Long-awaited London-Shanghai stock connect goes live

Under the terms of an agreement (2 page / 271KB PDF) between the UK and Chinese financial regulators, companies will be able to dual-list on both the London and Shanghai Stock Exchanges using depositary receipts, which enable them to market ordinary shares outside their home countries.

The exchanges will establish conditions companies need to meet to participate in the scheme through their rule books. UK companies wanting to issue Chinese depositary receipts in Shanghai will have to be admitted to the main market of the London Stock Exchange and the premium segment of the UK Financial Conduct Authority’s (FCA) official list.

Meanwhile Chinese companies will need to have A-shares listed on the main board of the Shanghai Stock Exchange and for the global depositary receipts listed in London to be admitted to the official list.

There will be a maximum cross-border quota of capital flow, initially an aggregate of RMB 250 billion (£28.7bn) eastbound, and RMB 300 billion westbound. Only qualified securities firms will be able to conduct cross-border conversion business, and will be able to hold up to a maximum of RMB 500 million in the other market to shorten the conversion cycle and hedge market risk.

Chinese technology security group Huatai was the first company to take advantage of the new scheme as it listed on the London Stock Exchange on 17 June.

The concept of the Stock Connect was first raised in 2015 when the two countries called for feasibility studies. However Beijing-based finance and investment infrastructure expert Helena Chen of Pinsent Masons, the law firm behind Out-Law.com, warned at the time that it “could take years” before the idea became reality. Following the Brexit vote the China Securities Regulatory Commission said it needed to assess the impact of the UK’s withdrawal on the stock connect.

UK chancellor of the exchequer Philip Hammond said the stock connect was a “strong vote of confidence in the UK market” which would deepen the UK’s “global connectivity”.

Over 260 companies listed on the Shanghai exchange are potentially eligible to also list in London.