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Jun 17, 2019

Historic Shanghai-London Stock Connect approved

FCA and CSRC agree scheme to boost cross-border investment between UK and China

The UK financial regulator the Financial Conduct Authority (FCA) and the China Securities Regulatory Commission (CSRC) have today made a historic joint announcement approving the Shanghai and London bourses’ proposed new Shanghai-London Stock Connect.

Stock Connect is an arrangement between the Shanghai Stock Exchange (SSE) and London Stock Exchange (LSE) to boost cross-border investment between the countries and provide investors and companies in the UK and China with shared access to each other’s capital markets.

The two bodies also published a memorandum of understanding (MoU) aimed at providing the basis for the regulatory co-operation that will support the success of the arrangement.

The Shanghai-London Stock Connect scheme enables Shanghai-listed Chinese companies to apply to be admitted to trading on a newly formed Shanghai segment of the LSE, while companies with a premium listing in the UK will be able to apply for admission to the main exchange of the SSE.

This investment structure is an established way of enabling overseas companies to access institutional investors in global financial centers like London. The structure is new to China, however, and offers Chinese investors a completely new opportunity to gain exposure to international stocks via an exchange located in their own country and using their home currency.

From a UK perspective, the scheme offers institutional investors a broader opportunity to gain exposure to the Chinese A-share market, which has historically been restricted to western institutions with Qualified Foreign Institutional Investor status.

Andrew Bailey, FCA CEO, says in a statement: ‘This new scheme will deepen and strengthen connectivity between UK and China capital markets to the advantage of both countries. We both believe in the positive contribution regulators can make in international capital markets, and the new co-operation we’re announcing today will be an important contributor to the success of the scheme.’