX website for more details.

The above information is abstract of HKEX Shanghai-Hong Kong Stock Connect page which may be amended or changed according to implementation of the regime or relevant regulations, laws, agreements and preparation or edition of other documents.Please click here for more details.

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Daily Quota

The Daily Quota is applied on a “net buy” basis. Based on that principle, investors are always allowed to sell their cross-boundary securities regardless of the quota balance. SEHK monitors the usage of the Northbound Daily Quota on a real time basis, and the Northbound Daily Quota Balance for each market is and will be updated on the HKEX website every minute.

Daily Quota Balance = Daily Quota – Buy Orders + Sell Trades + Adjustments

The Daily Quota will be reset every day. Unused Daily Quota will NOT be carried over to next day’s Daily Quota.

If the Northbound Daily Quota Balance drops to zero or the Daily Quota is exceeded during the opening call auction 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.

Once the Northbound Daily Quota Balance drops to zero or the Daily Quota is exceeded during a continuous auction session, no further buy orders will be accepted for the remainder of the day. The same arrangement applies to the closing call auction of SZSE. It should be noted that buy orders already accepted will not be affected by the Daily Quota being used up and will remain on the order book of SSE and SZSE respectively unless otherwise cancelled by relevant SEHK Participants.

Trading Hours
Trading Session SSE Trading Hours SZSE Trading Hours Time for SEHK Participants to input Northbound orders
Opening Call Auction 09:15 – 09:25 09:15 – 09:25 09:10 – 11:30

12:55 – 15:00

Continuous Auction (Morning)) 09:30 – 11:30 09:30 – 11:30
Continuous Auction (Afternoon) 13:00 – 15:00 13:00 – 14:57
closing call auction session 14:57 – 15:00

09:20 – 09:25: SSE and SZSE will not accept order cancellation
09:10 – 09:15; 09:25 – 09:30; 12:55 – 13:00: Orders and order cancellations can be accepted by SEHK but will not be processed by SSE/SZSE until SSE’s/ SZSE’s market open.

Any buy or sell orders not executed during the opening call auction session will automatically enter the continuous auction session.

Any buy or sell orders not executed during the continuous auction session will automatically enter the closing call auction session.(Apply to SZSE Trading Session)

Details of trading and settlement procedures of Hong Kong connect,Shanghai connect and Shenzhen connect
Hong Kong Stock Connect  Shanghai Connect/Shenzhen Stock Connect
Investment quota Daily quota(10.5 billion) Daily quota(13 billion)
Order modify/ cancellations Accepted Not accepted order modify
Stock no. 5 digits 6 digits
Transaction Currency HKD RMB
Price Ranges Different securities have different price ranges.For details, please refer to the HKEX website uniformly set at RMB 0.01
Day trading Accepted Not accepted. Stocks purchased on T day can only be sold on or after T+1 day
Transaction Fee Stamp Duty;
Transaction Lev
Trading Fee
Trading Tariff
Stock settlement fee
Portfolio Fee
Handling Fee
Securities Management Fee
Transfer Fee
Stamp Duty
Trading board lot size Set by the listed company Unified at 100 shares per lot (buy orders must be in board lot)
Odd Lot Exchange will provide the market via information vendors with real-time information about the odd lot market to enhance market transparency.
In general, share prices of odd lots are slightly lower than that of the same security in the board lot market due to their lower liquidity.
Odd lot trading is only available for sell orders and all odd lots should be sold in one single order. It is common that a board lot buy order may be matched with different odd lot sell orders, resulting in odd lot trades.
Trading before settlement at any time Allowed Not allowed
Settlement Cycle Stock and money are settled on T+2day. stock is settled on T-day;Money is settled on T+1 day.

FAQ

Fees and Levies

Under Shanghai and Shenzhen Stock Connect, Hong Kong and overseas investors will be subject to the following fees and levies imposed by SSE, SZSE, ChinaClear, HKSCC or the relevant Mainland authority when they trade and settle SSE Securities and SZSE Securities:

Items Rate Charged by
Handling Fee 0.00487% of the consideration of a transaction per side SSE/SZSE
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 Shanghai / ChinaClear Shenzhen
0.002% of the consideration of a transaction per side HKSCC
Stamp Duty 0.1% of the consideration of a transaction on the seller SAT

All the above fees and levies will be collected from CCASS Participants’ designated bank accounts at day-end of T day.

Investors should note that certain existing CCASS fees still apply, including stock settlement fee for settlement instructions and money settlement fee. HKSCC also imposes a Portfolio Fee on its CCASS Participants for providing depository and nominee services for their SSE Securities and SZSE Securities held in CCASS. The Portfolio Fee will be collected in HKD on a monthly basis based on a single portfolio of SSE Securities and SZSE Securities of each CCASS Participant. The relevant fee arrangement may change subject to SFC’s approval.

Besides, taxes imposed by the State Administration of Taxation (SAT), including stamp duty and dividend tax will also be applied to the Northbound trades and SSE Securities acquired through Shanghai Connect as well as SZSE Securities acquired through Shenzhen Connect. Any additional tax imposed by the SAT, if applicable, will be subject to further clarification with the SAT.

Price Limit

  1. For SSE and SZSE Securities, there is a general price limit of ±10% based on previous closing price.
  2. For SSE Securities under risk alert(i.e. ST and *ST stocks), there is a price limit of ±5%.All orders input for SSE Securities must be at or within the price limit. Any order with a price beyond the price limit will be rejected by SSE. The upper and lower price limit will remain the same intra-day.
  3. The lower price limit of buy orders is 3% lower than the current bid price (In the absence of a current bid price, the latest bid price applies; if current bid price is absent, the previous closing price applies)

Trading Restriction

Short selling is prohibited in the mainland. Before placing sell orders, investors should ensure there are enough stocks in their account, otherwise the SSE will reject such orders.

Holiday

Investors will only be allowed to trade on the other market on days where Hong Kong and Mainland markets are both open for trading, and banking services are available in both Hong Kong and Mainland markets on the corresponding settlement days.If a Northbound trading day is a half trading day in the Hong Kong market, Northbound trading will continue until respective Connect Market is closed.

2018 Shanghai and Shenzhen Connect transaction log
Subscribe to the 2018 HKEX Calendar

Severe Weather Conditions

In the initial stage, the trading arrangement under severe weather conditions is as follows:

For Northbound trading

i. If SSE or SZSE is suspended due to inclement weather, there will be no Northbound trading on the relevant market and Hong Kong investors and CCEPs will be informed by SEHK;
ii. If typhoon signal number 8 or above and/or black rainstorm warning is issued in Hong Kong before the Hong Kong market opens, Northbound trading will not open. If the signal/warning is subsequently discontinued on the same day, arrangement for the resumption of Northbound trading will follow that for the SEHK market.Detailed arrangement is available on the HKEX website.
iii. if typhoon no. 8 or above is issued in Hong Kong after the Hong Kong market opens but before SSE’s market and SZSE’s market opens (between 9:00a.m. and 9:15a.m.), Northbound trading will not open; and
iv. If typhoon signal number 8 or above is issued in Hong Kong after SSE’s and SZSE’s market have opened, trading will continue for 15 minutes during which order put and cancellation will be allowed. After 15 minutes, only order cancellation is allowed until the close of SSE’s market or SZSE’s market.

Scenarios Northbound Trading of SSE/SZSE Securities Money Settlement(for T-1 position) Securities Settlement(for T position)
1.T8/Black rainstorm issued before HK market opens(i.e.9:00 a.m.)and discontinued after 12:00 noon Not open No N/A
2.T8 issued between 9:00a.m. and 9:15a.m. Not open Yes
3.T8 issued after SSE/SZSE market opens(i.e.9:15a.m.) Trading will continue for 15 minutes after T8 issuance, thereafter, only order cancellation is allowed till SSE/SZSE market close Yes Yes
4.Black rainstorm issued after HK market opens(i.e. 9:00a.m.) Trading continues as normal Yes Yes
5.T8/Black rainstorm discontinued at or before 12:00 noon Trading resumes after 2 hours Postpone to 3 p.m.

Similar to the holiday arrangement, HKEX will further consider whether there is any alternative arrangement or enhancement that can be done and will engage the market as appropriate.

For Southbound trading arrangement

It will be announced by SSE/SZSE in due course.
For details of the existing typhoon/rainstorm procedure for the Hong Kong market,please refer to the HKEX website.

Major risks associated with Shanghai and Shenzhen-Hong Kong Stock Connect

Not protected by Investor Compensation Fund
Neither northbound trading nor southbound trading of Stock Connect are covered by the Investor Compensation Fund in Hong Kong. Besides, China Securities Investor Protection Fund in Mainland does not cover any northbound trades of Shanghai/Shenzhen stocks.

Difference in trading day and trading hours
Stock Connect will open on days when both the Mainland and Hong Kong stock markets are open for trading, and banking services in Mainland and Hong Kong are available on the corresponding settlement day. Given the differences in public holidays and working days between Mainland and Hong Kong, it is possible that Stock Connect is closed and investors cannot trade in A-shares during the day when the A-share market is open for trading. Investors shall note of the business days of Stock Connect. They should consider if they can take on the risk of price fluctuations in the A-share market during the time when Stock Connect is closed.
In addition, there is difference in trading hours between the Mainland and Hong Kong stock markets. Trading hours for A-shares under Shanghai Connect and Shenzhen Connect is different from Hong Kong and investors shall beware of such difference.

Restrictions on selling imposed by front-end monitoring
For investors who keep their A-shares outside of brokerage firms, if they want to sell certain A-shares they hold, they must transfer those A-shares to the respective accounts of brokerage firms before the market opens on the day of selling (T day). If they fail to meet this deadline, they will not be able to sell those A-shares on T day.

Situations which buying is not allowable
Situations which buying is not allowable
A-shares removed from the list of eligible stocks under Shanghai Connect/Shenzhen Connect will only be allowed for selling but restricted from further buying. Investors shall beware of the change of the list of eligible A-shares.

If the Northbound daily quota of Shanghai Connect/Shenzhen Connect is used up, i.e. the daily quota balance of Shanghai Connect/Shenzhen Connect drops to zero or the daily quota is exceeded during a continuous auction session (or closing call auction for SZSE), no further buy orders will be accepted for the remainder of the day while sell orders will still be accepted. Buying services will be resumed on the next trading day. Buy orders already accepted will not be affected by the daily quota being used up and will remain on the order book of SSE/SZSE unless otherwise cancelled by the relevant brokers.

If the used up of Northbound daily quota happens during the opening call auction 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.

Mainland market risk

Market volatility risk
The Mainland stock market is relatively volatile as it is mostly made up of retail investors who tend to be speculative and susceptible to the central government policies and news.

Macro-economic risk
There is a close relationship between the Chinese economy and stock market performance. The Chinese economic growth is still above the global average, but has already shown signs of slowdown. Moreover, there is growing concern over the country’s government and corporate debts.

Currency risk
Hong Kong investors will expose to the risk of RMB exchange rate movements if they have to convert HKD into RMB for trading in Shanghai and Shenzhen A-shares. The conversion also incurs costs.
Movements in the RMB exchange rate will affect the profits and debts of the Mainland listed companies. Such effects will be more significant to those export-oriented companies and companies having debts denominated in currencies other than RMB.

Policy risk
Central government’s economic and financial policies will affect the performance of investment market. You shall beware of the central government policies for stimulating the economy or supporting different industries, as well as their different financial policies in respect of the currency, interest rate, credit and stock markets.

Risks relating to ChiNext Board of SZSE

Certain eligible A-shares under Shenzhen Connect are listed on the SZSE’s ChiNext Board, which will be limited to the institutional professional investors at the initial stage of Shenzhen Connect. Generally, stocks listed on ChiNext Board contain higher risk than those listed on Main Board.
Regulatory risk
The listing requirements of ChiNext Board are less stringent than Main Board and SME Board, e.g. requiring a shorter track record period and lower net profit, revenue and operating cash flow. Moreover, the disclosure rules applied to the ChiNext Board are different from Main Board and SME Board. For example, ad hoc reports of ChiNext companies are only required to be published on a CSRC designated website and on the issuers’ website. If investors continue to check information through the usual disclosure channels for Main Board and SME Board, they may miss out some important information disclosed by ChiNext companies.

Operating risk
Companies listed on ChiNext Board are generally in the early stage of development, whose business is unstable, profitability is low, and less resilient against market and industry risks. Operating risks experienced by these companies often include technical failure, new products are not well-received by the market, failure to catch up the market development and any changes in the founder, management team and core technician team.

Delisting risk
Compared to the Main Board, the proportion of companies delisting is higher on the ChiNext Board.

Fluctuation in stock price
As companies listed on ChiNext Board are relatively small and their business performance are unstable, they are more vulnerable to speculation. Share price of the ChiNext stocks is more volatile.

Technical risk
Companies listed on ChiNext Board are mainly high technology companies, whose success is subject to technical innovations. However, these companies are exposed to the risks and challenges relating to technical innovation, such as high R&D costs, technical failure, and rapid development and replacement in technology and product market.

Risks relating to valuation
Generally, it is difficult to estimate the value of a company listed on ChiNext Board as they are in the early stage of development with short operating history and unstable profits and cash flow. Therefore, traditional valuation method, such as price-to-earnings ratio and price-to-book ratio, is difficult to be applied.

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