Following the establishment of the “Shanghai-Hong Kong Stock Connect Program” (“Program”) this past June1, the Shanghai Stock Exchange (“SSE”) issued two rules on September 26, 2014, introducing certain changes to the Program, the most significant of which is the permission to engage in margin trading and short selling2 in the “northbound” trading channel (i.e. trading SSE-listed shares by investors in Hong Kong).
Eligible shares
Eligible shares for margin trading and short selling under northbound trading are those that simultaneously meet the following requirements:
(A) The shares must be eligible shares for northbound trading3, which
(a) include all the constituents of the SSE 180 Index and SSE 380 Index, and all SSE listed companies that have issued both A shares and H shares4, but
(b) exclude all shares under the risk alert board of SSE, B shares5, and any other shares designated by SSE; and
(B) The shares must fall in the scope of underlying shares6 for margin trading and short selling pursuant to the Detailed Rules of Shanghai Stock Exchange for Implementation of Margin Trading and Short Selling (the “Domestic Rules”):
(a) the underlying shares shall have been listed and traded in the SSE for more than 3 months;
(b) the aggregate float of the issuer the shares of which are bought in margin trading shall not be less than 100,000,000 shares or not less than RMB 500,000,000 in market value; and the aggregate float of the issuer the shares of which are sold in short selling shall not be less than 200,000,000 shares or not less than RMB 800,000,000 in market value; and
(c) the number of holders of such issuer’s outstanding shares shall not be less than 4,000 persons;
(d) none of the following has occurred within the last 3 months:
1) the daily average turnover rate is lower than 15% of the daily average turnover rate of the benchmark index, and the daily average transaction value is less than RMB 50,000,000;
2) the deviation between the daily average range of price increase and decrease and average range of price increase and decrease of the benchmark index exceeds 4%; or
3) the fluctuation range reaches above 5 times the fluctuation range of the benchmark index;
(e) the issuer shall have completed the non-tradable share reform (pursuant to which shares owned by the government and formerly considered non-tradable have been rendered tradable);
(f) the shares are not under the risk alert board of SSE; and
(g) the SSE has not otherwise designated the shares as outside the scope of the shares eligible for margin trading and short selling under the Domestic Rules.
Maximum Share Percentage
(A) Short-selling
In respect of each SSE-listed company, the short selling percentage on each northbound trading day shall not exceed 1%, and the sum of short-selling percentages over a period of ten consecutive northbound trading days shall not exceed 5%. SSE has the power to adjust the aforementioned percentage or temporarily suspend accepting submissions for short-selling based on market conditions. See also “Domestic Rules” below.
Under the rules issued by SSE, the short selling percentage is calculated as: the shares of a SSE-listed company short-sold through northbound trading on a northbound trading day, divided by the shares of the same SSE-listed company held by Hong Kong Securities Clearing Company Limited (a subsidiary of SEHK (as the nominee holder)) for all investors under the northbound trading in the preceding northbound trading day.
(B) Margin trading
There is no specific maximum percentage requirement in respect of margin trading under northbound trading under the Program.
Price
(A) Short-selling
In respect of shares of a SSE-listed company, the price submitted for short-selling under northbound trading must not be lower than the last recorded transaction price for the shares of the same company, or the previous closing price of the same company, if no transaction is concluded on that day.
(B) Margin trading
There is no specific requirement in respect of price for margin trading under northbound trading under the Program.
Margin Ratio and Collateral
There is no specific requirement imposed under PRC law regarding margin ratio or collateral under the Program.
Share Borrowing and Securities Margin Financing
Borrowing shares through shares borrowing and lending (in respect of short selling) and obtaining funds through securities margin financing (in respect of margin trading) shall occur in the Hong Kong market, which shall be governed by the law of Hong Kong according to the “home market” principle under the Program.
Domestic Rules
SSE has the power to temporarily suspend or resume short selling or margin trading in the shares of a SSE-listed company, when the shares of the same company is suspended or resumed for short selling or margin trading under the Domestic Rules.
Endnotes
1 The Program is expected to be formally launched in October.
2 Under northbound trading, margin trading refers to purchases of shares by investors under northbound trading with funds obtained through securities margin financing in the Hong Kong market, and short-selling refers to selling the shares which investors under northbound trading have borrowed through share borrowing and lending in Hong Kong market.
3 A list of eligible shares is available at http://www.hkex.com.hk/eng/market/sec_tradinfra/
chinaconnect/Documents/List%20of%20Eligible%20Stocks%20for%20Northbound%20Trading%20(Eng).pdf
4 Shares of Mainland companies that are listed on the Stock Exchange of Hong Kong Limited (the “SEHK”).
5 Shares of Mainland companies that are listed in SSE or Shenzhen Stock Exchange (the “SZSE”), denominated in RMB but settled in foreign currency.
6 A list of underlying securities (including shares and others) for margin trading and short selling pursuant to the Domestic Rules is available at
http://www.sse.com.cn/aboutus/innovation/margin/
againstmargin_index.shtml
继今年6月设立沪港股票市场交易互联互通机制试点（“沪港通”）1之后，上海证券交易所（“上证所”）于2014年9月26日发布有关试点办法和指引，对沪港通作出一些改变，其中最重要的是允许沪股通（即香港投资者买卖在上证所上市的股票）股票保证金交易和卖空交易2 。
符合条件的股票范围
沪股通股票保证金交易和卖空交易的标的股票范围为同时符合以下各项要求的股票：
(A) 必须是沪股通范围内的股票3，
(a) 包括上证180指数成份股和上证380指数成份股；以及A+H股上市公司的上证所上市A股4，但是
(b) 不含上证所风险警示板交易的股票、B股5和上证所认定的其它股票；以及
(B) 股票必须在《上海证券交易所融资融券交易实施细则》（“实施细则”）融资融劵标的股票6范围内：
(a) 标的股票在上证所上市交易已经超过3个月；
(b) 融资买入标的股票的流通股本不少于1亿股或流通市值不低于5亿元，融券卖出标的股票的流通股本不少于2亿股或流通市值不低于8亿元；以及
(c) 股东人数不少于4000人。
(d) 在过去3个月内没有出现下列情形之一：
1) 日均换手率低于基准指数日均换手率的15%，且日均成交金额小于5000万元；
2) 日均涨跌幅平均值与基准指数涨跌幅平均值的偏离值超过4%；或
3) 波动幅度达到基准指数波动幅度的5倍以上；
(e) 股票发行公司已完成股权分置改革（通过股权分置改革，原国有股和非流通股改为流通股）；
(f) 股票交易未被上证所实行特别处理；以及
(g) 上证所未认定其在实施细则项下融资融劵标的股票的范围之外\
最大比例
(A) 卖空
对于每一家上证所上市公司而言，单个沪股通交易日的单只沪股通股票担保卖空比例不得超过1%，连续10个沪股通交易日的单只沪股通股票担保卖空比例累计不超过5%。上证所有权根据市场情况调整上述担保卖空比例限制或者暂停接受沪股通股票担保卖空申报。亦请参见下述“实施细则”的内容。
根据上证所试点办法，沪股通股票担保卖空比例指每个沪股通交易日单只沪股通股票的担保卖空量，占前一沪股通交易日香港中央结算有限公司（联交所子公司）作为名义持有人持有的该只沪股通股票总量的比例。
(B) 保证金交易
对沪港通项下沪股通股票保证金交易没有具体的最大比例要求。
价格
(A) 卖空
对于一家上证所上市公司的股票而言，沪股通股票担保卖空的申报价格不得低于该股票的最新成交价；当天没有成交的，申报价格不得低于其前收盘价。
(B) 保证金交易
对沪港通项下沪股通股票保证金交易没有具体的价格要求。
保证金比例和担保物
中国法律对沪港通保证金比例和担保物未作具体规定。
股票借贷与证券保证金融资
沪股通股票担保卖空项下的股票借贷以及沪股通股票保证金交易项下通过证券保证金融资获得资金均应在香港市场进行，根据沪港通“所在地市场”原则应受香港法律管辖。
实施细则
上证所一家上市公司的股票根据实施细则被暂停或恢复融资融劵交易的，上证所有权暂停或恢复该上证所上市公司股票的担保卖空交易或保证金交易。
Endnotes
1 预期，沪港通将于10月份正式启动。
2 沪股通股票保证金交易指沪股通投资者在香港市场通过证券保证金融资获得资金买入沪股通股票；沪股通股票担保卖空指沪股通投资者在香港市场通过股票借贷借入沪股通股票后通过沪股通将其卖出。
4 境内注册的公司发行并在香港联合交易所有限公司（“联交所”）上市的股票。
5 境内注册的公司在上证所或深圳证券交易所（“深交所”）上市、以人民币标价并以外币结算的股票。
6 实施细则项下融资融劵标的证券（包括股票和其它证券）列表：http://www.sse.com.cn/aboutus/innovation/
margin/againstmargin_index.shtml
Contacts
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Ye-XiaoweiThis article was originally published by Bingham McCutchen LLP.