Since launching in October 2015, the Chinese and British governments have had dialogue for the Shanghai Stock Exchange and the London Stock Exchange to installation the Shanghai-London Stock Connect (SLSC), which has attracted lots of attention from the capital market.
According to the Administrative Measures for the Issuance and Trading of Depositary Receipts (Trial Implementation), the China Securities Regulatory Commission promulgated and implemented on 12 October 2018 the Provisions on Supervision and Administration of Depositary Receipts beneath the SLSC (Trial Implementation). Subsequently, the SSE issued ancillary guidelines for list and buying and selling, preliminary assessment for the list, move-border conversion, and market-making under SLSC. The SLSC refers to the stock-interconnection arrangement below which eligible organizations indexed at the SSE or the LSE difficulty depositary receipts. The identical is indexed and traded on every other’s marketplace. The depositary receipts under SLSC may be converted into underlying stocks thru the go-border conversion mechanism among depositary receipts and underlying securities to understand the connectivity of the 2 markets. The SLSC has aspects: (1) LSE-indexed corporations, which the CSRC deems eligible, can listing and trade Chinese depositary receipts in the SSE, i.E.,
CDRs are the securities signed and issued by way of the depositaries, and issued in China, based totally at the distant places securities (stocks indexed and traded inside the essential marketplace of LSE), representing the rights and interests of the overseas underlying securities (eastbound enterprise); and (2) A-share groups indexed on the SSE can list and change global depositary receipts within the LSE, i.E., GDRs are signed and issued by using the depositaries, and issued in Britain, based on the A-percentage securities indexed in SSE, representing the rights and hobbies to the underlying securities issued in China (westbound business). In the eastbound commercial enterprise, remote places issuers can simplest practice issued underlying stocks for list and buying and selling CDRs in the SSE. In the westbound commercial enterprise, issuers of A-stocks are accredited to issue new stocks or apply present underlying stocks for trading GDRs within the LSE.
Under the SLSC, the shareholding structure, corporate governance, and running rules of the underlying securities issuers are ruled by way of the legal guidelines and regulations of the locations of incorporation of the issuers, and there must be no prejudice in opposition to foreign places buyers. In the period in-between, the underlying securities issuers are difficult to supervise and administer the equipped authorities and stock exchanges of the list markets. For example, inside the eastbound commercial enterprise, the company of distant places underlying securities applying for CDR issuance shall publish software files based totally on the regulations of the SSE. Such issuance will be approved by using CSRC following the China Securities Law and the supervisory and administrative measures and guidance of the SLSC issued through the SSE. In the westbound business, the Listing Rules, the Prospectus Rules, and Rules on Disclosure and Transparency issued with the aid of British equipped government specify the listing approaches and disclosure obligations in element.
Companies to be indexed and traded on the main marketplace of the LSE are required to satisfy the listing and disclosure standards. The UK Listing Authority is accountable for the supervision and administration of listings. Eligible traders below the SLSC particularly seek advice from the LSE and its qualified clients in the eastbound business and eligible institutional traders and character investors in the westbound commercial enterprise. Under the SLSC, China Securities Depository and Clearing are responsible for CDR clearing and settlement, whilst London Clearing House and European banks are answerable for GDR clearing and settlement. In the CDR business, a depositary is a felony individual in China, conserving foreign places underlying securities as stipulated within the depositary settlement. Hence, issues depositary receipts represent the rights and hobbies of the overseas underlying securities. Such depositaries consist of the CSDC and its subsidiaries, commercial banks permitted by the China Banking Regulatory Commission of the State Council, and securities businesses. The depositories inside the GDR business are typically commercial banks.
It is really worth noting that Chinese legal guidelines stipulate explicitly that any dispute among the depositary receipt holders and the issuers, depositaries, securities service providers of overseas underlying securities may be submitted to China Securities Investor Services Center Corp and different mediation organizations set up in keeping with the law. For the dispute resolutions of the depositary settlement, Chinese laws have to observe. The human beings courts in China have jurisdiction over the disputes. The dispute can also be a problem to the arbitration organization with jurisdiction for arbitrations according to the arbitration settlement as indicated inside the Answers to the Reporters in the self-promulgated SLSC on 31 August 2018. Recently, in keeping with the SSE, it has normal filings from eligible institutions for British pass-border conversion entities of GDR in appreciation of the SLSC. Meanwhile, the CSRC has additionally accredited certain domestic establishments to listing and exchange GDRs on the LSE.
After the reputable implementation of the SLSC mechanism, Chinese companies may further enlarge their financing channels within the international capital markets and attract global buyers. “Depositary receipts” have turn out to be a commonplace device for Chinese companies to access international capital markets. The SLSC mechanism offers Chinese companies more possibilities to discover foreign places’ marketplace and create global snapshots. LSE-listed British agencies also pay near interest to getting access to the Chinese capital marketplace by issuing CDRs through the SLSC mechanism. As the SLSC has now not been officially unveiled, there may be more adjustments in guidelines inside the destiny.