London-Shanghai Link Moves Closer as LSE Pitches Program Details

(Bloomberg) -- The long-awaited link between stock exchanges in London and Shanghai is close to becoming a reality, according to a London Stock Exchange Group Plc presentation, another step in China’s efforts to integrate with the international financial system.

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

A link with London, which has been in the works since at least 2015, comes amid China’s broader financial opening, which began in earnest with a stock connect to Hong Kong in 2014. The U.K. tie-up will provide another avenue for foreign investors to buy Chinese shares and, unlike the Hong Kong connect, allow international businesses to list directly on an exchange in mainland China.

“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.

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