Several Provisions on the Interconnection Mechanism for Mainland and Hong Kong Stock Markets

　　Order of the China Securities Regulatory Commission No.128

　　September 30, 2016

　　The Several Provisions on the Interconnection Mechanism for Mainland and Hong Kong Stock Markets deliberated and adopted at the 11th executive meeting of the chairman of the China Securities Regulatory Commission on September 29, 2016 are hereby promulgated for implementation as of the date of promulgation.

　　Chairman of the China Securities Regulatory Commission: Liu Shiyu

　　Several Provisions on the Interconnection Mechanism for Mainland and Hong Kong Stock Markets

　　Article 1 In order to standardize the activities related to the Interconnection Mechanism for Mainland and Hong Kong Stock Markets, protect the legitimate rights and interests of investors and maintain the trading order of the securities market, Several Provisions on the Interconnection Mechanism for Mainland and Hong Kong Stock Markets (these "Provisions") are hereby formulated in accordance with the Securities Law and other relevant laws and administrative regulations.

　　Article 2 For the purpose of these Provisions, the Interconnection Mechanism for Mainland and Hong Kong Stock Markets refers to a mechanism under which the Shanghai Stock Exchange and the Shenzhen Stock Exchange respectively establish technical connections with Stock Exchange of Hong Kong Limited ("SEHK") to make mainland and Hong Kong investors trade stocks listed on the other stock exchanges within the specified scope through local securities companies or brokers. The Interconnection Mechanism for Mainland and Hong Kong Stock Markets comprises the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect.
　　The Shanghai-Hong Kong Stock Connect comprises the Shanghai Stock Connect and the Hong Kong Stock Connect under the Shanghai-Hong Kong Stock Connect. The Shanghai Stock Connect refers to investors, through their appointed Hong Kong brokers and a securities trading service company established by SEHK in Shanghai, trading eligible shares under the Shanghai-Hong Kong Stock Connect listed on the Shanghai Stock Exchange by routing orders to the Shanghai Stock Exchange. The Hong Kong Stock Connect under the Shanghai-Hong Kong Stock Connect refers to investors, through their appointed Mainland securities firms and a securities trading service company established by the Shanghai Stock Exchange in Hong Kong, trading eligible shares under the Shanghai-Hong Kong Stock Connect listed on SEHK by routing orders to SEHK.
　　The Shenzhen-Hong Kong Stock Connect comprises the Shenzhen Stock Connect and the Hong Kong Stock Connect under the Shenzhen-Hong Kong Stock Connect. The Shenzhen Stock Connect refers to investors, through their appointed Mainland securities firms and a securities trading service company to be established by SEHK in Shenzhen, trading eligible shares under the Shenzhen-Hong Kong Stock Connect listed on the Shenzhen Stock Exchange by routing orders to the Shenzhen Stock Exchange. The Hong Kong Stock Connect under the Shenzhen-Hong Kong Stock Connect refers to investors, through their appointed Mainland securities firms and a securities trading service company established by the Shenzhen Stock Exchange in Hong Kong, trading eligible shares under the Shenzhen-Hong Kong Stock Connect listed on SEHK by routing orders to SEHK.
　　The Hong Kong Stock Connect under the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect are collectively referred to as the Hong Kong Stock Connect.

　　Article 3 The Interconnection Mechanism for Mainland and Hong Kong Stock Markets are subject to the laws and regulations on the trading and settlement prevailing in the two markets.
　　Trading and settlement activities are subject to the regulatory provisions and business rules of the place where such trading and settlement occurs; listed companies shall abide by the regulatory provisions and business rules of the place where they are listed; securities companies or brokers shall abide by the regulatory provisions and business rules of the places where they are located; and investors shall abide by the regulatory provisions for eligibility of investors and business rules of the places where the securities companies or brokers entrusted by investors are located, unless otherwise specified herein.

　　Article 4 The China Securities Regulatory Commission (the "CSRC") shall conduct supervision and administration of the business of the Interconnection Mechanism for Mainland and Hong Kong Stock Markets and, in concert with the Securities and Futures Commission and other relevant national or regional securities regulatory authorities, protect the legitimate rights and interests of cross-border investments of investors according to regulatory and cooperative arrangements and based on the principles of fairness, justice and reciprocity.

　　Article 5 The Shanghai Stock Exchange, the Shenzhen Stock Exchange and SEHK shall perform the following responsibilities when carrying out any business related to the Interconnection Mechanism for Mainland and Hong Kong Stock Markets:
　　1. provide necessary places and facilities;
　　2. in the case of the Shanghai Stock Exchange and the Shenzhen Stock Exchange, establish securities trading service companies respectively in Hong Kong, and in the case of SEHK, establish securities trading service companies in Shanghai and Shenzhen respectively; and conduct administration of the business activities of securities trading service companies, and supervise and assist in its performance of the responsibilities specified herein;
　　3. formulate the relevant business rules, conduct self-discipline management of the relevant transactions and other activities of market players, and carry out the regulatory cooperation across different markets;
　　4. work out technical standards for securities trading service companies to carry out the relevant business;
　　5. conduct real-time monitoring of the relevant trading and establish a corresponding information exchange system and joint monitoring system to jointly monitor improper cross-border trading behaviors and to prevent the market risks;
　　6. manage and promulgate the relevant market information; and
　　7. other responsibilities specified by the CSRC.
　　The Shanghai Stock Exchange and the Shenzhen Stock Exchange shall, according to the relevant regulatory requirements, respectively formulate specific standards and implementing guidelines for eligibility management of investors of the Hong Kong Stock Connect and report to the CSRC for the record.
　　The Shanghai Stock Exchange and the Shenzhen Stock Exchange shall formulate the relevant business rules, requiring SEHK and its securities trading service companies to provide the relevant information about investors involved in the trading declaration.

　　Article 6 Securities trading service companies shall, according to the relevant business rules or the relevant business arrangements of the stock exchanges, perform the following responsibilities:
　　1. in the case of securities trading service companies of the Shanghai Stock Exchange, provide the relevant services of the Hong Kong Stock Connect under the Shanghai-Hong Kong Stock Connect, and in the case of securities trading service companies of the Shenzhen Stock Exchange, provide the relevant services of the Hong Kong Stock Connect under the Shenzhen-Hong Kong Stock Connect; in the case of securities trading service companies established by SEHK in Shanghai, provide the relevant services of the Shanghai Stock Connect, and in the case of securities trading service companies established in Shenzhen by SEHK, provide the relevant services of the Shenzhen Stock Connect;
　　2. provide necessary facilities and technical services;
　　3. perform the relevant responsibilities of administration of quotas of the Shanghai Stock Connect, the Shenzhen Stock Connect or the Hong Kong Stock Connect;
　　4. formulate operating processes and risk control measures for business of the Shanghai Stock Connect, the Shenzhen Stock Connect or the Hong Kong Stock Connect to strengthen internal control and prevent risks;
　　5. in the case of securities trading service companies of the Shanghai Stock Exchange and the Shenzhen Stock Exchange, respectively formulate technical standards for mainland securities companies to conduct the business of the Hong Kong Stock Connect and conduct tests and evaluation of the technical system of companies that propose to initiate business; in the case of securities trading service companies established by SEHK in Shanghai and Shenzhen, respectively formulate technical standards for Hong Kong brokers to conduct business of the Shanghai Stock Connect and the Shenzhen Stock Connect and conduct tests and evaluation of the technical system of companies that propose to initiate business;
　　6. provide technical services for securities companies or brokers and carry out monitoring of the operation of the technical system that connects the Shanghai Stock Connect, the Shenzhen Stock Connect and the Hong Kong Stock Connect; and
　　7. other responsibilities specified by the CSRC.

　　Article 7 China Securities Depository and Clearing Co., Ltd. ("CSDC") and Hong Kong Securities Clearing Co., Ltd. ("HKSCC") shall perform the following responsibilities when carrying out the business related to the Interconnection Mechanism for Mainland and Hong Kong Stock Markets:
　　1. provide necessary places and facilities;
　　2. provide registration, depository and clearing services;
　　3. formulate the relevant business rules;
　　4. legally provide services of nominal holders;
　　5. conduct self-discipline management on the relevant activities of registration and clearing participating institutions; and
　　6. other responsibilities specified by the CSRC.

　　Article 8 The business of the Hong Kong Stock Connect carried out by mainland securities companies shall be subject to the laws, administrative regulations, the Provisions, other provisions specified by the CSRC and the requirements of the relevant business rules, strengthen internal control, prevent and control risks, and formulate, in accordance with the relevant provisions of the CSRC and provisions on the eligibility management of investors of the Shanghai Stock Exchange and the Shenzhen Stock Exchange, the relevant implementing plan to earnestly maintain the rights and interests of clients.

　　Article 9 Where abnormal transactions seriously affect part or all of the normal transactions of the Interconnection Mechanism for Mainland and Hong Kong Stock Markets, the Shanghai Stock Exchange, the Shenzhen Stock Exchange and SEHK may, according to the business rules and the contractual agreement, suspend part or all of the relevant business activities and make an announcement.

　　Article 10 Business related to the Interconnection Mechanism for Mainland and Hong Kong Stock Markets carried out by the Shanghai Stock Exchange, the Shenzhen Stock Exchange and SEHK is restricted to stock trading business within the specified scope and other business recognized by the CSRC.

　　Article 11 Unless otherwise specified by the CSRC, securities trading service companies and securities companies or brokers may not, at their discretion, bring together investors to conclude orders of buying or selling stocks via the Interconnection Mechanism for Mainland and Hong Kong Stock Markets; nor shall they provide, in any other form, transfer services for stocks bought and sold via the Interconnection Mechanism for Mainland and Hong Kong Stock Markets in a place other than the stock exchanges.

　　Article 12 Domestic stock investments of foreign investors shall be subject to the following restrictions on shareholding ratio:
　　1. the shareholding ratio of a single foreign investor in a single listed company shall not exceed 10% of the total shares of the listed company; and
　　2. the total A-share shareholding ratio of all foreign investors in a single listed company shall not exceed 30% of the total shares of the listed company.
　　Where foreign investors make strategic investments in listed companies in accordance with the law, the shareholding ratio thereof shall not be subject to the above restrictions.
　　Where there are stricter provisions on the maximum limit of shareholding ratios specified in the relevant domestic laws and regulations and other relevant regulatory rules, such provisions shall prevail.

　　Article 13 Investors are entitled to the rights and interests to buy shares through the Interconnection Mechanism for Mainland and Hong Kong Stock Markets in accordance with the law.
　　Shares bought by investors through the Hong Kong Stock Connect shall be recorded in the securities account opened by CSDC in HKSCC. CSDC shall, in its own name, exercise the rights on the share issuer through HKSCC. When exercising the rights on the share issuer, CSDC shall seek opinions from investors through mainland securities companies, custodian banks and other institutions in advance and exercise the rights according to their opinions.
　　Shareholding records issued by CSDC are valid proof that investors of the Hong Kong Stock Connect are entitled to the rights and interests of shares. Investors shall not require withdrawal of paper shares unless otherwise specified by the CSRC.
　　Shares bought by investors through the Shanghai Stock Connect and the Shenzhen Stock Connect shall be registered under the name of HKSCC. Where investors who buy or sell stocks through the Shanghai Stock Connect and the Shenzhen Stock Connect are subject to information disclosure, they shall perform the obligations of reporting and information disclosure in accordance with the law.

　　Article 14 For transactions conducted through the Hong Kong Stock Connect, CSDC shall undertake the responsibilities for clearance and delivery of stocks and funds; for transactions conducted through the Shanghai Stock Connect and Shenzhen Stock Connect, HKSCC shall undertake the same responsibilities.
CSDC and HKSCC shall, based on the principles of relative isolation of clearing risks of the two markets, not participate in each other's risk fund arrangement of mutual protective nature; other relevant risk management arrangements shall be subject to the relevant provisions on trading and settlement risk management of the place where such trading and settlement occurs.

　　Article 15 Shares bought or sold by investors via the Interconnection Mechanism for Mainland and Hong Kong Stock Markets shall be delivered by securities companies or brokers in RMB. The delivery in other currencies is subject to the provisions of the People's Bank of China.

　　Article 16 For investors violating the laws and regulations, these Provisions and other relevant provisions specified by the CSRC, the CSRC will take such measures such as supervision and administration in accordance with the law; where administrative penalties shall be imposed in accordance with the law, they will be imposed in accordance with the Securities Law, the Law on Administrative Penalties and other laws and regulations; where a crime is constituted, the case will be transferred to a judicial organ for investigation of criminal responsibility in accordance with the law.
　　The CSRC and the Securities and Futures Commission and other relevant national or regional securities regulatory authorities shall, through cross-border regulatory and cooperative mechanisms, investigate the relevant cross-border illegal activities on the Interconnection Mechanism for Mainland and Hong Kong Stock Markets in accordance with the law.

　　Article 17 The Shanghai Stock Exchange, the Shenzhen Stock Exchange and CSDC are required to, according to the requirements hereof, respectively formulate the relevant business rules for the Interconnection Mechanism for Mainland and Hong Kong Stock Markets, which will be implemented after being reported to and approved by the CSRC.

　　Article 18 Stock exchanges, securities trading service companies and clearing institutions shall properly preserve various documents and information generated from the performance of the responsibilities specified herein for no less than 20 years.

　　Article 19 These Provisions will come into force as of the date of promulgation. The Several Provisions on the Pilot Program of the Shanghai-Hong Kong Stock Connect (Order of the China Securities Regulatory Commission No.101) will be repealed at the same time.