On 17 June 2019, the China Securities Regulatory Commission (CSRC) and the Financial Conduct Authority of the United Kingdom (FCA) released a joint announcement (Announcement) approving the launch of the Shanghai-London Stock Connect (Stock Connect).
The Stock Connect is aimed at providing investors and listed companies in the United Kingdom and China with mutual access to the capital markets of the Shanghai and London stock exchanges for investment and financing activities and has been lauded as a landmark in the two countries' cooperation in the sphere of financial markets. The salient points of the Announcement are as follows:
- The Stock Connect is a two-way arrangement between the Shanghai Stock Exchange and the London Stock Exchange which comprises both "eastbound" and "westbound" limbs:
(a) the eastbound limb allows eligible companies listed on the London Stock Exchange to issue Chinese depository receipts (CDRs) to Chinese investors and apply for them to be listed on the Main Board of the Shanghai Stock Exchange; and
(b) the westbound limb allows eligible companies listed on the Shanghai Stock Exchange to issue global depository receipts (GDRs) to UK and global investors and apply for them to be listed on the London Stock Exchange's Main Market.
- Several conditions precedent apply to potential participants of the Stock Connect. For example, Shanghai Stock Exchange rules will subject eastbound CDR issuers to the requirement that they be admitted to the Main Market of the London Stock Exchange and the premium segment of the FCA's Official List. In turn, London Stock Exchange rules will require that westbound GDR issuers be companies with A-shares listed on the Main Board of the Shanghai Stock Exchange and for the GDRs to also be admitted to the FCA's Official List.
- Only qualified securities institutions in each of the Shanghai and London markets may conduct cross-border conversion business in relation to CDRs and GDRs in the initial stage. It is expected that the range of eligible market participants could be adjusted in consideration of the operation of the Stock Connect and the demands of the market.
- Restrictions also apply to the conduct of cross-border conversion business by qualified securities institutions in each of the two markets in relation to CDRs and GDRs according to the rules and regulations of cross-border fund management set out by the People's Bank of China and the State Administration of Foreign Exchange. These include capital flow restrictions. Specifically, the eastbound aggregate quota is RMB250 billion and the westbound aggregate quota is RMB300 billion.
- The laws and regulations of the jurisdiction where depository receipts are to be issued and listed shall govern their offering and listing. Additionally, as companies that make use of the Stock Connect are already listed on either the Shanghai Stock Exchange or the London Stock Exchange, such companies will remain subject to obligations in their place of registration, as well as the place where their underlying securities are listed.
Offshore incorporated companies remain popular as the listing vehicles on international stock exchanges, and there are a growing number of such companies listed on the Main Market and AIM of the London Stock Exchange, including but not limited to companies incorporated in Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, Jersey, the Isle of Man, and Mauritius.
With a spectrum of expertise, Appleby's capital markets specialists are able to provide commercial and practical legal advice on a wide range of capital market deals, in particular in respect of the jurisdictions mentioned above. If you have any questions, please contact your usual Appleby contact.
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