Shanghai-London Stock Connect uses Designated Brokers (referred to as ‘cross-border conversion institutions’ in SSE and CSRC rules) to enable the cross-border trading of the GDRs and the underlying A Shares. Designated Brokers ensure the fungibility of the scheme as they can access the underlying shares in China and trade GDRs in London.

Designated Brokers can create and redeem the GDRs through buying and selling the underlying in China, with the underlying being held by the Depositary Bank. However under CSRC rules, no redemption is allowed for the first 120 calendar days from the day of the GDR listing.

Home market rules apply when trading the underlying A Shares, meaning pre-funding and pre-delivery is required in China. To address the differences in settlement cycle, Designated Brokers will be able to hold cash and underlying shares as inventory to manage risk. Therefore, on a normal settlement cycle, GDR creation settles on T+2, while redemption takes T+3 days (this can be shortened to T+2 using inventory).

The process to become a Designated Broker is managed by Shanghai Stock Exchange. In order to apply for this role, a London Stock Exchange member firm must appoint a Shanghai Stock Exchange member firm in China to submit their application and supporting documents on their behalf.

The criteria to become a Designated Broker includes:

• full membership of London Stock Exchange;
• being a Qualified Foreign Institutional Investor (“QFII”) or RMB Qualified Foreign Institutional Investor (“RQFII”) or control, be controlled by, or be under common control with any entity which is a QFII or RQFII, except as otherwise prescribed by the Shanghai Stock Exchange;
• being willing and able to comply with the regulatory requirements and relevant rules of the Shanghai Stock Exchange.

For a full list of the relevant rules and regulations please click here to view the Useful Assets section.

As of June 12, 2020 the following brokers have been approved by Shanghai Stock Exchange to act as GDR Designated Brokers:

GDR Designated Broker applications are approved by Shanghai Stock Exchange (SSE). Please click here to view SSE's lists.

Shanghai-London Stock Connect uses Designated Brokers (referred to as ‘cross-border conversion institutions’ in SSE and CSRC rules) to enable the cross-border trading of the CDRs and the underlying securities. Designated Brokers ensure the fungibility of the scheme as they can access the underlying in the UK and make CDR markets in Shanghai.

Designated Brokers are able to create and redeem the CDRs through buying and selling the underlying in London. Home market rules apply when trading the underlying securities, meaning securities settle on T+2. To address the differences in settlement cycle, Designated Brokers will be able to hold cash and underlying shares as inventory to manage risk. Furthermore, they are able to participate in the securities borrowing and lending market in London, trade over-the-counter securities and manage risk through various hedging tools. On a normal settlement cycle CDR creation settles on T+3. This can be streamlined to T+1 using borrowed stocks and over the counter trading, while redemption is on T+3.

CDR Designated brokers can open securities accounts with London Stock Exchange member firms in order to access the underlying in London. They will also need to open a sub-custodian account in the UK through their mainland Chinese custodian.

CDR designated brokers are Shanghai Stock Exchange members firms which have obtained approval from Shanghai Stock Exchange to perform CDR creation and redemption. CDR designated brokers are also market makers in the Shanghai market.

Eligibility criteria include:

• approval by the Shanghai Stock Exchange
• CSRC approved and rated securities brokers
• experience of international trading
• ability to provide initial liquidity, market making services and bilateral quotation
• licensed to engage in proprietary trading of securities;
• classified as a BBB securities company or above in the most recent 2 years;
• three or more years of experience in international securities business.

For a full list of the relevant rules and regulations please click here to view the Useful Assets section.