Original title: The Mainland and Hong Kong Interconnection Mechanism Expands A-Shares and Re-introduces ETF “Living Water”
Economic Observer Network reporter Liang JiOn May 27, 2022, the China Securities Regulatory Commission and the Hong Kong Securities Regulatory Commission jointly announced that in order to further deepen the interconnection between the mainland and Hong Kong stock markets and promote the common development of the capital markets of the two places, it is agreed in principle that the two exchanges will meet the conditions of trading. Open-ended funds (Exchange Traded Funds) (hereinafter referred to as “ETFs”) are included in the Connectivity.
It is reported that the Shanghai Stock Exchange, Shenzhen Stock Exchange, Hong Kong Stock Exchange, China Securities Regulatory Commission and Hong Kong Securities Clearing Company Limited have reached a consensus in December 2021 on the inclusion of ETFs in the overall interconnection plan. The China Securities Regulatory Commission stated that from the date of the joint announcement to the official implementation, it will take about two months to prepare, and the official implementation time will be announced separately.
Ou Guansheng, CEO of HKEX Group, said that the inclusion of ETFs is another landmark achievement of the upgrade of the interconnection mechanism. The inclusion of ETF as the subject of interconnection can meet the higher requirements of all parties in the market for interconnection, create a win-win situation for the mainland and Hong Kong markets, and promote the sustainable development of the two markets. We look forward to continuing to work together with mainland partners and market parties to promote the continuous upgrading of the interconnection mechanism between the two markets.
ETFInclude Connectivity
On May 27, the China Securities Regulatory Commission publicly solicited opinions from the public on the “Announcement on the Inclusion of Exchange-Based Open-End Funds in Relevant Arrangements for Interconnection” (hereinafter referred to as the “Announcement”). There are five main contents of the “Announcement”:
First, it is clear that the interconnection mechanism will be extended to exchange-traded open-end funds。Mainland and Hong Kong investors can buy and sell stocks listed on each other’s exchanges and fund shares of exchange-traded funds within the prescribed scope through local securities companies or brokers.
The second is to clarify relevant institutional arrangements with reference to stock interconnection。Transaction-based open-end funds are included in the interconnection transaction, registration and settlement arrangements, investor suitability, cross-border regulatory cooperation between the two places, etc., and shall be implemented with reference to the “Several Provisions on Connectivity”. In addition, it is clarified that foreign investors investing in domestic exchange-traded open-end funds through interconnection do not apply Article 12 of the Several Provisions on Connectivity.
The third is to clarify the investor identification code arrangement。Exchanged open-end funds are included in the interconnection and are subject to the northbound investor identification code system and the southbound investor identification code system.
Fourth, it is clear that securities companies、Requirements for public fund managers。Securities companies and fund managers of publicly offered securities investment funds shall abide by relevant laws and regulations when conducting business related to exchange-traded funds under the Southbound Stock Connect. The Interim Regulations on Securities and Fund Management Institutions Using Hong Kong Institutional Securities Investment Consulting Services and other relevant regulations shall be implemented.
Fifth, clarify the relevant arrangements for business implementation rules。The Shanghai Stock Exchange, Shenzhen Stock Exchange and China Clearing are required to formulate or revise relevant business rules respectively, which will be implemented after being approved by the China Securities Regulatory Commission.
The China Securities Regulatory Commission announced that after ETFs are included in the interconnection, mainland and Hong Kong investors can buy and sell stocks and ETF fund shares listed on each other’s exchanges within the prescribed scope through local securities companies or brokers. The ETF is included in the interconnection based on the infrastructure connection of the stock interconnection. The main institutional arrangements refer to the stock interconnection and follow the current fund operation, transaction settlement laws and regulations and operation mode of the two places.Mainland and Hong Kong investors invest in each other through the interconnection mechanismETF，Can only be traded on the secondary market，Subscription redemption is not allowed。ETFInvestment quota and stock investment quota are calculated and managed together。
So far, following the Shanghai-Shenzhen and Hong Kong Stock Connect, the Mainland-Hong Kong Bond Connect, and the Guangdong-Hong Kong-Macao Greater Bay Area Cross-border Wealth Management Connect, the inclusion of ETFs has further expanded the China-Hong Kong securities interconnection mechanism.
Exchange clearETFInterconnection Standard
On May 27, the Shanghai and Shenzhen Stock Exchanges publicly solicited opinions from the public on the relevant rules for ETFs to be included in the interconnection target.
On the basis of the existing Shanghai-Shenzhen-Hong Kong Stock Connect mechanism, the stock ETFs in the mainland and Hong Kong markets that meet certain conditions will be included in the scope of the interconnection target. The inclusion criteria are that the average daily asset size of ETFs in the mainland market in the past 6 months has reached 1.5 billion yuan, and the constituent securities are mainly the underlying stocks of Shanghai and Shenzhen Stock Connect; the average daily asset size of ETFs in the Hong Kong market in the past 6 months has reached 1.7 billion Hong Kong dollars. , the constituent securities are mainly the underlying stocks of Hong Kong Stock Connect, and do not include synthetic ETFs, leveraged and inverse products. To be included in the underlying ETF, it must meet the requirements of listing for 6 months and the release of the underlying index for one year.
In principle, the included ETFs are adjusted semi-annually. In terms of trading mechanism, daily quota control, investor suitability management, regulatory cooperation, clearing and settlement, and risk control arrangements, it is basically the same as the existing stock mechanism of Shanghai-Shenzhen-Hong Kong Stock Connect, which is limited to secondary market transactions.
The Shanghai and Shenzhen Stock Exchange stated that the inclusion of the ETF as the subject of the Shanghai-Hong Kong Stock Connect is an important measure to implement the spirit of the Central Economic Work Conference and the special meeting of the Financial Committee of the State Council. In the next step, we will make various business and technical preparations in a solid and orderly manner to ensure the smooth implementation of ETF inclusion work, actively create a market environment conducive to medium and long-term funds entering the market, continue to promote the in-depth integration of the mainland and Hong Kong capital markets, and ensure the capital of the two places. The healthy and stable development of the market.
The Hong Kong Stock Exchange’s notification shows that in the ETF Northbound Connect, eligible ETFs will be suspended from buying and only available for selling if they meet any of the following conditions during the subsequent regular adjustment and inspection: First, the daily average of the relevant ETF in the past six months. The asset size is less than RMB 1 billion. Second, among the underlying indices being tracked, the weight of stocks listed on the Shanghai Stock Exchange and Shenzhen Stock Exchange is less than 85%, or the weight of SSE and SZSE stocks is less than 70%. 3. The underlying index to be tracked and its compilation plan meet any of the following conditions: the weight of a single component of a broad-based stock index exceeds 30%; the number of constituent stocks of a non-broad-based stock index is less than 30; the weight of a single component security exceeds 15%, or The total weight of the top five constituent securities exceeds 60%; or the constituent stocks whose average daily trading value in the past year is in the top 80% of the stocks listed on the stock exchange where they are listed, their total weight ratio is less than 90%.
CICC believes that the expansion of connectivity to ETF products will further promote the opening of A-shares to overseas investors and the opening of Hong Kong stocks and other products to mainland investors. It will also have a positive and far-reaching impact on the two markets, which will directly benefit A Asset managers, brokerages and exchanges in both stocks and Hong Kong stocks.
Wind data shows that as of May 27, the cumulative net purchase amount of northbound funds during the year was 66.791 billion yuan. Since the opening of Shanghai-Shenzhen-Hong Kong Stock Connect, the accumulated net purchase amount of northbound funds has reached 1.61 trillion yuan. Among them, the cumulative net purchase of Shanghai Stock Connect was 835.907 billion yuan, and the cumulative net purchase of Shenzhen Stock Connect was 776.596 billion yuan.Return to Sohu, see more
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