Shanghai-London Stock Connect

Huluntong refers to the mechanism for the interconnection between the Shanghai Stock Exchange and the London Stock Exchange. Eligible two-listed companies can issue depositary receipts (DRs) and trade on the other side of the market.


On October 12, 2018, the China Securities Regulatory Commission officially issued the "Regulations on the Implementation of the Depository and Depository Depository Business of the Shanghai Stock Exchange and the London Stock Exchange (Trial)", which will be implemented as of the date of promulgation. Huluntong is scheduled to start on December 14, 2018.


On June 17, 2019, Huluntong will hold an unveiling ceremony at the London Stock Exchange.


Unveiled

At 8:00 on June 17, 2019, the London Stock Exchange plans to hold the opening ceremony of Huluntong, and Huatai Securities will become the first A-share company to land on the Luneng Exchange through Huluntong.


Huluntong allows overseas buyers to indirectly hold stocks in the other market through depositary receipts (DRs) tools. Huluntong allows listed companies on the Shanghai Stock Exchange to raise new funds by issuing Global Depositary Receipts (GDR) in London, and can also convert existing stocks. The listed companies on the London Stock Exchange are limited to investors in Shanghai Stock Exchange. Selling China Depositary Receipts (CDRs) based on existing stocks.


On June 11, 2019, Huatai Securities announced that its plan to issue GDR has been approved by the Financial Supervisory Authority (FCA). The price range is 20 to 24.5 US dollars per share. The GDR circulation will be issued by the company. The share capital is about 10%. On June 14, Huatai announced again that its GDR will be officially listed on the London Stock Exchange on June 20th, London time, with a final price of US$20.5 per copy and a total raised amount of US$1.692 billion.


Development significance

The so-called "Huluntong" refers to the interconnection between the Shanghai Stock Exchange and the London Stock Exchange. An industry expert told the Shanghai Securities Journal that "Shanghai-Hong Kong Stock Connect" solved the problem of RMB output and return under the securities investment. The logic of "Huluntong" is also: the RMB is exported to the offshore market in London, and the London renminbi is returned to Shanghai, while the carrier is Shanghai stocks and stocks. Compared with "Shanghai-Hong Kong Stock Connect", "Huluntong" has a larger volume and a larger imagination.


Regarding the opening up of the financial services industry, Tu Guangshao said that Shanghai intends to separately study and formulate a negative list of financial services industry to promote the expansion of the financial services industry to eligible private capital and foreign institutions. At the same time, actively cooperate with the national financial management department to explore the use of negative inventory management mode, streamline the examination and approval matters, and optimize the supervision function.


Conversion mechanism

“Shanghai-Hong Kong Stock Connect” was once praised by the Financial Times as the biggest financial innovation since the birth of the Euro, and it has highly penetrated the two markets. The problem with "Huluntong" lies in the time difference. "If you want to copy the 'Shanghai-Hong Kong Stock Connect' model, the only way may be to let the whole market work overtime, but this is not feasible, and the alternative is to pass the DR (trust and withdrawal documents). Indirect implementation. However, the characteristics of 'Huluntong' are not only listed in the two-way of DR, otherwise it cannot be called 'Tong'. 'Huluntong' has established a good two-way conversion mechanism between DR and basic securities. The two can be easily converted to each other and is a good institutional arrangement."


In view of the fact that GDR (Global Depositary Receipt) can be converted into A-shares for circulation in the domestic market, in order to prevent regulatory arbitrage and take into account commercial viability, GDR's issuance conditions, issue price, limit redemption period and overseas brokerages participating in GDR cross-border conversion Both the depositary and the depositary have made provisions. For example, on the one hand, when a domestic listed company issues GDR with its new shares as the underlying securities, the issue price shall be converted in proportion to 90% of the average price of the basic stock closing price of 20 trading days before the pricing benchmark date; On the one hand, GDRs that are publicly issued overseas will not be redeemed for A shares within 120 days from the date of listing. 

Shanghai London Stock Connect