Expedited Approval for A-Share Firms' Hong Kong IPOs

Over the past decade of connectivity, remarkable achievements have been made. The daily average trading volume of the Shanghai-Shenzhen Stock Connect has increased from approximately 6 billion yuan when it was launched in 2014 to about 136 billion yuan by the end of October this year, accounting for about 8% of the total trading volume in the Shanghai and Shenzhen stock markets. Similarly, the daily trading volume of the Hong Kong Stock Connect rose from around 900 million Hong Kong dollars at its inception in 2014 to nearly 44 billion Hong Kong dollars by the end of October this year.

On November 26, the Hong Kong Stock Exchange hosted the 2024 HKEX China Forum in Shanghai. Journalists learned at the forum that the Hong Kong Stock Exchange is currently working closely with the Shanghai and Shenzhen stock exchanges on optimizing measures such as incorporating public REITs into the Stock Connect, introducing a block trading mechanism, and allowing Renminbi counters to be included in the Hong Kong Stock Connect transactions. Additionally, companies that are already listed on the A-share market may enter a fast-track approval process when applying for listing on the Hong Kong Stock Exchange, provided they meet certain conditions.

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The connectivity mechanism is continuously being optimized.

The Shanghai-Hong Kong Stock Connect pilot officially launched on November 17, 2014. Over the past decade, the trading volume of the Shanghai-Shenzhen-Hong Kong Stock Connect has steadily grown, with increasing participation from investors, creating a successful model for establishing connections in various aspects such as systems, products, and services between domestic and international financial markets.

At the forum, HKEX Group CEO Charles Li stated that the Stock Connect has become the primary channel for international investors to trade and hold mainland A-shares, with nearly 77% of foreign capital holding mainland stocks through this route.

Zhang Bin, Director of the International Cooperation Department of the Shanghai Stock Exchange, introduced at the forum that as of now, there are 1,349 stocks eligible under the Shanghai-Hong Kong Stock Connect, covering 90% of the market capitalization of the Shanghai stock market, as well as 143 ETFs; the daily trading volume has nearly reached 130 billion yuan, which is 30 times that of the daily volume at its launch 10 years ago (excluding QFII).

"Driven by the demonstration of the Shenzhen-Hong Kong Stock Connect, A-shares have been successively included in major international indices such as MSCI and FTSE Russell, with new cross-border connectivity models such as ETF mutual recognition and mutual connect depositary receipts gradually coming into existence," stated Chen Feng, Director of the International Cooperation Department of the Shenzhen Stock Exchange. A significant number of quality listed companies and related asset targets from Shenzhen have entered the sights of international investors through the connectivity channels. In September of this year, the share of foreign investors trading in the Shenzhen market reached nearly 12%, which is 13 times that of the first month after launch in 2016.

Chen Feng added that since last year, under the coordinated guidance of the China Securities Regulatory Commission and the Hong Kong Securities and Futures Commission, all parties are conducting in-depth research on optimizing measures such as incorporating block trading (non-automated matching trades), including REITs in the Shenzhen-Hong Kong Stock Connect, and enhancing the Renminbi stock trading counter in the Hong Kong Stock Connect.

Looking forward to comprehensive connectivity.

Charles Li emphasized that in addition to optimizing the connectivity, the Hong Kong Stock Exchange has recently introduced a series of reforms to listing rules and market mechanisms.

"In the first half of this year, due to market factors, it has been quite challenging for technology companies to meet the market capitalization requirements set by the HKEX listing rules." Li stated that the Hong Kong Stock Exchange announced in August this year a temporary reduction in the market capitalization threshold for special technology company listings and relaxed the requirements for independent third-party investments in mergers and acquisitions by Special Purpose Acquisition Companies (SPACs). "On October 30, we welcomed our first company listed through a De-SPAC transaction," indicated Li.

On October 18, the Hong Kong Stock Exchange and the Hong Kong Securities and Futures Commission jointly announced further optimization of the timeline for the listing application approval process, making the process clearer and more definitive. Li mentioned that companies already listed on the A-shares, if they meet certain conditions, can enter a fast-track approval process when applying for listing on the Hong Kong Stock Exchange.

Looking ahead, Chen Feng expressed that the Shenzhen Stock Exchange hopes to collaborate with the Hong Kong Stock Exchange on a broader scale, in wider fields, and at deeper levels. The interconnectedness of the two markets can first explore expanding from single point connections and pipeline connectivity to comprehensive integration involving funds, corporations, regulations, talent, technology, and data.

In the future, the Shanghai Stock Exchange will continue to optimize and improve the connectivity mechanism, establishing a stable and predictable investment ecosystem that welcomes various types of funds to come, stay, and grow; at the same time, it will listen to the opinions and suggestions of international investors, effectively communicate the story of the Shanghai-Hong Kong Stock Connect, and attract more international investors to participate and share in the growth of the Chinese economy.