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London-Shanghai Stock Connect is launched

The Shanghai-London Stock Connect scheme officially launched at the start of this week with a ceremony at the London Stock Exchange (LSE).

The scheme is a reciprocal arrangement between the Shanghai Stock Exchange (SSE) and the LSE that enables mutual access for investors and companies in China and the UK to each other’s capital markets.

A memorandum of understanding was also signed that provides the basis for regulatory co-operation to support the scheme. The UK’s Financial Conduct Authority (FCA) and the China Securities Regulatory Commission (CSRC) both confirmed their approval of the scheme.

First announced in 2015, the launch was originally scheduled for last December but reports suggest that its delay was due to uncertainties over Brexit and the UK’s departure from the European Union (EU).

First listing

Chinese brokerage Huatai Securities raised up to US$1.7 billion in a London listing and became the first Chinese company to list through the connect programme. It sold global depositary receipts (GDRs) representing about 10% of its outstanding share capital at US$20.25 per unit.

In a filing to the SSE last Saturday, the company said it planned to issue 75.01 million GDRs, with potentially more sales from an over-allotment.

Zhou Yi, chairman and president at Huatai Securities, said the program enabled the first direct connection between the Chinese and European markets and offered the company an opportunity to enter one of the world’s most mature and influential capital markets.

“The issuance of GDRs will further facilitate our development in international business and support us to expand our presence in the overseas market,” Zhou said.

With the full exercise of the over-allotment, the listing would be the largest UK listing since 2016 and the largest UK GDR offering since 2012, according to JP Morgan, the joint global coordinator, joint bookrunner and sole stabilisation agent on the Huatai Securities listing.

A rare opportunity

The long-awaited scheme allows Chinese investors a rare opportunity to gain exposure to international securities via an exchange in their own country and currency, while British institutional investors can gain exposure to the Chinese A-share market. The scheme represents the first opportunity afforded to international companies to get listed in mainland China.

Shanghai-listed Chinese companies can apply for admission to be traded on a newly established Shanghai Segment of the LSE’s main market while companies with a premium listing in the UK will be able to apply for admission to the main board of the SSE.

Unlike the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect schemes, investors in the London-Shanghai Stock Connect link do not trade stocks directly and are only able to trade depository receipts instead.

All the securities traded through the scheme will be in the form of depository receipts.

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