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Shanghai-Hong Kong Stock Connect
Shanghai-Hong Kong Stock Connect
 
What is Shanghai-Hong Kong / Shenzhen-Hong Kong Stock Connect?
Shanghai-Hong Kong / Shenzhen-Hong Kong Stock Connect is a securities trading and clearing links programme developed by Hong Kong Exchanges and Clearing Limited ("HKEx"), Shanghai Stock Exchange ("SSE"), Shenzhen Stock Exchange ("SZSE") and China Securities Depository and Clearing Corporation Limited ("ChinaClear").
 
This new cross-border investment channel will enable investors in Hong Kong and the Mainland China to trade a specified range of listed stocks in each other's market through their respective local securities companies. Hong Kong and foreign investors will be able to trade SSE/SZSE securities through Northbound Trading while Mainland investors will be able to trade SEHK shares through Southbound Trading.
 
 
Northbound Trading Service (Investment in SSE/SZSE securities)
The following is the basic information of Northbound Trading:
(Information Reference: HKEx Information Book for Investors, Version Date 17 August 2018)
 
 
Quota
Eligible Shares
Settlement
Trading Days
Trading Hours
Pre-trade Checking
Trading Rules
Dynamic Price Check
Disclosure Obligations
Shareholding Restrictions and Force-sale
Fees and Levies
Major Risks
 
 
Quota
The Daily Quota limits the maximum net buy value of cross-boundary trades under each of Shanghai and Shenzhen Connect each day. The Northbound Daily Quota is set at RMB 52 billion for each of Shanghai Connect and Shenzhen Connect. SEHK monitors the usage of the Northbound Da ily Quota on a real time basis, and the Northbound Daily Quota Balance for each market is and will be updated on the HKEX website every minute:
Daily Quota Balance = Daily Quota – Buy Orders + Sell Trades + Adjustments (e.g. Buy Order cancelled, Buy Order rejected by market, Buy Order executed at a better price)
The Daily Quota will be reset every day. Unused Daily Quota will NOT be carried over to next day's Daily Quota. If the Northbound Daily Quota Balance drops to zero or the Daily Quota is exceeded during the opening call auction session, new buy orders will be rejected. However, as order cancellation is common during opening call auction, the Northbound Daily Quota Balance may resume to a positive level before the end of the opening call auction. When that happens, SEHK will again accept Northbound buy orders.
Once the Northbound Daily Quota Balance drops to zero or the Daily Quota is exceeded during a continuous auction session, no further buy orders will be accepted for the remainder of the day. The same arrangement applies to the closing call auction. It should be noted that buy orders already accepted will not be affected by the Daily Quota being used up and will remain on the order book of SSE and SZSE respectively unless otherwise cancelled by customers.
 
 
 
 
Eligible Shares
Under Shanghai Connect, SSE Securities that are eligible for trading by investors include all the constituent stocks of the SSE 180 Index and the SSE 380 Index, and all the SSE-listed A shares that are not included as constituent stocks of the relevant indices but which have corresponding H shares listed on SEHK, except the following:
(a) SSE-listed shares which are not traded in RMB; and
(b) SSE-listed shares which are under risk alert.
Under Shenzhen Connect, SZSE Securities that are eligible for trading by Hong Kong and overseas investors include all the constituent stocks of the SZSE Component Index and the SZSE Small/Mid Cap Innovation Index which have a market capitalization of not less than RMB 6 billion, and all the SZSE-listed A shares which have corresponding H shares listed on SEHK, except the following:
(a) SZSE-listed shares which are not traded in RMB; and
(b) SZSE-listed shares which are under risk alert or under delisting arrangement.
For the list of eligible stocks, please refer to HKEX's website at http://www.hkex.com.hk.
At the initial stage of Shenzhen Connect, investors eligible to trade shares that are listed on the ChiNext Board of SZSE under Northbound trading will be limited to institutional professional investors. In this connection, the bank will not provide the trading service of such stocks.
 
 
 
 
Settlement
Stocks are settled on trade date ("T") day while money is settled on T +1 day.
The settlement currency is RMB.
 
 
 
 
Trading Days
Northbound trading will be available only when both markets are opened for trading and banking services are available in both markets on the corresponding money settlement days.
 
The follow table illustrates the arrangement for Northbound trading.
 
Hong Kong
Mainland
Open for Northbound Trading?
Day-1
Business Day
Business Day
Yes
Day-2
Business Day
Business Day
No^
Day-3
Public Holiday
Business Day
No
Day-4
Business Day
Public Holiday
No
^Since Day-3 is Hong Kong holiday, no settlement service will be provided. Therefore, Northbound trading will not be available on Day-2.
 
If a Northbound trading day is a half trading day in Hong Kong market, Northbound Trading will continue until SSE/SZSE market is closed.
 
 
 
 
Trading Hours
Northbound trading follows SSE's and SZSE's trading hours. However, SEHK will accept Northbound orders from SEHK Participants five minutes before the Mainland market sessions open in the morning and in the afternoon.
Trading Session
Trading Hour
Opening Call Auction
09:15-09:25
Continuous Auction (Morning)
09:30-11:30
Continuous Auction (Afternoon)
13:00-14:57
Closing Call Auction
14:57-15:00
09:20 – 09:25;14:57-15:00: SSE & SZSE will not accept order cancellation
09:10 – 09:15; 09:25 – 09:30; 12:55 – 13:00: Orders and order cancellations can be accepted by SEHK but will not be processed by SSE nor SZSE until their market open
Any buy or sell orders not executed during the opening call auction session will automatically enter the continuous auction session. Any buy or sell orders not executed during the continuous auction session will automatically enter the closing call auction session.
 
 
 
 
Pre-trade Checking
In respect of SSE regulations, investors have to make sure that they have sufficient shares in their accounts before selling. Hence, investors must have sufficient shares in their accounts on T-1 if they want to sell their shares on T.
 
 
 
 
Trading Rules
1. Stock Code
6 digits
2. Modify Order
Not available
3. Day (Turnaround) Trade
Not available
4. Manual Trade
Not available
5. Trading Currency
RMB
6. Board Lot
100 shares (applicable for buy orders only)
7. Odd Lot
Sell orders only
8. Maximum Order Size
1 million shares
9. Spread
Uniform at RMB0.01
10. Price Limit
+/- 10% on previous closing price (+/- 5% for stocks under special treatment in the risk alert board)
11. Order Types
Limit Orders only
12. Block Trade
Not allowed
13. Covered Short Selling
The bank does not accept any short selling transaction under Shanghai Connect or Shenzhen Connect
14. Margin Trading
The bank does not provide the margin trading service under Shanghai Connect or Shenzhen Connect
15. Stock Borrowing & Lending (SBL)
The bank does not provide the SBL service under Shanghai Connect or Shenzhen Connect
 
 
 
 
Dynamic Price Check
During Opening Call Auction, the current bid (or previous closing price in the absence of the current bid) will be used for checking. During Closing Call Auction, the current bid (or last traded price in the absence of the current bid) will be used for checking. Dynamic price checking will be applied throughout the trading day, from the 5-minute input period before the start of Opening Call Auction until market close. SEHK has set the dynamic price checking at 3% during the initial phase and may be adjusted from time to time subject to market conditions.
 
 
 
 
Disclosure Obligations
According to the Law of the PRC on Securities, when an investor holds or controls up to 5% of the issued shares of a Mainland listed company, the investor is required to report in writing to the CSRC and the relevant exchange, and inform the listed company within three working days. The investor is not allowed to continue purchasing or selling shares in that listed company during those three days.
For such investor, every time a change in his shareholding reaches 5%, he is required to make disclosure (in the same manner as mentioned above) within three working days. From the day the disclosure obligation arises to two working days after the disclosure is made, the investor may not buy or sell the shares in the relevant Mainland listed company.
If a change in shareholding of the investor is less than 5% but results in the shares held or controlled by him falling below 5% of the relevant Mainland listed company, the investor is required to disclose the information within three working days.
 
 
 
 
Shareholding Restrictions and Force-sale
Under current PRC rules, a single foreign investor's shareholding in a listed company (regardless of the channels through which shares in such listed company are held, including through QFII, RQFII and Shanghai and Shenzhen Connect) is not allowed to exceed 10% of the company's total issued shares, while all foreign investors' shareholding in the A shares of a listed company is not allowed to exceed 30% of its total issued shares.
When the aggregate foreign shareholding of an individual A share reaches 26%, SSE or SZSE, as the case may be, will publish a notice on its website:
SSE: http://www.sse.com.cn/disclosure/diclosure/qfii
SZSE: http://www.szse.cn/main/disclosure/news/qfii/
If the aggregate foreign shareholding exceeds the 30% threshold, the foreign investors concerned will be requested to sell the shares on a last-in-first-out basis within five trading days.
SSE Securities purchased through Shanghai Connect and SZSE Securities purchased through Shenzhen Connect will be considered in totality with those purchased by QFII and RQFII, and subject to the same foreign shareholding restriction.
Once SSE/SZSE informs SEHK that the aggregate foreign shareholding of an SSE/SZSE Security reaches 28%, further Northbound buy orders in that SSE/SZSE Security will not be allowed, until the aggregate foreign shareholding of that SSE/SZSE Security is sold down to 26%.
If the 30% threshold is exceeded due to Shanghai Connect or Shenzhen Connect, HKEX will identify the relevant SEHK Participant and require it to follow the forced-sale requirements.
HKEX will publish a notification on its website to inform the market about suspension of buy orders if the shareholding limit goes beyond 28% and about the resumption of buy orders if the shareholding drops below 26%.
 
 
 
 
Fees and Levies
Fees and levies related to Northbound trades under Shanghai-Hong Kong / Shenzhen-Hong Kong Stock Connect are as follows:
Items Rate (Paid by) Charged by
Handling Fee 0.00487% of transaction Amount (Buyer and Seller) SSE/SZSE
Securities Management Fee 0.002% of transaction amount (Buyer and Seller) China Securities Regulatory Commission (CSRC)
Transfer Fee 0.002% of transaction Amount (Buyer and Seller) ChinaClear Shanghai /
ChinaClear Shenzhen
0.002% of transaction Amount (Buyer and Seller) Hong Kong Securities Clearing Company Limited (HKSCC)
Stamp Duty 0.1% of transaction amount (Seller) State Administration of Taxation (SAT)
All the above fees and levies will be collected from CCASS Participants' designated bank accounts at day-end of T day.
Customer should note that certain existing CCASS fees still apply, including stock settlement fee for settlement instructions and money settlement fee. HKSCC also imposes a Portfolio Fee on its CCASS Participants for providing depository and nominee services for their SSE Securities and SZSE Securities held in CCASS. The Portfolio Fee will be collected in HKD on a monthly basis based on a single portfolio of SSE Securities and SZSE Securities of each CCASS Participant. The relevant fee arrangement may change subject to SFC's approval.
Besides, taxes imposed by the State Administration of Taxation (SAT), including stamp duty and dividend tax will also be applied to the Northbound trades and SSE Securities acquired through Shanghai Connect as well as SZSE Securities acquired through Shenzhen Connect. Any additional tax imposed by the SAT, if applicable, will be subject to further clarification with the SAT.
Dividend tax will be withheld by issuers of Connect Securities and ChinaClear upon dividend payment.
 
 
 
 
Major Risks
The following is an overview of some of the major risks related to Shanghai-Hong Kong Stock Connect / Shenzhen-Hong Kong Stock Connect
(Information excerpted from the website of Investor Education Center – "The Chin Family")
(1) Not protected by Investor Compensation Fund
Neither northbound trading nor southbound trading of Stock Connect are covered by the Investor Compensation Fund in Hong Kong. Besides, China Securities Investor Protection Fund in Mainland does not cover any northbound trades of Shanghai/Shenzhen stocks.
(2) Difference in trading day and trading hours
Stock Connect will open on days when both the Mainland and Hong Kong stock markets are open for trading, and banking services in Mainland and Hong Kong are available on the corresponding settlement day. Given the differences in public holidays and working days between Mainland and Hong Kong, it is possible that Stock Connect is closed and investors cannot trade in A-shares during the day when the A-share market is open for trading. Investors shall note of the business days of Stock Connect. They should consider if they can take on the risk of price fluctuations in the A-share market during the time when Stock Connect is closed.
In addition, there is difference in trading hours between the Mainland and Hong Kong stock markets. Trading hours for A-shares under Shanghai Connect and Shenzhen Connect is different from Hong Kong and investors shall beware of such difference.
(3) Restrictions on selling imposed by front-end monitoring
For investors who keep their A-shares outside of brokerage firms, if they want to sell certain A-shares they hold, they must transfer those A-shares to the respective accounts of brokerage firms before the market opens on the day of selling (T day). If they fail to meet this deadline, they will not be able to sell those A-shares on T day.
(4) Situations which buying is not allowable
Under the following situations, investors cannot buy shares, but can only sell their holding through the stock trading link.
A-shares removed from the list of eligible stocks under Shanghai Connect/Shenzhen Connect will only be allowed for selling but restricted from further buying. Investors shall beware of the change of the list of eligible A-shares.
If the Northbound daily quota of Shanghai Connect/Shenzhen Connect is used up, i.e. the daily quota balance of Shanghai Connect/Shenzhen Connect drops to zero or the daily quota is exceeded during a continuous auction session or closing call auction session, no further buy orders will be accepted for the remainder of the day while sell orders will still be accepted. Buying services will be resumed on the next trading day. Buy orders already accepted will not be affected by the daily quota being used up and will remain on the order book of SSE/SZSE unless otherwise cancelled by the relevant brokers.
  If the used up of Northbound daily quota happens during the opening call auction session, new buy orders will be rejected. However, as order cancellation is common during opening call auction, the Northbound daily quota balance may resume to a positive level before the end of the opening call auction. When that happens, SEHK will again accept Northbound buy orders.
(5) Mainland market risk
Market volatility risk
The Mainland stock market is relatively volatile as it is mostly made up of retail investors who tend to be speculative and susceptible to the central government policies and news.
Macro-economic risk
There is a close relationship between the Chinese economy and stock market performance. The Chinese economic growth is still above the global average, but has already shown signs of slowdown. Moreover, there is growing concern over the country's government and corporate debts.
Currency risk
Hong Kong investors will expose to the risk of RMB exchange rate movements if they have to convert HKD into RMB for trading in Shanghai and Shenzhen A-shares. The conversion also incurs costs.
Movements in the RMB exchange rate will affect the profits and debts of the Mainland listed companies. Such effects will be more significant to those export-oriented companies and companies having debts denominated in currencies other than RMB.
Policy risk
Central government's economic and financial policies will affect the performance of investment market. You shall beware of the central government policies for stimulating the economy or supporting different industries, as well as their different financial policies in respect of the currency, interest rate, credit and stock markets.
 
 
 
  Please visit any OCBC Wing Hang branches for services enquiry.
  Shanghai-Hong Kong / Shenzhen-Hong Kong Stock Connect Security Trading Hotline: 2922 6621
 
 
Disclaimer
The information and materials about Shanghai-Hong Kong / Shenzhen-Hong Kong Stock Connect are prepared according to the prevailing information provided by HKEx and may be subject to further amendments or changes in the course of implementation of Shanghai and Shenzhen Connect. The information related to the Major Risks is excerpted from the website of Investor Education Center – "The Chin Family".
   
Important Notices and Risk Warning
Please note that investment involves risks, including the substantial loss of the principal amount invested. The prices of investment products may move up or down, sometimes dramatically, and may become valueless. Past performance is not indicative to future performance. It is as likely that losses will be incurred rather than profits made as a result of buying and selling in investment products. If the investment involves Renminbi, you should note that the value of Renminbi against other currencies fluctuates and will be affected by, amongst other things, the PRC's government control. You should also note that Renminbi is currently not freely convertible and the offshore Renminbi exchange rate may deviate significantly from the onshore Renminbi exchange rate. Foreign currency-denominated transactions involve currency risks. Fluctuations in currency rates may result in significant losses in the amount invested in the event that the currency denomination of the transaction exchanges to another currency.
   
Nothing in this promotional material constitutes an investment advice or an offer or an inducement to any person to acquire, purchase or subscribe for any investments, products or services referred to herein. Investor should not invest solely based on this promotional material. You should carefully read the offering documentation for detailed product information and risk factors prior to making any investment decision. If you have any doubt, you should seek independent professional advice. This promotional material is prepared by OCBC Wing Hang Bank, the contents have not been reviewed by any regulatory authority in Hong Kong.
   
 
  Source: HKEx, IEC
 
 
 
 

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