(Yicai Global) Jan. 23 -- Shanghai-listed Chinese firms will be able to issue depository receipts on the London Stock Exchange, and vice versa through the Shanghai-London Stock Connect scheme, said Martina Garcia, head of emerging markets strategy at London Stock Exchange Group in an interview with Yicai Global at a recent forum held in Beijing.
Garcia, who is responsible for overseeing operations related to the stock connect program at the London bourse, sees a global depository receipt system as the most feasible solution for both exchanges to facilitate cross-border trading.
The Shanghai-London Stock Connect faces more challenges compared to similar link programs between Shanghai, Shenzhen and Hong Kong. These include language barriers and significant differences in trading mechanisms and rules, market openness, time zones and legal systems. A GDR system offers the most practical solution to these problems, she said.
As a financial derivative used in corporate financing activities, a depository receipt allows a company to offer its shares on a foreign exchange. For example, a company can transfer a certain amount of its shares to an intermediary (a bank, for example), who then notifies the depository bank abroad to issue depository receipts for the stock on the local market. This allows the shares to be traded on a foreign exchange or an over-the-counter market.
China and the UK kicked off a feasibility study on a trading link in 2015. The Shanghai exchange set up a leading group and a task force to drive the joint initiative through consultation between senior officials and project teams as well as guidance from China Securities Regulatory Commission. The bourses finished drafting the feasibility study report last year and have submitted it to the national governments and regulatory authorities.