In June this year, China launched stock-connect schemes linking the Shanghai bourse with counterparts in London and Tokyo as it looks to accelerate the liberalisation of its capital markets. We take a closer look at the Shanghai-London Stock Connect (SLSC), and also the role that lawyers are expected to play.
On June 17, 2019, after four years of preparation, the Shanghai- London Stock Connect (SLSC) was officially launched. The China Securities Regulatory Commission (CSRC) and the UK Financial Conduct Authority issued a joint announcement to approve the implementation of the SLSC’s business.
The SLSC is a landmark project that not only brings significant benefits to both issuers and investors, but also symbolizes the deepened collaboration between China and UK in the finance sector and the only continual opening up of China’s capital market.
“Since joining the WTO in 2001, the opening up of China’s capital market has never ceased,” said Yang Yuhua, Partner at Llinks Law Offices, “With the rapid growth of China’s capital volume, the degree and depth of internationalisation is increasing – these developments go hand in hand.”
“For lawyers, it brings the opportunity to help their blue-chip clients broaden their exposure to global capital markets and to guide them through the many challenges of cross-border regulation,” said Delphine Currie, Partner and Co-Chair of the Global Corporate Group at Reed Smith.
“We believe that the capital markets, especially the equity capital market, in China will become more globalised, and there will be increased connectivity with European and global capital markets, ” said Tim Wang, Co-Managing Partner of Clifford Chance in China, “this initiative is also intended to aid the
PRC market’s desire to ‘go global’ and adopt the best international practice.”
As China still enforces foreign exchange controls on capital, Yang added that “the opening of the capital market will be a step by step process, one of the gradual progress of relevant checks and balances.”
INCREASED CONNECTIVITY
Unlike the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect, since the time difference between London and Shanghai varies between 7 to 8 hours there is almost no transaction overlap time, the SLSC is unusual as it involves a mechanism that connects the capital pools that exist in Shanghai and London via a two-way depository receipt programme.
The SLSC has also created several “firsts”: 1. Chinese investors have the opportunity to invest directly in international stocks in China without being subject to domestic capital control restrictions; 2. Eligible Chinese companies listed on the Shanghai Stock Exchange (SSE) can issue GDRs and apply for their listings on the Main Market of the London Stock Exchange (LSE); 3. The SSE will be open to foreign issuers; and 4. international investors are allowed to enter the Chinese A share market directly from outside Greater China through international transactions and settlement operations.
Before this, investors will generally need to qualify as a Qualified Foreign Institutional Investor (QFII) or Renminbi Qualified Foreign Institutional Investor (RQFII) to invest directly in A shares. Wang pointed out that “the instrument of Global Depository Receipt (GDR) makes it easier for international investors outside of the QFII and RQFII regime to access the growing Chinese economy and build up their China-themed investment portfolio.”
“The instrument of China Depository Receipt (CDR) can help inject liquidity and increase valuation for blue-chip London listed companies and allows PRC investors easy access to high-quality enterprises listed on the UK markets without concerns over foreign exchange controls,” Wang said, “It also increases a London listed company’s brand recognition in China and helps it build a closer relationship to its customer and investor bases in China who are more focused on the company’s China growth strategy ahead.”
What are the benefits to a Chinese company of obtaining a listing of GDRs on the London Stock Exchange? According to Currie, international institutional investors are familiar with London DRs (GDRs) and, as such, despite the current climate, for the right investment proposition, a listing of GDRs in London has the potential to unlock a very large pool of additional investors. Currie also stressed that “to ensure the listing is successful, a company will need to accompany it with an ongoing campaign to develop and maintain their profile in the London market.”
Iain Hunter, a partner at Clifford Chance in London, added, “It also improves a Chinese listed company’s ability to raise their international profile, enhance media and research coverage. In particular, London-listed GDRs can be sold to qualified institutional buyers in the U.S. as well as institutional investors outside of the U.S., which may be more easily used for offshore expansion.”
The SLSC is a two-way mechanism with westbound and eastbound business. The westbound business comprises solely of Huatai Securities currently, and the British HSBC Group is reported to be the first UK company to list in China.
In the early stage of eastbound business, LSE Listed Companies are not allowed to directly raise funds in the Chinese domestic market through the issuance of CDRs by new shares as the underlying securities. “This is an important commercial consideration for UK listed companies when evaluating the issuance of CDRs,” Yang believes that this is one reason why many market participants are still cautiously observing on the side-lines.
FIRST “A+H+G” LISTED COMPANY
Huatai Securities is the first A-share listed company listed on the LSE under the SLSC mechanism and became the first listed company in China with “A+H+G”. Clifford Chance acted for Huatai Securities and Wang told ALB that “although the transaction was eventually completed in June, the work was undertaken on a very accelerated timetable as compared to other similar transactions, particularly ground-breaking transactions such as this.”
What is particularly innovative about the scheme is that it enables fungibility across both markets. Wang revealed to ALB that the rules around the mechanism were still in the process of being finalised during the transaction, “As such, how we described this mechanism and explained the possible risks in the prospectus and other offering documents were challenging.”
The different regulatory regimes, time difference and trading hours across markets, each bring many challenges to a lawyer’s work. The opening of the SLSC does not involve investors crossing the border.
As Huatai Securities was already listed on both the SSE and the HKSE before the GDR listing, Clifford Chance also advised on the appropriate procedures to enable the Company to effectively meet its regulatory obligations across China, the UK, and Hong Kong.
For example, in the UK, the requirement is to disclose as soon as possible after the information arises, whereas in China and Hong Kong inside information is generally disclosed outside of trading hours. “To facilitate information disclosure, trading on the SLSC segment of the London Stock Exchange (LSE) is pushed back to 9 a.m., rather than 8.00 a.m., thus providing a short time window between the end of trading on the Shanghai and Hong Kong markets and the start of trading in London when disclosures can be made,” said Hunter.
Currie cautioned that “for companies, many of the legal and regulatory challenges are likely to derive from those associated with any dual-listing, including having to meet the requirements of two different rule books, as all participating companies will be required to meet the listing and ongoing obligations specific to each market”. Currie admits, “there will also be other challenges in ensuring that both boards and investors are properly briefed about these and other differences between the two markets, such as approaches to corporate governance.”
“Listing documents will need to disclose these distinctions clearly to enable informed investment in companies on the platform and reduce the risk of misunderstandings further down the line,” Currie adds.
RISING NEEDS AND CHALLENGES
For A shares that have been included in the MSCI index and whose weight has increased, the demand for international investors has increased sharply. The market demand for active and passive investment has made SLSC attract much attention in the eyes of international investors, Yang observed.
Other than language and investment culture differences, the SLSC truly connects two highly regulated markets – in terms of eligibility, listing process, prospectus/disclosure liability, and ongoing compliance obligations, relevant laws and regulations, regulatory requirements – there are many differences in market practices, the specific regulatory styles and methods of the various regulatory layers are all different.
“The SLSC brings together the world’s two important capital markets. The many benefits and challenges brought about by internationalisation are self-evident, but some commercial and market environment challenges cannot be solely solved by lawyers, Chinese and foreign issuers and investors must also face them”, Yang stressed that “the learning curve is very steep.”
According to Yang, for international investors, they need to be familiar with the trading mechanism as soon as possible, organise investment analysis team resources, understand the characteristics of information disclosure, adapt their international investment strategy to the Chinese market, etc., so as to ensure successful participation in the Chinese market and benefit from its rapid growth.
“But there are some aspects where Chinese and English lawyers can play a key role,” explains Yang, “on the SLSC project, if both the Chinese and British lawyers of relevant market participants (such as issuer, sponsor, depositary, custodian, investor, cross-border conversion agency) can work closely together this will help Chinese and foreign clients truly understand the legal environment, regulatory requirements, reasonable industry and market practices of each other’s markets, and will certainly provide high value-added professional services and support to market participants.”
Forward-looking, international law firms with robust and integrated UK, US, and China practices and close relationships with PRC law firms will stand to benefit as the deal execution requires seamless collaboration among legal teams from different jurisdictions, according to Wang. “These law firms can diversify their product offering into advising on GDR and CDR transactions and continue to provide comprehensive legal services to existing and potential clients in China and the UK, which include the key issues for clients to consider after listing, such as when to exercise the green-shoe option to stabilise stock price, etc.”
The London Stock Exchange lays claim to being one of the oldest exchanges in the world and, like many mature markets, has a high proportion of institutional investors. It is also one of the most international of exchanges, with over half of investors based overseas, and non-UK companies representing over 35% of market value.
“The difference between Chinese and British investment cultures is also an unavoidable issue in the SLSC project,” Currie observed.
“While willing and able to consider more sophisticated and complex investment propositions, by investing in London Stock Exchange-listed companies, investors expect adherence to high standards of corporate governance. This includes applicable regulatory requirements, but also less formal guidelines and standards set by institutional investor groups themselves. Institutional investors also expect to be able to have greater dialogue with the companies in which they invest (with high expectations set for this by the UK corporate governance codes applying to both listed companies and institutional investors).”
Curries said lawyers and other professional advisers can help companies navigate this environment and provide guidance on how to meet investor expectations. Reed Smith has lawyers who have listed more than 250 Chinese companies in HK, the UK and the USA. “Our teams on the ground in China and Hong Kong are perfectly placed to bridge any cultural differences,” Currie said.
DEEPENING CONNECTIONS
The launch of the SLSC, even though it has its unique international political and economic background and geopolitical relationship, is also the result of the two-way choice of London’s international mainstream capital and financial markets and the Chinese market. In the long run, Chinese investors will gradually leave the investment concept of the highest return rate, focus on the more stable investment income provided by developed markets, and more mature asset allocation, and then realise sustainable return, according to Yang.
Recently, FTSE Russell has officially incorporated A shares into its global stock index system, which not only brings incremental funds to A shares, but also brings value investment ideas. There are indications that the international investment community supports and trusts China’s long-term economic development and capital market reform and opening up.
The current international trade tensions continue to create a challenging environment for Chinese companies seeking to attract international investment. The new platform provides a new route to access the London market, one of the deepest pools of capital in the world, but it is not open to all companies – there are various criteria which a Chinese company will need to satisfy in order for GDRs representing its shares to be eligible for admission to the UK Official List and the SLSC segment of the Main Market of the LSE. “The RMB 20 billion ($ 2.8 billion) market cap requirement alone will preclude all but the largest,” Currie pointed out.
The qualification requirements for the issuance of GDRs on the LSE determine that the size of the transactions on the SLSC is limited and will not dilute the existing shares in the domestic market to a large extent.
Wang pointed out that the SLSC is not a “shortcut” for domestic enterprises to list on the LSE, but creates a new “path” for them to enter the overseas capital market, “Not all sectors or companies listed on the SSE are equally appealing to the UK and global investors. Nor does it mean that with the SLSC all the other listing avenues are eclipsed. Listings in China, Hong Kong, London, and the US have their advantages and suitability. At the current stage, listed blue-chip companies in specific sectors and with global expansion strategy have a higher chance of following the lead of Huatai Securities and completing a GDR offering.”
In addition, the CSRC and the FCA have entered into a memorandum of understanding whereby they have agreed to cooperate with regards to the supervision of companies listed under the Shanghai-London Stock Connect, “which includes with regards to undertaking enforcement actions for any market misconduct, such as insider dealing or market abuse, ” Wang continued, “while there are some regulatory differences between the two jurisdictions, the key concerns of the two regulators are the same – protecting investors and maintaining the orderly functioning of the financial markets. ”
深化“全球连接”
今年6月，中国相继与英国和日本实现了资本市场的互联互通，标志着中国资本市场持续 对外开放的决心与重大举措。在本专题中，我们将聚焦沪伦通这一互联互通创新模式， 并关注律师在其中扮演的重要角色以及如何为确保该创新机制成功运行“保驾护航”。
2019年6月17日，筹备历时四年的沪伦通终于 正式启动。中国证券监督管理委员会与英国金 融行为监管局发布联合公告，原则批准开展沪 伦通业务。
沪伦通是一个具有里程碑意义的项目，不仅给双方的发行人和投资者带来重大利好，也是深化中英两国金融合作、进一步开放中国资本市场的重要一步。
“从2001年入世后，中国资本市场对外开放的脚步就从未停止过，” 通力律师事务所合伙人杨玉华律师谈到，“伴随中国资本体量规模的快速增长，国际化程度和深度与日俱增，这是一个正相关过程。”
“对于律师来说，沪伦通能够帮助其蓝筹客户的投资视野扩展至全球资本市场，在这个资本全球流动过程中，律师能够帮助客户克服跨境监管带来的诸多挑战，”礼德律师事务所合伙人Delphine Currie指出。
“我们相信，沪伦通将大大提升中国资本市场、特别是股权资本市场的国际化程度，也将进一步加强 中国与欧洲乃至全球资本市场的互联互通，同时使中国企业有机会进入到全球最成熟、最有影响力的资本市场之一，借鉴其先进做法，”高伟绅律师事务所中国区联席管理合伙人王彦峰律师谈到。
但由于中国仍执行资本项下的外汇管制，杨玉华律师在此指出，“资本市场的开放也一定是一个逐步的、存在博弈制衡的渐进过程。”
互联互通互利
与沪港通和深港通不同，由于伦敦和上海时差在7/8小时，几乎没有交易重合时间，所以沪伦通的独特之处在于通过双向存托凭证机制实现上海和伦敦资本市场的互联互通。
沪伦通还创造了诸多“第一”：首次使中国投资者在中国境内即可有机会直接投资国际股票而不需受制于国内资本管制限制；首次使得上海证券交易所上市的中国公司能够通过以国内A股上市股票作为基础证券的GDR进行海外融资；首次允许外国公司能够在中国大陆上市；首次允许国际投资者能够通过国际交易和结算操作，从大中华区以外直接进入中国A股市场。
在此之前，外国投资者直接投资A股一般需要取得合格境外机构投资者或人民币合格境外机构投资资格。王彦峰律师指出，“全球存托凭证的机制让国际投资者不再受该资格的限制而能直接参与到中国经济快速发展的红利中，从而构建其中国主题的投资组合。”
而中国公司申请在伦交所发行全球存托凭证的好处有哪些？据Delphine Currie介绍，国际机构投资者熟悉全球存托凭证，即使在大环境不景气的前提下，中国公司一旦在伦交所发行全球存托凭证挂牌上市，都意味着将会撬开吸引大量潜在额外投资者的可能性。Delphine Currie同时强调，“如要确保上市成功，公司上市后要严格履行的一个义务就是持续向当地市场更新公司的业务情况与发展动态。”
“此外，发行全球存托凭证还能提升中国本土上市公司的公众形象，吸引国际研究分析师和媒体报道，扩大公司的全球影响力。特别是，在伦敦上市的全球存托凭证可以出售给美国境内的合格机构投资者以及美国境外的机构投资者，这为中国公司的海外扩张提供了充足便利的资金来源，”高伟绅律师事务所伦敦办公室合伙人Iain Hunter律师补充道。
沪伦通包括西向业务和东向业务两个部分。西向业务目前只有华泰证券一家，英国的汇丰集团据悉将成为首个在中国A股上市的英国公司。
起步阶段的东向业务目前暂不允许伦交所上市公司在中国境内市场通过新增股份发行中国存托凭证的方式直接融资，“这成为英国上市公司评估东向发行中国存托凭证商业合理性和必要性考虑中的一个重要影响因素，”杨玉华律师认为这是很多市场参与方仍在审慎观察的一个原因。
诞生首家“A+H+G”上市公司
华泰证券是第一家按沪伦通业务规则在伦交所挂牌的A股上市公司，成为国内首家“A+H+G”股上市公司。高伟绅律师事务所在该项目中担任华泰证券的法律顾问。王彦峰律师告诉ALB，虽然项目最终在2019年6月大功告成，“但与行业内同类型的里程碑项目相比，华泰证券此次全球存托凭证的伦交所上市项目时间表定得非常紧凑。”
沪伦通独特的创新机制在于两个市场之间的跨境转换。据王彦峰律师透露，在沪伦通首单交易进展过程中，围绕该机制的创设规则仍未最终敲定，“我们该如何定义这个机制？如何在招股书和其他法律文件中对该机制可能涉及的风险予以清晰阐释，在当时是非常具有挑战性的问题。”
不同的监管要求、较大的时差、几乎没有交易重合时间，这其中的每一点给律师的工作都带来了不小的挑战。
华泰证券登陆伦交所之前，已在上海和香港两地上市。高伟绅还要就适当的程序提供建议，确保华泰证券能够严格遵守其在中国大陆、英国和香港地区的监管义务。
举例来说，英国规定内幕信息产生后应尽快披露（即无论是否是交易时间），而在中国大陆和香港地区一般而言内幕信息是在非交易时间披露。Hunter律师介绍说：“为了方便信息披露，伦交所的沪伦通板块将于上午9点（而非8点）开市，从而在上海和香港交易所收市和伦敦开市之间提供一个短暂窗口以便于披露信息。”
Delphine Currie提醒道 “其实很多法律和监管方面的挑战都来自两地上市的需要，因为要满足不同的监管要求、也要严格遵守两地的上市要求及持续的上市后义务,” Delphine Currie坦言，确保让董事会和投资者及时知悉两地市场在不同规定上的差异性，比如公司治理结构的不同，对律师来说也是一项充满挑战 的工作。
“上市文件需要清晰明确地披露这些差别，以便投资者在充分知情的前提下做出投资决策，降低未来因误解产生的潜在风险，”Delphine Currie补充道。
陡增的需求与挑战
对已纳入MSCI且权重增加了的A股而言，国际投资者配置需求陡增，主动投资和被动投资汇总的市场需求使沪伦通在国际投资者眼中备受瞩目，杨玉华律师观察到。
除了语言和投资文化差异，沪伦通真正联通的是两个强监管的市场——在资格要求、上市过程、招股书/披露责任、持续合规义务等方面，相关法律法规、监管要求、市场惯例均有很多差异，监管层的具体监管风格、方式方法也不一样。
“世界上两个重要的资本市场得以联通，国际化带来的诸多益处和挑战不言而喻，但有些商业和市场环境挑战不是律师单方面可以协助解决的，中外发行人、投资者面对的学习曲线都很陡峭。”
杨玉华律师认为，对于国际投资者来说，他们需要尽快熟悉交易机制，组织投资分析团队资源，了解信息披露特点，将其国际投资战略适配到中国市场等等，从而确保成功参与中国市场并从其快速增长中获益。
“但有些方面正是中英律师可以发挥关键作用的地方，”杨玉华律师解释道，“沪伦通项目上，如果发行人、保荐人、存托人、托管人、投资人、跨境转换机构等市场参与主体的中英双方律师都能密切合作，协助中外客户真正理解彼此市场的法律环境、监管要求、合理的行业和市场惯例，则一定会为市场主体提供高附加值的专业服务与支持。”
由于交易的执行需要来自不同司法辖区法律团队的无缝合作，王彦峰律师指出，在英国、美国和中国均具备强大执业能力且与中国律师事务所合作密切的国际律师事务所将会迎来更多业务机会——“律所应该尽量让服务类别多样化，为客户提供全球存托凭证和中国存托凭证的双向服务，、同时继续为现有及潜在的中国和英国客户提供包括上市后需要考虑的重要事项在内的全方位法律服务，比如什么时间点需要启动绿鞋机制帮助稳住股价等等。”
众所周知，伦敦证交所是世界上最老牌的证交所之一，与其他成熟市场一样，伦交所拥有相当大比例的机构投资者。伦交所同时也很国际化，一半以上投资者来自英国境外；上市公司中，非英国本土公司的市值占到总市值的35%以上。
“中英投资文化差异，也是沪伦通项目中一个不可回避的问题，”Delphine Currie指出。
“尽管投资者愿意并能够考虑更复杂的投资建议，但通过投资伦交所的上市公司，投资者对严格遵守高标准的公司治理是充满期待的，这包括适用的监管要求，也包括机构投资者团体自己制定的非正式的指导 意见与标准。机构投资者也希望能够与他们投资的公司有更多的对话（适用于上市公司和机构投资者的《英国公司治理准则》对此做出了规定）。”
Delphine Currie表示，律师及其他专业机构人士可以很好地帮助公司符合投资者的高期待值。礼德帮助250多家公司在香港地区、英国、美国成功上市，“特别是我们的大中华区团队，配合非常紧密，能有效克服项目中间涉及的中英投资文化差异问题。”
深化连接
沪伦通的开通纵然有其特有的国际政治经济背景和地缘政治关系影响，也是伦敦这一国际主流资本和金融市场与中国市场联通之市场需求的双向选择结果。长远看，中国投资者会逐渐摒弃最高回报率至上的投资理念，注重发达市场更多提供的稳定投资收益，更为成熟地进行资产配置，进而实质收益，杨玉华律师指出。
近期，富时罗素也正式将A股纳入其全球股票指数体系，不仅给A股带来增量资金，也同样带来价值投资理念。种种迹象表明，国际投资界对中国经济长期向好和资本市场改革开放的支持与信任。
而当前中美贸易加剧与监管趋严的态势，持续为寻求吸引全球投资的中国企业创造了一个具有挑战性的环境。沪伦通虽然有利于丰富境内企业融资渠道，但境内企业想要发行全球存托凭证、进入上市名单并在伦交所主板沪伦通板块上市需要满足多项标准，“公司市值不低于人民币200亿元（28亿美元），仅市值门槛一项就筛出了很多规模有限的公司，”Delphine Currie指出。
发行全球存托凭证在伦交所上市的资质要求决定了沪伦通的交易规模有限，不会在很大程度上稀释境内市场现有的股份。
王彦峰律师指出，沪伦通不是中国境内企业在伦交所上市的“捷径”，而是为他们进入海外资本市场创建了一个新的“路径”。“所以不代表在上交所上市的所有公司和行业都会同样吸引英国和全球投资者的兴趣。也不代表有了沪伦通，其他上市通道就会失去光芒。选择在中国大陆、香港地区、伦敦或美国的交易所上市各有其优势和适宜性。现阶段而言，那些具备全球发展战略的特定行业领域上市蓝筹公司更有可能跟进华泰证券的步伐，发行全球存托凭证在伦交所主板上市。
此外，中国证监会和英国金融行为监管局(Finan¬cial Conduct Authority))还签署了《上海与伦敦市场互联互通机制监管合作谅解备忘录》，将就沪伦通跨境证券监管执法开展合作。“其中就包括将对任何市场失当行为（例如内幕交易或滥用市场）采取执法行动，”王彦峰律师提醒道，“中英两国虽在监管方面存在差异，但两国监管机构的共同目标都是保护投资者的合法权益，维护市场秩序，促进两地证券市场的健康发展。”
To contact the editorial team, please email ALBEditor@thomsonreuters.com.
