Shanghai-Hong Kong Stock Connect Market Rehearsals Coming Soon: Are You Ready?

Written by Denis Suslov || 20 Aug 2014

The Shanghai–Hong Kong Stock Connect is coming soon as dates for official testing are announced already. According to HKEx, market rehearsals will be held since late August to September, where exchange participants will conduct trading, clearing and settlement activities to verify readiness of the all involved systems.

Eligible Stocks

Once the Stock Connect program is launched, 568 stocks will be available for “Northbound” (Hong Kong investors buying Shanghai Stock Exchange stocks) trading, which comprises 90% of SSE’s total market capitalization and 80% of daily turnover. All the stocks will be available for the market rehearsal as well.

Order Flow

An order flow for Northbound trading starts with an investor placing order with Hong Kong-based Exchange Participants, who input orders into their Broker Supplied System, which than goes via China Connect Open Gateaway (CC OG) to a new China Stock Connect order routing system. At this point order crosses border for the first time and reaches HKEx subsidiary in mainland China, which than forwards the order to Shanghai Stock Exchange (SSE) itself.

market rehearsals coming

Fees

Shanghai Stock Exchange will charge a handling fee of 0.00696% of the consideration of a transaction per side, China Securities Regulatory Commission will earn 0.00200% of the consideration of a transaction per side of securities management fees. ChinaClear prices its transfer service at 0.06000% on face value per side, and State Administration of China will apply a stamp duty of 0.10000% of the consideration of a transaction on the seller.

Market Data Providers

SSE market data for trading is available directly from China Investment Information Services, which is a Hong Kong company established by Shanghai Stock Exchange InfoNet, the sole securities data provider of the stock exchange. Data feed is indirectly available from CIIS’ licensed information vendors such as Google Finance, Bloomberg and Thomson Reuters.

Technology

In addition to the procurement of China Connect Open Gateway from HKEx and the installation of Hosting for CC OG, EPs can purchase CC OG directly from vendor according to the hardware and software specification given by HKEx or re-deploy their existing AMS OG (applicable OG models : x3400 M3 and x3300 M4) as CC OG. CC OG will be connected to China Stock Connect routing system through the existing HKEx network SDNet/2. Exchange partcipiantss are required to subscribe a new pair of SDNet/2 circuits dedicated for CC OG.

Program Uptake

According to industry media, institutional investors are showing interest in the program and are currently researching possible fund products. We forecast that segregated accounts aimed at sophisticated institutional and high-net worth individual investors will come first and mutual funds aimed at retail investors will be launched once the Stock Connect program will prove to work well.

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