Enhancements to Stock Connect trading calendar

On 12 August 2022, the China Securities Regulatory Commission and the Hong Kong Securities and Futures Commission jointly issued an announcement to enhance the trading calendar for Stock Connect (the Announcement, available here).

The Stock Connect programme comprises the Shanghai-Hong Kong Stock Connect launched in 2014 and the Shenzhen-Hong Kong Stock Connect launched in 2016. It allows Mainland Chinese and Hong Kong investors to trade eligible securities in each other’s markets through the trading and clearing facilities of their home exchanges. On 4 July 2022, eligible exchange-traded funds were included into eligible securities under Stock Connect (for more details, please refer to our article ETF Connect: Implementation details announced).

Under the current arrangement for Stock Connect, investors will only be allowed to trade on the other market on days where Hong Kong and Mainland China markets are both open for trading, and banking services are available in both Hong Kong and Mainland China markets on the corresponding settlement days. After the enhancements, the Shanghai Stock Exchange, Shenzhen Stock Exchange and Stock Exchange of Hong Kong will concurrently allow Stock Connect trading on all the days which are trading days in both Hong Kong and Mainland China markets, even when the corresponding settlement days would be public holidays (which would be closed for trading under the current arrangement because clearing services are unavailable).

The proposed enhancements to the trading calendar aim to enhance mutual access between the Mainland China and Hong Kong stock markets, and will apply to both northbound trading and southbound trading under Stock Connect. It is estimated that the enhancements will reduce the number of days currently unavailable for trading by approximately half.

According to the Announcement, it will take six months to prepare for the implementation of the enhancements. A separate announcement will be made with respect to the formal commencement date.

We will monitor progress and share updates in the future.

Hong Kong and Shenzhen announce measures to support linked development of venture capital investments in Qianhai

On 2 September 2022, Hong Kong’s Financial Services and the Treasury Bureau (FSTB) and the Authority of Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone of Shenzhen Municipality (Qianhai Authority) jointly promulgated 18 Measures for Supporting the Linked Development of Shenzhen and Hong Kong Venture Capital Investments in Qianhai (Measures, available here). The Measures took effect on the same day of issuance and will remain in operation for three years.

Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone, also known as Qianhai New District, was established in 2010 to enhance the cooperation in the Guangdong-Hong Kong-Macau Greater Bay Area.

The Measures aim to facilitate two-way cooperation on cross-border venture capital (VC) investments between Shenzhen and Hong Kong. The Measures will provide facilitation and preferential policies for the Hong Kong private equity industry. In particular, the Qianhai Authority will promote the convergence of rules between limited partnership funds (LPFs) in Hong Kong and qualified foreign limited partners (QFLP) in Qianhai, by implementing the following:

(i) support eligible Hong Kong LPFs to set up qualified investment entities in Qianhai to commence onshore investment;

(ii) allow Hong Kong-funded QFLP fund managers to flexibly adjust the scale of offshore fund-raising of their various QFLP funds in Qianhai and to allocate funds in Mainland investments at their discretion;

(iii) enhance the QFLP scheme, including introducing enhancements to the entry threshold and application procedures, expanding the investment scope, and reducing the processing time;

(iv) support VC institutions in Qianhai to cooperate with Hong Kong LPFs to develop overseas business; and

(v) authorities in Qianhai and Hong Kong will explore making use of a cross-boundary supervisory sandbox mechanism to promote the linked development of Shenzhen and Hong Kong private equity markets.

Hong Kong introduced the LPF regime in August 2020, which provides for registration of eligible funds as LPFs in Hong Kong, and from 1 November 2021, overseas limited partnerships may re-domicile and register as LPFs in Hong Kong. The Measures also complement the three-step strategy implemented by Hong Kong for developing the private equity fund market, i.e. 1) introducing the LPF regime; 2) offering tax concessions for carried interest distributed by eligible private equity funds; and 3) launching the re-domiciliation mechanism to attract foreign funds to re-domicile in Hong Kong.

QFIs are allowed to trade Mainland China onshore futures and options

On 2 September 2022, five major MainlandChinese futures exchanges announced that Qualified Foreign Investors (QFIs, including Qualified Foreign Institutional Investors and Renminbi Qualified Foreign Institutional Investors) are allowed to trade in 23 designated commodity futures, 16 option contracts, and stock option contracts listed on the China Financial Futures Exchange (Announcements). The five major futures exchanges are the Shanghai Futures Exchange, the Zhengzhou Commodity Exchange, the Dalian Commodity Exchange, China Financial Futures Exchange and Shanghai International Energy Exchange.

Back in October 2021, Mainland Chinese authorities issued new rules on QFIs allowing QFIs to trade futures and options, which took effect from 1 November 2021 (for more details, please refer to our article China regulators issue new QFII/RQFII rules enhancing the regime). However, it was not until the Announcements that it became clear which types of products are available to QFIs.

The Announcements followed the China Securities Regulatory Commission vice-chairman, Fang Xinghai’s comments at the 19th Shanghai Derivatives Market Forum that preparations should be accelerated on further opening up the commodity futures, commodity options and stock index options markets to QFIs.

The Announcements are part of Mainland China’s continued efforts to speed up the opening up of its derivatives market. It is anticipated that allowing QFIs to trade futures and options will provide more hedging products and allocation tools for foreign investors to invest in Mainland China, and will bring incremental capital to the Mainland Chinese derivatives market.