China Securities Regulatory Commission, Several Provisions on the Mechanisms to Provide Mutual Trading Access Between the Mainland and Hong Kong Stock Markets

Shenzhen Connect includes Northbound Shenzhen Connect and Southbound Shenzhen Connect under Shenzhen Connect. The term “Northbound Shenzhen Connect” means that an investor instructs a Hong Kong broker to report to the Shenzhen Stock Exchange (order routing) through the securities trading service company established in Shenzhen by HKEx to trade stocks listed on the Shenzhen Stock Exchange within the scope specified for Shenzhen Connect. The term “Southbound Shenzhen Connect under Shenzhen Connect” means that an investor instructs a mainland securities company to report to HKEx (order routing) through the securities trading service company established in Hong Kong by the Shenzhen Stock Exchange to trade stocks listed on HKEx within the scope specified for Shenzhen Connect (Article 2).

Main contents: Investments in domestic stocks by foreign investors shall comply with the following shareholding percentage restrictions:

(1) the shares held by one foreign investor in one listed company may not exceed 10% of the total number of shares of the listed company; and

(2) the total of A shares held by all foreign investors in one listed company may not exceed 30% of the total number of shares of the listed company.

Where a foreign investor makes a strategic investment in a listed company in accordance with the law, its strategic shareholding shall not be subject to the foregoing restrictions.

Where a relevant domestic law, set of regulations or other relevant regulatory rule contains more stringent provisions on the maximum shareholding percentage, such provisions shall prevail (Article 12).

Investors shall enjoy, in accordance with the law, the rights and interests in the stocks that they purchase through the mechanisms to provide mutual trading access between the mainland and Hong Kong stock markets.

Stocks purchased by investors through Southbound Connect shall be recorded in the securities accounts opened by the China Securities Depository and Clearing Corporation Limited with the Hong Kong Securities Clearing Company Limited. The China Securities Depository and Clearing Corporation Limited shall exercise, in its own name, rights in respect of the issuers of such stocks through the Hong Kong Securities Clearing Company Limited. When the China Securities Depository and Clearing Corporation Limited is to exercise a right in respect of an issuer of such stocks, it shall first solicit the opinions of investors through institutions such as mainland securities companies or custodian banks and proceed in light of their opinions.

If the stocks traded by an investor through Northbound Shanghai Connect or Northbound Shenzhen Connect reach the threshold requiring an information disclosure, such reporting and information disclosure obligations shall be performed in accordance with the law (Article 13).

Repealed legislation: Several Provisions on the Pilot Mechanism to Provide Mutual Trading Access Between the Shanghai and Hong Kong Stock Markets

Promulgated: September 30 2016

Effective: as of date of promulgation

Applicability: For the purposes of these Provisions, the term “mechanisms to provide mutual trading access between the mainland and Hong Kong stock markets” refers to the establishment of technical links between the Shanghai Stock Exchange and the Shenzhen Stock Exchange, respectively, with the Hong Kong Exchanges and Clearing Limited (HKEx) enabling mainland and Hong Kong investors to trade stocks listed on the other party's exchange within the specified scope through a local securities company or broker. The mechanisms to provide mutual trading access between the mainland and Hong Kong stock markets includes the mechanism to provide mutual trading access between the Shanghai and Hong Kong stock markets (Shanghai Connect) and the mechanism to provide mutual trading access between the Shenzhen and Hong Kong stock markets (Shenzhen Connect) (Article 2).

Shanghai Connect includes Northbound Shanghai Connect and Southbound Shanghai Connect under Shanghai Connect. The term “Northbound Shanghai Connect” means that an investor instructs a Hong Kong broker to report to the Shanghai Stock Exchange (order routing) through the securities trading service company established in Shanghai by HKEx to trade stocks listed on the Shanghai Stock Exchange within the scope specified for Shanghai Connect. The term “Southbound Shanghai Connect under Shanghai Connect” means that an investor instructs a mainland securities company to report to HKEx (order routing) through the securities trading service company established in Hong Kong by the Shanghai Stock Exchange to trade stocks listed on HKEx within the scope specified for Shanghai Connect.

Shenzhen Connect includes Northbound Shenzhen Connect and Southbound Shenzhen Connect under Shenzhen Connect. The term “Northbound Shenzhen Connect” means that an investor instructs a Hong Kong broker to report to the Shenzhen Stock Exchange (order routing) through the securities trading service company established in Shenzhen by HKEx to trade stocks listed on the Shenzhen Stock Exchange within the scope specified for Shenzhen Connect. The term “Southbound Shenzhen Connect under Shenzhen Connect” means that an investor instructs a mainland securities company to report to HKEx (order routing) through the securities trading service company established in Hong Kong by the Shenzhen Stock Exchange to trade stocks listed on HKEx within the scope specified for Shenzhen Connect (Article 2).

Main contents: Investments in domestic stocks by foreign investors shall comply with the following shareholding percentage restrictions:

(1) the shares held by one foreign investor in one listed company may not exceed 10% of the total number of shares of the listed company; and

(2) the total of A shares held by all foreign investors in one listed company may not exceed 30% of the total number of shares of the listed company.

Where a foreign investor makes a strategic investment in a listed company in accordance with the law, its strategic shareholding shall not be subject to the foregoing restrictions.

Where a relevant domestic law, set of regulations or other relevant regulatory rule contains more stringent provisions on the maximum shareholding percentage, such provisions shall prevail (Article 12).

Investors shall enjoy, in accordance with the law, the rights and interests in the stocks that they purchase through the mechanisms to provide mutual trading access between the mainland and Hong Kong stock markets.

Stocks purchased by investors through Southbound Connect shall be recorded in the securities accounts opened by the China Securities Depository and Clearing Corporation Limited with the Hong Kong Securities Clearing Company Limited. The China Securities Depository and Clearing Corporation Limited shall exercise, in its own name, rights in respect of the issuers of such stocks through the Hong Kong Securities Clearing Company Limited. When the China Securities Depository and Clearing Corporation Limited is to exercise a right in respect of an issuer of such stocks, it shall first solicit the opinions of investors through institutions such as mainland securities companies or custodian banks and proceed in light of their opinions.

If the stocks traded by an investor through Northbound Shanghai Connect or Northbound Shenzhen Connect reach the threshold requiring an information disclosure, such reporting and information disclosure obligations shall be performed in accordance with the law (Article 13).

Repealed legislation: Several Provisions on the Pilot Mechanism to Provide Mutual Trading Access Between the Shanghai and Hong Kong Stock Markets