Shanghai-London Stock Connect Goes Live With Huatai Securities Debut

For the early stages of the program, a quota system has been established. The quota for eastbound business is set at Rmb250 billion, or $36.26 billion, while that for westbound business stands at Rmb300 billion. Shanghai Stock Exchange rules will require any Chinese depositary receipt issuers on its exchange to have first been admitted to the Main Market of the London Stock Exchange, and that they are also included in the premium segment of the Official List of the FCA, the U.K. financial regulator. This segment is home to some of the world's largest companies, and they are subject to the highest standards of regulation and governance.

Conversely, the rules of the London Stock Exchange include a requirement that westbound global depositary receipt issuers are companies with A-shares listed on the Main Board of the Shanghai exchange, and for them to also be admitted to the FCA Official List.

The scheme aims to present a win-win agreement for both countries. From a U.K. perspective, the scheme offers its institutional investors another opportunity to gain exposure to the Chinese A-share market, which has been historically restricted to only those western institutions with “Qualified Foreign Institutional Investor” status. Similarly, Chinese companies, facing increasing commercial tensions with the U.S., gain more access to the international investment community through a major global financial centre.

To mark the official launch, Huatai Securities, one of China's largest brokerages, made its debut on the London Stock Exchange to become the first company to trade via the new link. Investors in the UK capital were able to buy and sell global depository receipts, or GDRs, in Huatai, which successfully raised $1.54 billion through the flotation, and the GDRs are subsequently trading up on the initial price.

However, some commentators have expressed doubts on the success of the program. An analysis published by Caixin argued that the link will not initially be a game-changer for Chinese or U.K. stock markets due in part to currently unresolved compatibility issues. For instance, Shanghai has a 10% daily trading limit while London has none.

Politically, the link is part of a broader desire to strengthen bilateral ties between the two countries and the launch was symbolically held in time for the 10th U.K.-China Economic and Financial Dialogue conference taking place in London, where British Chancellor of the Exchequer Philip Hammond hosted Chinese Vice Premier Hu Chunhua.

“Stock Connect is a ground-breaking initiative, which will deepen our global connectivity as we look outwards to new opportunities in Asia,” said Hammond at the event when commenting on the link's launch.