(Yicai Global) Sept. 4 -- China has published guidelines for the anticipated link between bourses in London and in Shanghai and called for firms listed in the two cities to apply to float their shares through the scheme.
Those firms that want to participate need to meet requirements including a minimum value and the number of shares will also be limited, along with the way they will be traded, according to statements from the China Securities Regulatory Commission and Shanghai Stock Exchange. The proposed rules will be open for public feedback until Sept. 15, the CSRC said.
"It is urgent to promote the preparations for the Shanghai-London stock connect and to start it within the year," said Zhang Shenfeng, assistant to the chairman of CSRC, in a public speech on Aug. 26.
The program that has been planned since 2015 will let Shanghai-listed companies raise money by issuing Global Depository Receipts in London. However, the China Depository Receipts that London's firms can issue must be backed by existing shares, which blocks the way to raise funds through these floatations.
Institutional investors and eligible individual investors may apply to participate in the scheme. The limitations for the Chinese investors include that they won't be able to trade their London-listed depositary receipts for stocks for at least six months after a fresh listing.
There is no need to worry too much about the outflow of funds, Wang Jun, chief strategist of Hua Chuang Securities, told Yicai Global, adding that both the mechanism designed by regulators and the difference between the two markets' valuation pose certain restrictions on eastward financing. The key is to pave the way first, and then expand slowly like the Shanghai-Shenzhen-Hong Kong stock connect, he added.
There is a difference between the market valuation of Shanghai and London, Wang said, adding that scarce high-quality stocks may become the common choice of investors from the two markets.
Other experts also predicted that outflows of A-share funds under the investment channel will not occur, judging from market composition and past experience from the Shanghai-Shenzhen-Hong Kong stock connect.
More funds fled from Shanghai to Hong Kong than vice versa shortly after the launch of the stock link in 2014, while the direction changed in 2016 and 2017, showing that the default is a two-way flow, and so far a growing trading volume each year.
The CSRC may also consider allowing shares with weighted voting rights, the bourse authority said on Aug. 31. Many Chinese firms, such as smartphone maker Xiaomi, have listed abroad due to Shenzhen and Shanghai bourses' restrictions on companies with dual-class shares structure that allows founders to keep control of their firms.
Editor: Emmi Laine