(Yicai Global) Dec. 4 -- The much-anticipated Shanghai-London Stock Connect, which the UK-based Financial Times newspaper has called the greatest financial innovation since the euro, will launch on Dec. 14, according to sources.
An official from the Shanghai Stock Exchange will attend the inauguration ceremony in London, when the first Chinese and UK companies to take part will be revealed. Each side is estimated to have about 10 participants. Trading is scheduled to start after January, Chinese brokerage sources told Yicai Global.
Authorities in China and the UK had committed to establishing the link, which aims to offer more cross-border investment opportunities, before the end of this year. The countries floated the idea in 2015. China's securities watchdog issued regulations in October, while relevant rules on supporting businesses have also taken shape since.
Chinese brokerage Huatai Securities plans to be one of the first to join, Reuters reported today, citing people with knowledge of the plan. Employees of several Chinese brokerages told Yicai Global that they have already begun training and business testing in order to offer services related to the bourse tie-up.
Under the scheme, eligible listed companies can issue depositary shares -- Chinese depositary receipts in London and global depositary receipts in Shanghai -- and trade them on each other's markets, per guidelines that China Securities Depository and Clearing Corporation, a Beijing-based semi-governmental clearinghouse, issued on Nov. 8. The trading of CDRs and the funds involved will be settled in Chinese yuan.
The two-way listing of DRs is not enough, however, and a two-way conversion system between DRs and underlying securities will be set up too, said Fu Hao, director of the Shanghai exchange's International Department.
The conversion will be based on set ratios, enabling markets to independently regulate the supply and demand of depositary receipts and maintain the price linkage between them and their stocks, the exchange has said previously.
Regulators will limit the price of DRs issued by listed companies and the time for redeeming their stocks to prevent arbitrage.
The London scheme follows in the footsteps of the Shanghai-Hong Kong Stock Connect, which launched in November 2014, and the Shenzhen-Hong Kong Stock Connect, which started in December 2016.
Editor: Ben Armour