The Shenzhen-Hong Kong Stock Connect is closer to becoming a reality, after the Stock Exchange of Hong Kong and Hong Kong Securities Clearing Company signed an agreement with the Shenzhen Stock Exchange and China Securities Depository and Clearing Corporation on Tuesday.
The agreement marks another step forward in mutual market access.
The mechanism also builds on the successful Shanghai-Hong Kong Stock Connect to allow investors to buy and sell shares listed in the Chinese mainland and Hong Kong markets.
Wang Jianjun, General Manager of Shenzhen Stock Exchange, said the test of technical systems is starting soon.
"From October 17th to early November we will conduct tests in a simulated trading environment," Wang announced.
The agreement signed is a framework agreement for the Shenzhen-HK Connect, defines the rights and obligations of the parties and covers the main business arrangements of the mechanism, such as stock trading, settlement and market supervision.
Charles Li, CEO of Hong Kong Stock Exchanges & Clearing, believed the southbound trading in the program will have much higher volume than the northbound trading will have in the long run.
"There will be a huge amount of money flowing in from institutional investors. Looking ahead, mainland investors will gradually start building up their global portfolio," Li said.
The bar for trading in the stock connect program is high. Only institutional investors are allowed to participate if they want to buy and sell Shenzhen stocks at the moment. In the future, the program would gradually allow other investors to trade startup stocks in Shenzhen.
If investors want to trade Hong Kong shares via the program, they need to have a 500,000 yuan (74,300 U.S. dollars) cash deposit in their trading account.
