Important Notes of trading via Shanghai and Shenzhen Connect

To facilitate Hong Kong and overseas investors trading in SSE Securities through Shanghai Connect (i.e. Northbound trading), SEHK has established an SEHK Subsidiary in Shanghai, whose principal function is to receive orders to trade in SSE Securities from SEHK Participants and route them onto SSE’s trading platform for matching and execution on SSE. Upon trade execution, trade confirmation received from SSE will be sent to SEHK Partcipants. For Shenzhen Connect, SEHK has established another SEHK Subsidiary in Qianhai Shenzhen, whose principal function is to receive orders to trade in SZSE Securities from SEHK Participants and route them onto SZSE’s trading platform for matching and execution on SZSE. Same as the current arrangement for trading Hong Kong stocks, investors who want to participate in Shanghai and Shenzhen Connect will trade through SEHK Participants. Investors should check with their SEHK Participants on any specific conditions that their SEHK Participants may require them to satisfy before accepting their Northbound orders. Northbound trades are executed on the SSE/SZSE platform, and therefore follow the SSE/SZSE market practices in general. This Section 3 explains the market practices that are applicable to Northbound and Southbound under Shanghai and Shenzhen Connect.

 


Eligible Securities

Under Shanghai/ Shenzhen Connect, SSE/ SZSE Securities that are eligible for trading by Hong Kong and overseas 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.

SSE-listed securities will be included and excluded as SSE Securities based

on the adjustments made to the SSE 180 Index and the SSE 380 Index, the

timing at which the relevant A shares and H shares are listed on or delisted

from SSE and/or SEHK, and the timing at which relevant A shares are

placed under risk alert or released from risk alert.

 

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. Under risk alert in relation to A shares listed on the SZSE Main Board or SZSE SME Board, means the relevant shares are placed under “risk alert” by SZSE including shares of “ST companies”, “*ST companies”; and in relation to any A shares listed on the SZSE Market, means the relevant shares are subject to the delisting process or the listing of which has been suspended by SZSE under the SZSE Rules. For details, please refer to the SZSE Listing Rules

(c)Shares that are listed on the ChiNext Board of SZSE (eligible limited to institutional professional investors at the initial stage.);

(d)Initial public offering

 

Investors will only be allowed to sell but restricted from buying such SSE/ SZSE Securities if:

(a) such securities subsequently cease to be a constituent stock of the

relevant indices; and/or

(b) they are subsequently placed under risk alert; and/or

(c) the corresponding H shares of such securities are subsequently delisted from SEHK, as the case may be.

Table 1 below summarises the common and different key features for the Shanghai and Shenzhen Connect schemes.

Table 1.  Key features of Shanghai Connect and Shenzhen Connect

Feature

Shanghai Connect

Shenzhen Connect

Northbound eligible securities

 

 

  • Constituents of the SSE 180 Index and SSE 380 Index
  • SSE-listed A shares which have corresponding H shares listed on SEHK
  • Constituent stocks of the SZSE Component Index and of the SZSE Small/Mid Cap Innovation Index which have a market
  • capitalisation of RMB 6 billion or above
  • SZSE-listed A shares of companies which have corresponding H shares listed on SEHK
  • Excluding risk alert stocks and stocks not traded in RMB
  • 577 eligible stocks for buy and sell (as of 2 March 2018)
  • 903 eligible stocks for buy and sell (as of 2 March 2018)

Southbound eligible securities

 

 

  • Constituents of the Hang Seng Composite LargeCap Index (HSLI)
  • Constituents of the Hang Seng Composite MidCap Index (HSMI)
  • H shares which have corresponding A shares listed on the SSE
  • Constituents of the Hang Seng Composite SmallCap Index (HSSI) which has a market capitalisation of HK$5 billion or above
  • H shares which have corresponding A shares listed on the SSE or the SZSE
  •  Excluding H shares where the respective A shares are risk alert stocks and stocks not traded in HKD
  • 311 stocks (as of 2 March 2018)
  • 445 stocks (some 134 on top of SH-HK Southbound stocks)

Northbound eligible investors

  • All Hong Kong and overseas investors
  • (individuals and institutions)
  • ChiNext eligible stocks are initially open only to institutional professional investors
  • All Hong Kong and overseas investors
  • (individuals and institutions) for other eligible stocks

Southbound eligible investors

  • Mainland institutional investors, and individual investors with an aggregate balance of ≥RMB 500,000 in their securities and cash accounts

Daily quota

  • Northbound: RMB 13 billion
  • Southbound: RMB 10.5 billion

Aggregate quota

  • Nil

Northbound trading, clearing and settlement

  • Following SSE and ChinaClear Shanghai market practice
  • Following SZSE and ChinaClear Shenzhen market practice

Southbound trading, clearing and settlement

  • Following SEHK and HKSCC market practice

Quota

Trading under Shanghai and Shenzhen Connect will be subject to a Daily Quota. There is no Aggregate Quota for Shanghai and Shenzhen Connect as the Aggregate Quota for Shanghai Connect was abolished since 16 August 2016 and none will be introduced for Shenzhen Connect.

Northbound trading and Southbound trading are respectively subject to a separate set of Daily Quota, which is monitored by SEHK, SSE and SZSE respectively.

The Daily Quota is applied on a “net buy” basis. Based on that principle, investors are always allowed to sell their cross-boundary securities regardless of the quota balance.

The Northbound Daily Quota balance is disseminated on the HKEX website at 1-minute intervals and through CCOG and OMD Index Feed at 5-second intervals.

Daily 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 13 billion for each of Shanghai Connect and Shenzhen Connect, and the Southbound Daily Quota is set at RMB 10.5 billion for each of Shanghai Connect and Shenzhen Connect.

SEHK monitors the usage of the Northbound Daily 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 and disseminated through CCOG and OMD Index Feed at 5-second intervals:

Daily Quota Balance = Daily Quota – Buy Orders + Sell Trades + Adjustments

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 will be applied to the closing call auction of SZSE. 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 relevant SEHK Participants.

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.

 

 

SSE Trading Session

SSE Trading Hours

Time for SEHK Participants to input Northbound

orders

Opening Call Auction

09:15 – 09:25

09:10 – 11:30

 

 

Continuous Auction (Morning)

09:30 – 11:30

 

Continuous Auction (Afternoon)

13:00 – 15:00

12:55 – 15:00

 

09:20 – 09:25: SSE 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 until SSE’s market open Orders that are not executed during the opening call auction session will automatically enter the continuous auction session

 

SZSE Trading Session

SZSE Trading Hours

Time for SEHK Participants to input Northbound

orders

Opening Call Auction

09:15 – 09:25

09:10 – 11:30

 

 

Continuous Auction (Morning)

09:30 – 11:30

 

Continuous Auction (Afternoon)

13:00 – 14:57

12:55 – 15:00

 

 

Closing Call Auction

14:57 – 15:00

 

 

 

09:20 – 09:25, 14:57 – 15:00: 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 SZSE until SZSE’s 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. Southbound trading follows SEHK’s trading hours.

Holiday

Until special banking arrangements are established, investors will only be allowed to trade on the other market on days where Hong Kong and Mainland markets are both open for trading, and banking services are available in both Hong Kong and Mainland markets on the corresponding settlement days. This arrangement is essential in ensuring that investors and brokers will have the necessary banking support on the relevant settlement days when they will be required to make payments. The following table illustrates the holiday arrangement of Northbound trading of SSE/SZSE Securities:

 

Mainland

Hong Kong

 

Open for Northbound Trading?

Day-1

Business Day

Business Day

Yes

 

Day-2

Business Day

Business Day

No

HK market closes on money settlement day

Day-3

Business Day

Public Holiday

No

HK market closes on trading day

Day-4

Public Holiday

Business Day

No

Mainland market closes

 

If a Northbound trading day is a half trading day in the Hong Kong market, Northbound trading will continue until respective Connect Market is closed. Please refer to the HKEX website for the Northbound trading calendar for Shanghai Connect Northbound trading and Shenzhen Connect Northbound trading. HKEX will continue to explore with market players and the banking sector to consider the operational feasibility as well as market demand to support cross-boundary trading/money settlement during holidays. A similar arrangement has been adopted for Southbound trading.

Trading Currency

Hong Kong and overseas investors trade and settle SSE and SZSE Securities in RMB only.

Mainland investors trade SEHK Securities in HKD only and settle the trades with ChinaClear or its clearing participants in RMB.

 

Order Types

For Northbound trading, only limit orders (i.e. orders which can be matched at the specified price or a better price) will be accepted for SSE Securities and SZSE Securities throughout the day.

For Southbound trading, only at-auction limit orders will be accepted during the pre-opening session and only enhanced limit orders will be accepted during the continuous trading session.

 

Price Limit

For SSE Securities, there is a general price limit of ±10% (and ±5% for stocks under special treatment (i.e. ST and *ST stocks) under risk alert) based on previous closing price.

All orders input for SSE Securities must be at or within the price limit. Any order with a price beyond the price limit will be rejected by SSE. The upper and lower price limit will remain the same intra-day.

The same price limit arrangement will apply to SZSE Securities. Stocks traded on SZSE’s ChiNext Market are also subject to a ±10% price limit based on the previous closing price.

For SEHK Securities, trading follows the existing quotation rules in place on

SEHK. 

Fees and Levies

Under Shanghai and Shenzhen Connect, Hong Kong and overseas investors will be subject to the following fees and levies imposed by SSE, SZSE, ChinaClear, HKSCC or the relevant Mainland authority when they trade and settle SSE Securities and SZSE Securities:

Items

Rate

Charged by

Handling Fee

(經手費)

0.00487% of the consideration of a transaction per side

 

SSE / SZSE

Securities Management Fee

(證管費)

0.002% of the consideration of a transaction per side

 

CSRC

Transfer Fee

(過戶費/登記過戶費)

0.002% of the consideration of a transaction per side

ChinaClear

Shanghai /

ChinaClear

Shenzhen

 

0.002% of the consideration of a transaction per side

 

HKSCC

Stamp Duty

(交易印花稅)

0.1% of the consideration of a transaction on the seller

 

SAT

 

All the above fees and levies will be collected from CCASS Participants’ designated bank accounts at day-end of T day. 

Shareholding Restrictions and Disclosure on SSE/SZSE Securities

A single/All foreign investor's /investors's shareholding in a listed company is not allowed to exceed a specific percentage of the company's total issued shares. Force-sell requirements would be arranged if investor(s) exceed the limit:

Situation                  Shareholding (in a listed company)

A single foreign investor       < = 10% of the company’s total issued shares

All foreign investors           < = 30% of the company’s total issued shares

 

*Once SSE/SZSE informs SEHK that the aggregate foreign shareholding of an SSE/SZSE Security reaches 28%, further Northbound buy orders in that SSE Security will not be allowed, until the aggregate foreign shareholding of that SSE Security is sold down to 26%.

 

*If the 30% threshold is exceeded due to Shanghai/ Shenzhen-Hong Kong Stock Connect, HKEx will identify the relevant EP and require it to follow the force-sell requirements.

If such selling activities cause the aggregate foreign shareholding to drop below the 30% threshold within 5 trading days, EPs who were subject to the forced-sale requirement may submit application to the SEHK for forced-sale exemption via Galaxy Treasure Securities.

Shareholding Disclosure

Investor is required to make disclosure within three working days in the following situations:

< >An investor holds or controls up to 5% of the issued shares of a Mainland listed company.Every time when a change in an investor’s shareholding reaches 5%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.

 

Important Notices:

1. No day trading is allowed

You are not allowed to carry out day trading through Shanghai/Shenzhen Connect. A shares bought on trade day (T-day) can only be sold on or after T+1 day.

2. OTC trading is not permitted

All trading must be conducted on SSE and or SZSE, i.e. no over-the-counter (OTC) or manual trades are allowed.

3. Must have shares in Company’s CCASS account before the market opens

You must have your shares transferred to the Company’s corresponding CCASS account before the commencement of trading on a trading day if you intend to sell the shares during a trading day.

4. Stock and money settlement arrangement

For SSE and SZSE shares trading, stock settlement will be conducted on T-day, while money (including the transaction amount as well as the related fees and levies) will settle on T+1 day. You should ensure you have sufficient RMB in your account for settlement.

5. Company’s right to cancel your orders in case of contingency

The Company shall have the right to cancel your orders without prior notice in case of contingency such as hoisting of Typhoon Signal No 8 or any other incident beyond the control of the Company which may affect order placing or settlement of the transaction. You acknowledge that the Company may be requested by the SEHK, SSE, SZSE or any other Shanghai/Shenzhen Connect Authority to reject orders from you.

6. Quota restrictions

Purchases of SSE and or SZSE securities through Shanghai/Shenzhen Connect are subject to certain daily quota controls. As a result, there is no assurance that a buy order can be successfully placed through Shanghai/Shenzhen Connect.

7. Difference in trading day and trading hours

Shanghai/Shenzhen Connect allows trading only on the days when both Hong Kong and the respective Mainland Chinese markets are open for trading, and banking service are available in both markets on the corresponding settlement days. You should also note that A shares trading will follow the trading hours of the Exchange where it is listed.

8. Foreign shareholding restriction

Under Mainland China laws, there is a limit to how many shares a single foreign investor is permitted to hold in a single Mainland China listed company. The Company has the right to force-sell your shares upon receiving a forced-sale notification from SEHK. Accordingly, you should ensure you fully understand the Mainland rules and regulations in relation to shareholding restrictions and disclosure obligations and follow such rules and regulations.

9. Short Swing Profit Rule

Under Mainland China laws, the “short swing profit rule” requires investors to return any profits made from purchases and sales in respect of Shanghai/Shenzhen Connect securities of a Mainland China listed company if (a) your shareholding in the Mainland China listed company exceeds the threshold prescribed by the relevant Shanghai/Shenzhen Connect authority from time to time and (b) the corresponding sale transaction occurs within the six months after a purchase transaction, or vice versa.

10. Not protected by Investor Compensation Fund

You should note that both SSE and SZSE trading under Shanghai/Shenzhen Connect will not be covered by Hong Kong’s Investor Compensation Fund. As Hong Kong investors are not carrying out SSE and/or SZSE trading through Mainland brokers, they are not protected by China Securities Investor Protection Fund on the Mainland.

11. Warnings

SSE and/or SZSE may request SEHK to require the Company to issue warning statements (verbally or in writing) to clients, and not to extend SSE and/or SZSE trading service to certain clients.

12. Liability

SEHK, SEHK parent companies and subsidiaries, SSE, SSE subsidiary, SZSE and SZSE subsidiary and their respective directors, employees and agents shall not be responsible or held liable for any loss or damage directly or indirectly suffered by the Company, its clients or any third parties arising from or in connection with SSE and/or SZSE trading or the CSC.

RISK OF SHANGHAI-HONG KONG STOCK CONNECT AND/OR SHENZHEN-HONG KONG STOCK CONNECT

Not protected by Investor Compensation Fund

The Client should note that any Northbound or Southbound trading under Shanghai-Hong Kong Stock Connect and/or Shenzhen –Hong Kong Stock Connect will not be covered by Hong Kong’s Investor Compensation Fund. As far as Hong Kong investors participating in Northbound trading are concerned, since they are carrying out Northbound trading through securities brokers in Hong Kong and these brokers are not Mainland brokers, they are not protected by China Securities Investor Protection Fund on the Mainland.

 

Short selling

In investing in A-share via the Northbound trading, Hong Kong and overseas investors are prohibited from naked short selling in A-shares. In selling A-shares via the Northbound trading, Hong Kong and overseas investors are not allowed to participate in any securities lending on the Mainland.

 

Quotas used up

When the respective aggregate quota balance for Northbound and Southbound trading is less than the daily quota, the corresponding buy orders will be suspended on the next trading day (sell orders will still be accepted) until the aggregate quota balance returns to the daily quota level. Once the daily quota is used up, acceptance of the corresponding buy orders will also be immediately suspended and no further buy orders will be accepted for the remainder of the day. Buy orders which have been accepted will not be affected by the using up of the daily quota, while sell orders will be continued to be accepted. Depending on the aggregate quota balance situation, buying services will be resumed on the following trading day.

 

Difference in trading day and trading hours

The Client should note that, due to differences in public holiday between Hong Kong and Mainland China or other reasons such as bad weather conditions, there may be difference in trading days and trading hours in the two markets. Shanghai-Hong Kong Stock Connect and/or Shenzhen – Hong Kong Stock Connect will only operate on days when both markets are open for trading and when banks in both markets are open on the corresponding settlement days. So it is possible that there are occasions when it is a normal trading day for the Mainland market but Hong Kong investors cannot carry out any A-share trading. The Client should take note of the days and the hours which Shanghai-Hong Kong Stock Connect and/or Shenzhen – Hong Kong Stock Connect is open for business and decide according to their own risk tolerance capability whether or not to take on the risk of price fluctuations in A-shares during the time when Shanghai-Hong Kong Stock Connect and/or Shenzhen – Hong Kong Stock Connect is not trading.

 

Restrictions on selling imposed by front-end monitoring

For Clients who keeps their A-shares outside of GT Securities, if they want to sell certain A-shares they hold, they must transfer those A- shares to the respective accounts of GT Securities 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.

 

The recalling of eligible stocks and trading restrictions

A stock may be recalled from the scope of eligible stocks for trading via Shanghai-Hong Kong Stock Connect for various reasons, and in such event the stock can only be sold but restricted from being bought. This may affect the investment portfolio or strategies of the Client. The Client should therefore pay close attention to the list of eligible stocks as provided and renewed from time to time by SSE and/or SZSE respectively and SEHK.

Under Shanghai-Hong Kong Stock Connect and/or Shenzhen –Hong Kong Stock Connect, the Client will only be allowed to sell A-share but restricted from further buying if:

(i) the A-share subsequently ceases to be a constituent stock of the relevant indices;

(ii) the A- share is subsequently under “risk alert”; and/or

(iii) the corresponding H share of the A-share subsequently ceases to be traded on SEHK. The Client should also note that price fluctuation limit would be applicable to A- shares.

 

Trading costs

In addition to paying trading fees and stamp duties in connection with A-share trading, the Client carrying out Northbound trading via Shanghai-Hong Kong Stock Connect and/or Shenzhen –Hong Kong Stock Connect should also take note of any new portfolio fees, dividend tax and tax concerned with income arising from stock transfers which would be determined by the relevant authorities.

 

Local market rules, foreign shareholding restrictions and disclosure obligations

Under Shanghai-Hong Kong Stock Connect and/or Shenzhen –Hong Kong Stock Connect, A-shares listed companies and trading of A-share are subject to market rules and disclosure requirements of the A-share market. Any changes in laws, regulations and policies of the A-share market or rules in relation to Shanghai-Hong Kong Stock Connect and/or Shenzhen –Hong Kong Stock Connect may affect share prices. The Client should also take note of the foreign shareholding restrictions and disclosure obligations applicable to A- shares. The Client will be subject to restrictions on trading (including restriction on retention of proceeds) in A- shares as a result of its interest in the A-shares. The Client is solely responsible for compliance with all notifications, reports and relevant requirements in connection with its interests in A-shares.

 

Currency risks

Northbound investments in the SSE and/or SZSE securities will be traded and settled in Renminbi(RMB). If the Client holds a local currency other than RMB, the Client will be exposed to currency risk if the Client invests in a RMB product due to the need for the conversion of the local currency into RMB. During the conversion, the Client will also incur currency conversion costs. Even if the price of the RMB asset remains the same when the Client purchases it and when the Client redeems / sells it, the Client will still incur a loss when you convert the redemption / sale proceeds into local currency if RMB has depreciated.