Understanding Investing

First Luxembourg UCITS receives authorisation to use the Shanghai Hong-Kong stock connect program

- Press releases

A number of Luxembourg UCITS have shown interest for the pilot program that provides mutual trading access between the Shanghai and Hong Kong stock markets (Shanghai Hong Kong Stock Connect). This program offers an opportunity for UCITS to invest into A-shares listed on the Shanghai stock exchange alongside the existing investment schemes (such as QFII and RQFII). The first Luxembourg UCITS was now approved.

“The stock connect program represents one of the most significant developments for foreign investors wishing to access these markets” says Camille Thommes of ALFI.

A number of Luxembourg UCITS have shown interest for the pilot program that provides mutual trading access between the Shanghai and Hong Kong stock markets (Shanghai Hong Kong Stock Connect). This program offers an opportunity for UCITS to invest into A-shares listed on the Shanghai stock exchange alongside the existing investment schemes (such as QFII and RQFII). The first Luxembourg UCITS was now approved.

Camille Thommes, Director General of the Association of the Luxembourg Fund Industry, said: “Over the past years, the Chinese economy and financial markets have undergone a remarkable transformation and seen significant growth. More specifically, the Chinese equity market has grown to the second largest equity market in the world after the US.”

“The Shanghai – Hong Kong Stock Connect program therefore represents one of the biggest developments for foreign investors wishing to access this market. The program, launched on 17 November 2014, enables foreign investors to trade Shanghai-listed shares via the Hong Kong stock exchange, and mainland investors to invest in Hong Kong shares via the Shanghai stock exchange.  A number of Luxembourg UCITS have already seen the opportunity that this represents and sent their applications to the supervisory authority and the first one has now been approved.”

There are a number of factors which require careful consideration and appropriate solutions for those Luxembourg UCITs considering accessing this market through the Shanghai Hong Kong Stock Connect. The Luxembourg UCITS, its management company (if any) and the depositary bank appointed by the fund must give due consideration to a number of factors and ensure that their risk management procedures adequately covering them.  These factors include:

  • accounts opened by the depositary bank of the UCITS with a sub-custodian in Hong Kong are segregated at the level of the UCITS' sub-funds or structured as UCITS client assets omnibus accounts of the Luxembourg depositary with that sub-custodian;
  • the broker model involving Delivery Versus Payment settlement must be chosen in order to limit counterparty risk;
  • the prospectus, and most particularly the KIID, will contain a specific disclosure to inform investors of the specific legal risks linked to compulsory requirements of the local CSDs, HKSCC and ChinaClear for custody of securities on a cross-border basis.

Luxembourg UCITS whose investment policy already permits exposure to A-Shares and which only need to adapt their prospectus and KIID to cater for the access through the Shanghai Hong Kong Stock Connect will benefit from a fast-track procedure when filing their application with the supervisory authority, the Commission de Surveillance du Secteur Financier.

Download the press release in English.

Updated on 02/12/14
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