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Shanghai-Hong Kong Stock Connect Starts Trading Tests

by Mary Swire, Lowtax.net, Hong Kong
21 August, 2014

With the beginning of trading tests in both cities, a significant stage has been reached in development towards the Shanghai-Hong Kong Stock Connect (SHKSC), a pilot program to establish stock market trading links through local securities firms or brokers.

While it is reported that the Shanghai Stock Exchange (SSE) began its first trading tests for investments in selected Hong Kong stocks on August 11, the Stock Exchange of Hong Kong (SEHK) will start its tests for investing in Shanghai on August 23.

The pilot program will, for the first time, allow eligible Mainland investors to trade stocks listed on the SEHK directly through the SSE. At the same time, it will also allow Hong Kong and overseas investors to trade, for the first time, stocks listed on the SSE directly through the SEHK.

Preparatory work to launch SHKSC has been proceeding since its announcement by Chinese Premier Li Keqiang at the Boao Asia Forum on April 10 this year. A six-month preparation period was then envisaged, and it is still expected that actual trading will commence in mid-October, after all possible problems in adapting the two different systems on the Mainland and in Hong Kong have been ironed out.

While there will be upper limits on the extent of trading when SHKSC first starts, it can be expected that the quotas will be increased after an initial period.

For the Mainland, it is hoped that SHKSC will help increase the participation of institutional investors in the Shanghai securities market, enable Mainland investors to invest in overseas markets in an orderly way, enhance the opening up of the Mainland's capital market and promote RMB internationalization.

For Hong Kong Exchanges and Clearing (HKEx), SHKSC should strengthen the co-operation and interaction between the Hong Kong and the Mainland markets and the two-way RMB funds flow between the onshore and offshore markets, while further increasing the liquidity of the offshore RMB market in Hong Kong.

HKEx has also talked previously of a strategy that could extend the initial equity-based SHKSC project into currency and fixed income products in three to five years, when it anticipates efforts also to collaborate with other Shanghai and Chinese exchanges.

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