LSE Reveals London-Shanghai Stock Link, Sees 2018 Start

(Bloomberg) -- London Stock Exchange Group Plc has laid out the blueprint for its long-awaited trading link with Shanghai, an initiative that will further China’s efforts to integrate with the international financial system.

The London-Shanghai Stock Connect will allow companies from China to sell global depository receipts in the U.K. and enable London-traded firms to list similar securities in Shanghai, according to an LSE presentation seen by Bloomberg News. Starting later this year, the securities issued by Chinese companies will appear on what LSE calls the Shanghai Board. A spokesman for LSE declined to comment.

The London link will be yet another step in China’s financial opening, which began in earnest with a stock connect to Hong Kong in 2014. For the LSE, the move will help the exchange offset a possible decline in activity with Russian companies after the step-up of U.S. sanctions.

“This is a real step in the integration of China’s financial markets,” said Karine Hirn, partner at East Capital Asset Management in Hong Kong. “What’s exciting about this project is that it’s Chinese money going into Western companies.”

Other details of the link, according to LSE’s presentation:

  • Trading on the Shanghai Board will be in dollars, with the possibility of yuan and pounds
  • The Shanghai Board’s trading hours will be 9 a.m. to 4:30 p.m. U.K. time
  • Chinese companies wishing to list in London will need to already be on the Shanghai Stock Exchange, worth at least 20 billion yuan ($3.1 billion), and won’t be able to issue more than 15 percent of their total share capital in the U.K.
  • Shanghai Board trading will be subject to English law
  • It will be the only venue outside China where investors can buy securities that are interchangeable with mainland-listed shares

“A London listing allows China’s greatest companies to join a global peer group of the highest quality and gain unrivaled brand recognition,” LSE said in the presentation.

An agreement for some sort of exchange connection between London and Shanghai has been in the works since at least September 2015, when plans were disclosed during a visit to China by then-U.K. Chancellor of the Exchequer George Osborne. In November 2016, LSE and the Shanghai bourse agreed to “develop rules and implementation arrangements.”

People’s Bank of China Governor Yi Gang said in April that authorities were hoping to start the program this year.

Chinese bourses have been forging closer relationships with their offshore counterparts in recent years, a financial adjunct to Beijing’s “One Belt, One Road” infrastructure-building program, which aims to tie economies across Asia and Europe more closely to China.

While the two stock-trading links -- Shanghai and Shenzhen -- with Hong Kong have garnered the most attention, Chinese institutions have also taken stakes in markets in Bangladesh and Pakistan, and formed a joint venture with Deutsche Boerse AG in Frankfurt.

©2018 Bloomberg L.P.