London Stock Exchange Stock Connect

Why list GDRs in London

Listing global depositary receipts (GDR) on London Stock Exchange offers a unique opportunity for Chinese A-share issuers. They can access global investors and benefit from London’s high-quality institutional investors, advisory community and sell-side research coverage.

A GDR listing under Stock Connect allows Chinese companies to raise foreign capital to fund their development globally. In fact, London-listed shares are accepted as an acquisition currency in more jurisdictions than any other exchange.

GDR issuers also gain access to London Stock Exchange’s comprehensive Issuer Services platform and can form new relationships with some of the world’s leading institutional investors.

Listing Process

Stock Connect enables Chinese-listed issuers to admit securities – GDRs – onto London Stock Exchange which are fungible with their underlying A-share listing.

Stock Connect GDRs will be admitted to trading on the Stock Connect Segment, a special segment within the International Order Book (IOB) and open for trading from 09:00 to 16:30 (GMT/BST).

GDRs are traded during London trading hours under London trading rules, while clearing will take place at LCH and settlement in Euroclear Bank.

Eligibility criteria

For GDR issuers under Connect to meet certain eligibility criteria, they must:

• be listed on either Shanghai Stock Exchange or Shenzhen Stock Exchange
• have any new shares raised admitted to listing on either Shanghai Stock Exchange or Shenzhen Stock Exchange
• meet UKLA Listing Rules and London Stock Exchange Admission and Disclosure Standards, and
• comply with a 10% free-float requirement for their GDR listing.

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

Why list CDRS on Chinese Stock Exchanges?

Shanghai-London Stock Connect and Shenzhen-London Stock Connect (Stock Connect) offer London Stock Exchange-listed companies their first ever opportunity to be listed in China. They will be the first foreign companies to directly access the domestic Chinese equity investor pool, the second largest in the world.

A CDR listing gives you presence in two distinct capital markets with a fungible instrument that allows prices to be aligned in both markets.

Listing Process

Stock Connect CDRs will be listed on main board of respective exchange in Chinese mainland. They will be treated the same as domestic Chinese A-shares and fungible with the underlying share in London. And they will be traded during Chinese trading hours by Chinese investors with clearing and settlement taking place in China Clear.

New CSRC provisions (PDF) for Stock Connect were finalised on Feb 11th 2022, opening up capital raising to CDR issuers.

Eligibility criteria

To list CDRs in China, issuers must:

• have a minimum market capitalisation of Rmb20bn (approx. US$2.9bn)
• issue a minimum of 50 million units of CDRs representing Rmb500m worth of underlying shares
• where no new capital is being raised, hold or acquire sufficient underlying shares, and
• obtain permission from CSRC and comply with the respective Chinese mainland exchange requirements.

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

Cross-border trading of GDRs

Stock Connect uses designated brokers (referred to as ‘cross-border conversion institutions’ in SSE, SZSE and CSRC rules) to enable the cross-border trading of GDRs and 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 GDRs through buying and selling underlying shares in China, which are held by a 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 are 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. So 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).

GDR Designated Brokers

Each respective Chinese mainland exchange manages the process of entities becoming a designated broker. In order to apply for this role, any London Stock Exchange member firm looking to become a designated broker must appoint a Chinese mainland stock exchange member firm in China to submit their application and supporting documents on their behalf.

The criteria to become a designated broker:

• Having full membership of London Stock Exchange.
• Being a qualified foreign institutional investor (QFII) or Renminbi-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.

You can read a list of the relevant rules and regulations by visiting the Useful Assets section.

GDR Designated Brokers List – Shanghai Stock Exchange

The Shanghai Stock Exchange had approved the following brokers to act as GDR designated brokers (at 12 June 2020):

Firm

• China International Capital Corporation (UK) Limited (CICC)
• Barclays Bank PLC
• CITIC Lyon Securities UK (CLSA (UK))
• ICBC Standard Bank Plc
• J.P. Morgan Securities Plc
• HSBC Bank plc
• Goldman Sachs International
• Huatai Financial Holding (Hong Kong) Limited
• Haitong International (UK) Limited
• Swiss Bank (UBS AG)

GDR designated broker applications are approved by Shanghai Stock Exchange. View SSE’s lists.

GDR designated brokers list – Shenzhen Stock Exchange

• China International Capital Corporation (UK) Limited (CICC)
• Barclays Bank PLC
• CITIC Lyon Securities UK (CLSA (UK))
• ICBC Standard Bank Plc
• J.P. Morgan Securities Plc
• HSBC Bank plc
• Goldman Sachs International
• Huatai Financial Holding (Hong Kong) Limited
• Haitong International (UK) Limited
• Swiss Bank (UBS AG)

GDR designated broker applications are approved by Shenzhen Stock Exchange. View SSE’s lists.

Cross-border trading of CDRs

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

Designated brokers can create and redeem CDRs through buying and selling underlying securities 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 can hold cash and underlying shares as inventory to manage risk.

Designated brokers can also 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, which 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 securities in London. They also need to open a sub-custodian account in the UK through their mainland Chinese custodian.

CDR Designated brokers

CDR designated brokers are Chinese mainland exchange members firms. They have obtained approval from Shanghai Stock Exchange or Shenzhen Stock Exchange to perform CDR creation and redemption. CDR designated brokers are also market makers in the mainland Chinese.

Eligibility criteria:

• Approval by the respective mainland Chinese 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-rated securities company or above in the most recent two years
• Three or more years of experience in international securities business.

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