The highly anticipated Shanghai-London Stock Connect mechanism, first proposed in 2015, is likely to launch in early December, according to reports.
Shanghai Securities News reported the Shanghai Stock Exchange will start 24-hour technical debugging tests at securities brokerages from Oct 15 to mid November. Another three tests are scheduled from late October to late November covering business functions, business systems, emergency scenarios and fault detection.
An overall test is likely to take place at the start of December. If everything proceeds smoothly, the stock connect mechanism will start operation on Dec 3 at the earliest, according to Shanghai Securities News.
In late August, the China Securities Regulatory Commission started to seek public opinion on rules concerning the issuance standards for Chinese Depository Receipts, as well as other preparatory work related to the launch of the trading program.
The Shanghai Stock Exchange said on its official website that eligible Shanghai-listed companies will be encouraged to issue Global Depository Receipts in London. The stock exchange released technical instructions on Sept 3 for CDR participants under the new stock connect mechanism.
In the early stages, individuals wishing to trade in CDRs under the Shanghai-London Stock Connect are required to have at least 3 million yuan ($436,000) of capital in their personal accounts daily, excluding capital made via margin trading. This daily minimum amount must be maintained for 20 trading days before their application receives approval.
Blue-chip companies listed in London for at least three years are able to issue CDRs provided their market value is at least 20 billion yuan.
Huatai Securities Co Ltd announced on Sept 25 that it will apply to issue GDRs on the main market of the London Stock Exchange, making it the first company with a disclosed plan to take part in the Shanghai-London trading program.
Guotai Junan Securities said the Shanghai-London Stock Connect will further promote the internationalization of China’s capital market, with Chinese investors able to invest in overseas products via the local market. A-share listed companies will be able to seek financing from overseas. The mechanism will also support companies conducting cross-border mergers and acquisitions, according to the securities firm.
Shenwan Hongyuan Securities forecast that if all the London-listed FTSE 100 companies get listed on the Chinese mainland’s A-share market by issuing CDRs, the total financing amount will reach 880 billion yuan in five years’ time. Likewise, if all the Shanghai-listed SSE 180 companies issue GDRs on the London bourse, the total financing amount will hit 890 billion yuan in five years.
Yang Delong, chief economist at Shenzhen, Guangdong province-based First Seafront Fund, said the launch of the trading program between Shanghai and London will bring more overseas capital into the A-share market, especially for institutions that focus on long-term value investment.
“This will inject more vitality into the A-share market,” he said.