Draft Provisions on the Supervision and Administration of Depository Receipts Under the London-Shanghai Stock Connect Scheme Released

by K&L Gates LLP

K&L Gates LLP

On August 31, 2018, the China Securities Regulatory Commission (“CSRC”) released a draft of the Provisions on the Supervision and Administration of Depository Receipts under the Stock Connect Scheme between the Shanghai Stock Exchange and the London Stock Exchange (“Draft Provisions”) for “public consultation”. The Draft Provisions set out the framework for the long-awaited London-Shanghai Stock Connect program (“London Connect”), suggesting an imminent launch, likely before the end of 2018 in line with the timetable previously suggested by People’s Republic of China (“PRC”) government officials.


The London Connect is a market connect scheme between the London Stock Exchange (“LSE”) and the Shanghai Stock Exchange (“SSE”) proposed by Chinese President Xi Jinping during his visit to the United Kingdom in October 2015. Since 2015, the two governments have worked hand in hand to develop the current framework outlined in the Draft Provisions.

The Draft Provisions contain 30 articles that address, among other things:

  • establishing the review and approval regime for Chinese Depository Receipts (“CDR”) issuance;
  • setting up the cross-border conversion mechanism for CDRs;
  • clarifying continuing regulatory and supervisory requirements for CDRs;
  • setting up the regulatory framework for Global Depository Receipts (“GDR”) issuance by Chinese-listed companies; and
  • reinforcing enforcement activities against misconduct with clearly defined legal responsibilities. 

How will the London Connect work?

When the London Connect launches, investors in London will be able to access PRC A-shares that have related GDRs listed on the LSE. Also, qualifying LSE-listed issuers will be able to access Chinese investors in Shanghai by listing CDRs on the SSE.

In the United Kingdom, the Shanghai-London Connect Segment will be a segment of the LSE’s Main Market (a regulated market) for the admission to trading of GDRs representing PRC A-shares that are listed on the Main Board Market of the SSE. Trading in the GDRs will take place on the LSE’s International Order Book trading service.

Companies interested in applying for the London Connect will need to meet certain thresholds as set forth by the stock exchanges (LSE and SSE) and local regulators (Financial Conduct Authority (“FCA”) and CSRC). For example, the LSE’s currently proposed Admission and Disclosure Standards provide in Schedule 7 that issuers seeking admission to trade GDRs on the London Connect must:

  • have published an FCA-approved prospectus;
  • have an FCA-approved application to admit GDRs to the official list;
  • have securities listed on the Main Board Market of the SSE; and
  • have a market capitalization equal to or above RMB20 million (around US$2.91 million).

The proposed LSE Admissions and Disclosure Standards are unconfirmed and remain subject to change.

Additional ongoing disclosure requirements and regulations will apply to GDR issuers, such as the European Union Market Abuse Regulation and the national law and regulations of the GDR issuers’ country of incorporation.

There will also be limits that cap how many securities can be issued and regulations on how they are traded and settled on the LSE and the SSE. For example, Article 8 of the Draft Provisions provides that the number of outstanding CDRs shall not exceed the amount cap approved by the CSRC and that this amount cap will be readjusted if the number of underlying stocks changes (e.g., in the event of a stock dividend, stock split, or reverse stock split). Secondary listings in London must also be priced at a minimum of 90% of the Shanghai-listed stock’s average closing price over the previous 20 trading days.

How does the London Connect compare to the existing Hong Kong Connect schemes?

The London Connect will differ from the Hong Kong-Shanghai Stock Connect (launched in 2014) and the Hong Kong-Shenzhen Stock Connect (launched in 2016) (together, the “Hong Kong Connects”) in some key areas:

  • The London Connect will be restricted to certain securities listed on the LSE and the SSE. The London Connect will only have access to the SSE, whereas the Hong Kong Connects give investors access to the SSE and the Shenzhen Stock Exchange. Thus, investors’ access to the PRC securities markets will be reduced by comparison.
  • Investors using the Hong Kong Connects to execute northbound trades deal directly through local Hong Kong stockbrokers in PRC A-shares while investors who wish to use the London Connect to trade in PRC A-shares (“London Eastbound Investors”) will trade GDRs (claims on foreign shares) through custodians on the London Connect. This method creates a delay between the execution of the trade and the movement of funds from buyer to seller. However, this feature was specifically designed to address the challenges posed by the time difference between London and Shanghai.
  • London Eastbound Investors’ access to SSE-listed issuers and PRC A-shares will be much more limited than is available through the Hong Kong-Shanghai Stock Connect. While unconfirmed, it is likely that only the largest-capitalized, “blue chip” Shanghai-listed issuers will be permitted to issue GDRs on the LSE. There is no word yet on which London issuers will be permitted to issue CDRs on the SSE. In addition, it is proposed that while SSE-listed issuers will be able to use GDRs to raise new capital, London-listed issuers will only be able to issue CDRs using existing shares. It is currently unclear how the issuance of CDRs without new capital issuance will operate. Finally, while the list of eligible stocks on the Hong Kong Connects is subject to periodic change, individual approval in order to be listed as eligible stocks is not required by an issuer from the CSRC. In contrast, under the London Connect, each issuer and the number of CDRs capable of being issued by that issuer are subject to the regulatory review and approval of the CSRC.
  • PRC regulators have not currently clarified any restrictions on PRC investor eligibility to invest in CDRs. The market believes that PRC individuals who are not institutional investors will need to have capital of not less than RMB5 million (about US$732,000) to be eligible, a much higher threshold than the RMB500,000 (about US$73,200) minimum needed by PRC investors to trade through the Hong Kong Connects.

The London Connect will contain the following provisions, which are similar to those relating to the Hong Kong Connects:

  • Like the Hong Kong Connects, there will be trading quotas imposed on the London Connect. However, unlike the Hong Kong Connects, where there is a maximum daily trading limit on all stocks available on the Hong Kong Connects as a whole, the London Connect will impose a limit on the number of CDRs available for trading by each issuer. The CSRC will determine CDR limits on a case-by-case basis.
  • Each market’s own laws and regulations will apply to local market activity, which will be monitored by the relevant local market regulator. Thus, PRC laws and regulations will apply to trading on the SSE, and the CSRC will be the primary regulator overseeing and supervising market activity on the SSE. United Kingdom laws and regulations and, as applied, European Union laws will apply to trading on the LSE, and the FCA will oversee and supervise market activity in London.

What does this mean for investors and issuers?

The London Connect is a start for European investors who are inexperienced in PRC and Hong Kong securities trading and welcome news amidst the uncertainty of Brexit. However, it will not offer the full range of groundbreaking features offered by the Hong Kong Connects.

There will also be a likely benefit of direct access to PRC investors for London issuers permitted to issue CDRs, and depending on the finalized rules, London issuers may also be allowed to obtain that benefit without a need to comply with SSE regulations, as well as United Kingdom Listing Rules.

Meanwhile, relevant PRC issuers should benefit from a new way to access foreign funds.

The proposed launch of the London Connect reaffirms the desire of PRC regulators to attract foreign-listed PRC issuers (especially PRC tech titans) back home to benefit the PRC’s existing A-share market as well as its domestic tech sector and, hopefully, lessen capital outflows. At the same time, CDRs were introduced in Beijing this year for the purpose of acting as instruments that permit Chinese investors to obtain stakes in foreign-listed companies via domestic stock exchanges. With the ongoing PRC-U.S. trade wars, the PRC is looking for alternatives to the United States, and London has always been its entry point to Europe and the West. Brexit notwithstanding, the London Connect is a tacit acknowledgment of this, and the PRC regulators have every intention to ensure its success.

So far, market-watchers have been cautiously optimistic — some Chinese securities companies have submitted their applications to be market makers under this mechanism. However, just as the market is watching and waiting for the outcome of Brexit negotiations, the London Connect will itself take time to develop — a measured pace that should sit comfortably with the PRC regulators.


Written by:

K&L Gates LLP

K&L Gates LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at www.jdsupra.com) (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.