LSE reveals London-Shanghai stock link details

HONG KONG: London Stock Exchange Group Plc (LSE) has laid out the blueprint for its long-awaited trading link with Shanghai, an initiative that will further China’s efforts to integrate with the international financial system.

The London-Shanghai Stock Connect will allow companies from China to issue global depositary receipts in the UK and enable London-traded firms to list similar securities in Shanghai, according to an LSE presentation seen by Bloomberg News.

The system will launch in 2018, according to the document, and the securities issued by Chinese companies will appear on what LSE calls the Shanghai Board.

A spokesman for LSE declined to comment.

Once it starts, the London link will be yet another step in China’s financial opening, which began in earnest with a stock connect to Hong Kong in 2014.

China’s equity market will see another landmark in the coming weeks, when 234 of its companies are added to the MSCI Emerging Markets Index.

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 9am to 4.30pm UK time.

> Chinese companies wishing to list in London will need to already be on the Shanghai Stock Exchange, worth at least 20 billion yuan (US$3.1bil), and won’t be able to issue more than 15% of their total share capital in the UK.

> 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 unrivalled 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. — Bloomberg