Shanghai-HK stock markets linked

A pilot program to connect the Shanghai and Hong Kong stock markets has been approved by China's top securities regulator.

Mutual stock market access between the mainland and Hong Kong will allow mainland and Hong Kong investors to trade easily on the other's market, according to a joint statement by the China Securities Regulatory Commission (CSRC) and the Hong Kong Securities and Futures Commission on Thursday.

It will take approximately six months to prepare for the formal launch of the program, the statement said.

The program will enable investors to trade eligible shares listed on the other's market through local securities firms or brokers, the statement said.

The pilot will operate between the Shanghai Stock Exchange, the Stock Exchange of Hong Kong Limited, China Securities Depository and Clearing Corporation Limited and Hong Kong Securities Clearing Company Limited, it said.

The Shanghai-Hong Kong Stock Connect marks an important step in opening up the Chinese capital market and will enhance capital market connectivity between the Chinese mainland and Hong Kong, according to the statement.

The program also brings many benefits, including a strengthening of China's capital markets through cooperation and competitiveness of both markets, as well as further consolidation of Shanghai and Hong Kong's positions as financial centers, it said.

The program will also promote the internationalization of the Chinese currency RMB and development of Hong Kong as an offshore RMB business center, as mainland investors can participate in the Hong Kong stock market using RMB.

It will also expand investment channels for offshore RMB funds and help the flow of RMB funds between the two markets, according to the statement.

The pilot program allows a maximum cross-border investment of 550 billion yuan (90 billion U.S. dollars) and a daily two-way quota of 23.5 billion yuan.

The program will operate on a trading day of both the SSE and SEHK and where the clearing arrangements are in order. SSE 180, SSE 380, the Hang Seng Composite LargeCap and Hang Seng Composite MidCap shares are all eligible. Mainland participants are limited to institutional investors, and individuals who hold more than 500,000 yuan in their securities and cash accounts.

Premier Li Keqiang said on Thursday that China will actively create conditions to establish a Shanghai-Hong Kong stock exchange connectivity mechanism to promote two-way opening-up and capital market development.

K C Chan, Hong Kong's Secretary for Financial Services and the Treasury told Xinhua on Thursday that the connectivity scheme is a "significant breakthrough". The scheme is expected to diversify the Shanghai stock market investor portfolio, dominated by individual investors, compared to a vast number of international investors in the Hong Kong stock market. The scheme will also attract investors to Hong Kong and enhance the capital source in Hong Kong's RMB market, he said.

Because the connectivity scheme is a pilot program, multiple regulations have been designed in order to control risks, Chan said. "We look forward to its formal launch within six months," he said.

During Thursday's trading, the Shanghai Composite Index rose 1.38 percent to finish at 2,134.3, while the Hang Seng Index closed at 23,186.96, up 1.51 percent.