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Russian companies,Hong Kong Exchange? under IOSCO MMoU

Russian companies,Hong Kong Exchange? under IOSCO MMoU



In January 2016, the Hong Kong Stock Exchange (the Exchange) recognised Russia as an acceptable jurisdiction of incorporation for listing applicants (Acceptable Jurisdiction). This means that Russian companies can now apply to list in Hong Kong.

As a matter of Russian law, a Russian company must be listed on a Russian stock exchange before it can apply to list in Hong Kong. Russian companies will also have to list depositary receipts rather than shares which means that they will only be able to list on the Exchange’s Main Board (Main Board). Depositary receipts cannot be listed on Hong Kong’s second board, the Growth Enterprise Market (GEM).

Russia’s recognition as an Acceptable Jurisdiction is significant as previously Russia-based companies were only able to list in Hong Kong if they were incorporated outside Russia in a jurisdiction recognised by the Exchange. Hence only two Russia-based companies listed in Hong Kong prior to 2016, United Company Rusal PLC and IRC Limited, which are incorporated in Jersey and Hong Kong, respectively.

The opening of Hong Kong’s listing regime to Russian companies followed Russia becoming a signatory to the International Organisation of Securities Commissions’ Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (the IOSCO MMoU) in February 2015.1

However, where a Russian listing applicant has its place of central management and control outside of Russia, the statutory securities regulator of that jurisdiction must also be a full signatory of the IOSCO MMoU, or have entered a bi-lateral agreement with Hong Kong’s Securities and Futures Commission (SFC).

The Hong Kong Stock Exchange is a leading international stock exchange which allows full access to foreign investors wishing to trade on its markets and offers a listing venue to foreign companies which are able to meet its requirements. The key advantage of Hong Kong and its stock exchange is its strategic position as the gateway between Mainland China and the rest of the world. Hong Kong has long been the preferred international listing venue for mainland Chinese companies looking to raise funds in the international capital markets.

The Exchange has also been keen to list more international companies, and recent years have seen an increasing number of international companies listing in Hong Kong.

Hong Kong currently ranks as Asia’s top international financial centre. Among the benefits of listing on the Hong Kong stock exchange is that this provides overseas companies with access to investors in Mainland China, currently under the Qualified Domestic Institutional Investor (QDII) programme. This allows Mainland Chinese financial institutions to raise funds in the domestic Chinese market and to invest in offshore securities markets.

A first step in that process was the launch in November 2014 of the Shanghai-Hong Kong Stock Connect pilot programme which allows certain Mainland Chinese investors to invest directly in Hong Kong listed stocks for the first time. Although currently restricted to Hang Seng Index companies, it is likely that the programme will be expanded to include other stocks in the future. If this is the case, a Hong Kong listing will offer international companies even greater access to Mainland China’s investors.

Launched in November 2014, the pilot programme allows investors in Hong Kong and China to trade eligible shares listed on the other market through the exchange and clearing house in their local market.

Under the so-called Southbound Trading Link, Mainland investors can trade the constituent stocks of the Hang Seng Composite LargeCap and MidCap Indexes, and all H-shares with corresponding A shares listed on the Shanghai Stock Exchange.

Trading is subject to aggregate and daily quotas. The Northbound Trading Link has an aggregate trading quota of RMB300 billion and a daily trading quota of RMB13 billion, while the Southbound Trading Link has an aggregate trading quota of RMB250 billion and a daily trading quota of RMB10.5 billion. It is not however possible to purchase IPO shares through Stock Connect.

The quotas apply on a “net buy” basis, meaning investors can always sell their cross-boundary securities regardless of the quota balance. Mainland investors are restricted to institutional investors and individuals holding RMB500,000 in cash & securities, whereas all Hong Kong and overseas investors are eligible for northbound trading.

A similar scheme to allow the mutual trading of shares between the Shenzhen Stock Exchange and the Hong Kong Stock Exchange is expected to be launched in the future.

Posted from SLPRO Z

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Harvey Yan


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