The Strategist

Trading between the Shanghai Stock Exchange and the LSE will start in 2018

04/11/2018 - 12:50

China intends to launch a cross-selling mechanism between the Shanghai and London exchanges this year. This was stated by the head of the People's Bank of China, Yi Gang, speaking at the Asian Economic Forum in Bo'ao, Hainan Province, writes Bloomberg.

The program with London Stock Exchange Group Plc will be the third system that will give foreigners access to the mainland China share market, and the second largest in the world. The connection between the exchanges of Shanghai and Hong Kong was established in November 2014, between Hong Kong and the Shenzhen Exchange - in December 2016.

The agreement on the establishment of communication between the London and Shanghai Stock Exchanges has been in effect since September 2015. These plans were announced during the visit of the then Chancellor of the Exchequer of Great Britain, George Osborne, to China. In November 2016, the LSE and the Shanghai Stock Exchange agreed to "develop rules and mechanisms for implementing" the agreement.

Details of the program have not been disclosed yet. However, in November 2016, the former CEO of LSE Xavier Rolet stated in an interview with South China Morning Post that partnership with the London Stock Exchange "will be completely different from the pertnership between the stock exchanges of Hong Kong and Shanghai." A "new concept" of communication between exchanges is planned, which will allow Chinese investors to trade in shares located in London, outside the trading hours in the UK, Rolet specified.

The cross-auction mechanism between the London and Shanghai exchanges has a symbolic value, says Huang Dongsheng, head of research at Weifang Fund, which manages assets of more than 4 billion yuan ($ 637 million).

According to him, British investors already have access to shares in mainland China through communication with the Hong Kong stock exchange, and Chinese traders can use offshore subsidiaries of their brokers to buy shares in London. However, the link between the Shanghai and London exchanges means that China is stepping up efforts to open the market and give the renminbi the status of a world currency.

At the forum in Bo'ao, Yi Gang, who headed the central bank last month, repeated Beijing's previous promises to open the financial sector. China will provide foreign investors with access to trusts, financial leasing, car loans and consumer lending by the end of the year, he said.

The government will also not impose restrictions on foreign ownership for investment in asset management companies created by commercial banks. And he noted that most of the measures to open financial markets will have been implemented by the end of June. He did not specify which measures exactly are to be taken.