Detailed Rules for the Implementation of the H-Share “Full Circulation” Pilot Program

 2018-06-22  52


· Area of Law: Securities

· Level of Authority: Industry Regulations

· Date issued:04-20-2018

· Effective Date:04-20-2018

· Status: Effective

· Issuing Authority: China Securities Depository & Clearing Corporation Limited Shenzhen Stock Exchange

 

Notice of China Securities Depository and Clearing Co., Ltd. and the Shenzhen Stock Exchange on Issuing the Detailed Rules for the Implementation of the H-Share “Full Circulation” Pilot Program (for Trial Implementation)
All market participants:
For the purposes of implementing the H-share “full circulation” pilot program and regulating the registration, depository and transaction settlement of shares, China Securities Depository and Clearing Co., Ltd. and the Shenzhen Stock Exchange have jointly developed the Detailed Rules for the Implementation of the H-Share “Full Circulation” Pilot Program (for Trial Implementation), which, as approved by the China Securities Regulatory Commission (CSRC), are hereby issued and shall come into force on the date of issuance.
Annex: Detailed Rules for the Implementation of the H-Share “Full Circulation” Pilot Program (for Trial Implementation)
China Securities Depository and Clearing Co., Ltd.
Shenzhen Stock Exchange
April 20, 2018
Annex:
Detailed Rules for the Implementation of the H-Share “Full Circulation” Pilot Program (for Trial Implementation)
Chapter I General Provisions
Article 1 For the purposes of regulating the services relating to the pilot program on the circulation of non-overseas listed shares of H-share listed companies on the Hong Kong stock market (hereinafter referred to as “H-share ‘full circulation'”), in accordance with the Securities Law of the People's Republic of China, the Measures for the Administration of Securities Registration and Clearing, and other laws, administrative regulations, departmental rules and regulatory documents, as well as the relevant business rules of China Securities Depository and Clearing Co., Ltd. (hereinafter referred to as “CSDC”) and the Shenzhen Stock Exchange (hereinafter referred to as the “SZSE”).
Article 2 After H-share listed companies that have been approved by the CSRC to participate in the H-share “full circulation” pilot program (hereinafter referred to as “pilot companies”) complete the disclosure of corresponding information, CSDC shall conduct the cross-border transfer registration of the shares relating to the H-share “full circulation” pilot program (hereinafter referred to as “shares in the H-share ‘full circulation' pilot program”) at the Hong Kong share registration institution and such shares may be listed and traded on the Hong Kong Exchanges and Clearing Limited (hereinafter referred to as the “HKEX”).
Pilot companies shall obtain the authorization from natural persons and institutions that hold shares in the H-share “full circulation” pilot program (hereinafter referred to as “investors”) , and on behalf of investors, entrust CSDC to be the nominees of relevant securities and handle relevant businesses. CSDC, as a nominee, shall deposit such part of securities in Hong Kong Securities Clearing Company Limited (hereinafter referred to as “HKSCC”) and provide investors with nominee services.
Pilot companies shall take effective means to notify investors of matters concerning the registration, depository and transaction settlement of shares in the H-share “full circulation” pilot program, including but not limited to the arrangements for the holding of shares in the pilot program in the name of CSDC, the form of transmitting trading orders, participated domestic securities companies and overseas agency brokers.
Article 3 Domestic securities companies participating in the H-share “full circulation” pilot program (hereinafter referred to as “domestic securities companies”) shall provide investors with relevant services such as sending orders for trading in shares in the H-share “full circulation” pilot program, receipt of return on transactions, and handle relevant clearing and settlement matters with CSDC as domestic clearing participants. Domestic securities companies shall fully disclose to investors the relevant business risks during the period of the H-share “full circulation” pilot program and sign entrustment agreements with investors to specify the rights and obligations of both parties.
Article 4 Investors shall use the special H-share “full circulation” account, submit orders for the sale of shares in the H-share “full circulation” pilot program through domestic securities companies, and sell relevant shares through securities trading accounts opened by CSDC at overseas agency brokers. After transactions are concluded, overseas agency brokers and CSDC, CSDC and domestic clearing participants, domestic clearing participants and investors shall conduct settlement separately.
Shares can only be sold and cannot be bought through special H-share “full circulation” accounts.
Article 5 The SZSE shall authorize Shenzhen Securities Communications Co., Ltd. (hereinafter referred to as the “SSSCC”) to provide services for the transmission of orders for the sale of shares in the H-share “full circulation” pilot program and return on transactions between domestic securities companies and overseas agency brokers, and related H-share real-time quotation forwarding and other services.
Domestic securities companies and overseas agency brokers participating in the H-share “full circulation” pilot program shall comply with the relevant technical standards and requirements of SSSCC and sign technical service agreements with SSSCC.
Article 6 These Detailed Rules shall apply to relevant businesses such as account arrangement, cross-border transfer registration, custody and maintenance of holding details, transfer of transaction orders, and settlement involved in the H-share “full circulation” pilot program. Other business rules of CSDC and the SZSE shall apply, mutatis mutandis, to relevant businesses not provided for in these Detailed Rules.
Chapter II Account Arrangements
Article 7 CSDC shall open a securities account at HKSCC to record nominally held securities and settle securities with overseas agency brokers. CSDC shall open securities trading accounts at overseas agency brokers to entrust overseas agency brokers to conduct transactions.
Article 8 The pilot company that accepts investors' instructions shall, in accordance with the relevant provisions of CSDC, apply to CSDC for the establishment of a special H-share “full circulation” account for investors to make initial records of and maintain investors' securities holding details.
Chapter III Cross-Border Transfer Registration
Article 9 After the application of a H-share listed company for the H-share “full circulation” pilot program has been approved by the CSRC, it shall apply to CSDC for the cancellation of corresponding non-overseas listed shares. If all non-overseas listed shares are approved for the H-share “full circulation” pilot program, the pilot company shall, in accordance with relevant provisions of CSDC, apply for the exit registration of non-overseas listed shares of the H-share listed company.
Where the qualification for the H-share “full circulation” pilot program is approved together with the company's overseas listing refinancing or initial public offering application, the shares involved are overseas listed shares and there is no need to apply to CSDC for the initial registration, deregistration or exit registration, among others, of non-overseas listed shares.
Article 10 The H-share listed company shall, in accordance with the requirements of the Hong Kong market, undergo relevant formalities at the SEHK, Hong Kong share registration institution and other institutions to complete the registration of relevant shares.
Article 11 After the completion of cross-border transfer registration of shares in the H-share “full circulation” pilot program as overseas listed shares, they shall not be converted back to non-overseas listed shares.
Chapter IV Custody and Maintenance of Holding Details
Article 12 As the nominee, CSDC shall deposit the securities held by investors in the name of CSDC at HKSCC, and exercise its rights to the issuer of securities through HKSCC.
The securities held by investors in the name of CSDC shall be registered in the name of HKSCC (agent) in the register of shareholders of companies listed on the SEHK.
Article 13 The pilot company shall, in accordance with the relevant provisions of CSDC, provide CSDC with the special H-share “full circulation” account information and holding data, among others, and entrust CSDC to make initial records of and maintain the securities holding details of relevant investors.
Article 14 CSDC's securities holding record is a legal certificate of investors' entitlement to rights and interests of securities.
Investors cannot require the deposit or withdrawal of paper stocks, and cannot require the cross-border custody transfer of shares, unless it is otherwise prescribed by the CSRC.
During the period of the pilot program, CSDC shall not provide pledge registration services.
Article 15 CSDC shall handle the change in the details of holding corresponding securities based on the settlement results of the H-share “full circulation” business.
Article 16 The relevant business rules of CSDC shall apply, mutatis mutandis, to investors' non-trade transfers arising from succession, divorce, loss of legal person status, donation to a foundation or approval by the competent authority of the state, and assistance in law enforcement.
Chapter V Transfer of Transaction Orders
Article 17 SSSCC shall provide services such as the transfer of orders for the sale of shares in the H-share “full circulation” pilot program on the common trading day between the SZSE and the SEHK (hereinafter referred to as the “H-share ‘full circulation' trading day”).
Investors may submit sale orders from 9:30 to 11:30 and 13:00 to 15:00 on the H-share “full circulation” trading day. During that period, the unsold part of the sale may be revoked.
Article 18 Investors shall use the special H-share “full circulation” account, submit their sale orders through domestic securities companies, and transfer them to overseas agency brokers through SSSCC.
Overseas agency brokers shall, according to the sale orders transmitted by SSSCC, use the securities trading accounts opened by CSDC at overseas agency brokers to conduct securities transactions on the Hong Kong stock market in accordance with the rules of the SEHK.
Article 19 When domestic securities companies accept investors' sale instructions, they shall confirm that investors hold corresponding shares in the H-share “full circulation” pilot program.
Article 20 Domestic securities companies shall take effective measures to properly preserve documents and materials such as clients' instruction records and transaction records to prevent loss, damage, forgery, and falsification, and they shall be retained for not less than 20 years.
Domestic securities companies shall keep confidential clients' information, unless it is otherwise prescribed by any law, administrative regulation, department rule or regulatory document.
Chapter IV Clearing and Settlement
Article 21 In accordance with the clearing data provided by overseas agency brokers, CSDC shall complete the settlement of securities and collection of funds with overseas agency brokers, and transfer the corresponding funds settled abroad to China. During the period of the pilot program, CSDC may use its existing special domestic or offshore deposit accounts in HK dollars to transfer funds.
Article 22 CSDC shall complete the domestic settlement of the H-share “full circulation” pilot program based on the clearing data provided by overseas agency brokers and the non-transaction data uploaded by all domestic clearing participants or generated by CSDC in accordance with business rules.
The tired clearing principle shall be implemented in the clearing of securities and funds.
CSDC shall be responsible for handling the clearing and settlement of securities and funds with domestic clearing participants. Domestic clearing participants shall fulfill their ultimate settlement responsibilities to CSDC determined in respect of the settlement obligations which are determined to be borne by them upon trade execution.
Domestic clearing participants shall be responsible for handling the clearing and settlement of securities and funds with investors. Securities transfer between domestic clearing participants and investors shall be entrusted to CSDC for handling.
Article 23 The services relating to the H-share “full circulation” pilot program shall take HK dollar as the settlement currency.
Article 24 Domestic clearing participants and overseas agency brokers shall open H-share “full circulation” settlement provision accounts for the fund settlement of the H-share “full circulation” pilot program. During the period of the pilot program, domestic clearing participants and overseas agency brokers may use existing settlement provision accounts.
Article 25 At the end of the T day, CSDC shall send the data on transaction details to domestic clearing participants based on the details of transactions concluded on a day as transmitted by overseas agent brokers.
On the T+1 day, CSDC shall, based on the details of T-day transactions and clearing, including various taxes and fees, transmitted by overseas agency brokers to it, conduct pre-routing with overseas agency brokers through the HKSCC Central Clearing and Settlement System.
Article 26 On the morning of T+2 day, CSDC and overseas agency brokers shall complete the settlement of securities and funds with overseas agency brokers in the form of real-time delivery-versus-payment.
At 16:00 on T +2, CSDC shall complete the settlement of funds with domestic clearing participants and changes in the details of investors' shares.
T+2 is the day of Hong Kong stocks settlement. In the event of a non-A share trading day, settlement processing and data transmission with domestic clearing participants will be postponed to the next common trading day of A shares and Hong Kong stocks.
Article 27 The settlement schedule for the H-share “full circulation” pilot program shall be determined by CSDC in light of the settlement schedule of HKSCC and other factors, and be announced in advance.
In the event that HKSCC temporarily makes special arrangements for settlement due to wind ball, black rainstorm, or any other reason, CSDC shall handle as the case may be and notify overseas agency brokers and domestic clearing participants in a timely manner.
Chapter VII Nominee Services
Article 28 CSDC shall provide nominee services to investors through domestic clearing participants, including bonus issue and voting.
Article 29 CSDC that handles the bonus issue business shall, depending on the time of receipt of equity securities from HKSCC, handle the business on the same day or the following day, and the corresponding equity securities will be available for trading on the H-share “full circulation” trading day immediately after the processing day, and the first day when investors may sell such equity securities is one H-share “full circulation” trading day later as compared to the Hong Kong stock market.
CSDC shall round down fractional equity securities that are less than one share in the special H-share “full circulation” account. If the aggregate number of equity securities obtained by CSDC from HKSCC is more than that in the special H-share “full circulation” account after rounding down, CSDC shall allocate the difference according to the exact algorithm.
Article 30 CSDC that handles the voting business shall, after summarizing the voting wills of investors of the H-share “full circulation” pilot program within the declaration period, submit them to HKSCC. Investors may choose electronic voting or on-site voting.
Chapter VIII Risk Management
Article 31 Domestic securities companies and overseas agency brokers shall, in accordance with the provisions of these Detailed Rules, conduct the daily business management of the H-share “full circulation” pilot program in an effective manner, and formulate sound risk control rules and emergency response plans.
Article 32 Domestic clearing participants and overseas agency brokers shall open H-share “full circulation” clearing margin accounts to deposit payable clearing margins. During the period of the pilot program, domestic clearing participants and overseas agency brokers may use existing clearing margin accounts.
Article 33 Domestic clearing participants participating in the H-share “full circulation” pilot program shall pay an initial deposit of 500,000 HK dollars to CSDC based on the unit of settlement provision accounts. The margin shall be adjusted on a quarterly basis, and the upper limit of payment is one million HK dollars. During the period of the pilot program, the clearing margins for the B-share business and B-to-H business shall be calculated on a consolidated basis.
Article 34 Overseas agency brokers shall pay clearing margins and guarantee funds to CSDC. The specific payment standards shall be agreed upon by CSDC and overseas agency brokers.
Article 35 Where an overseas agency broker fails to pay enough funds at the time of settlement, CSDC may use its guarantee funds to complete the settlement. If the funds are still insufficient, it constitutes the default of fund settlement. CSDC has the right to take delayed settlement and other risk management measures to protect the rights and interests of investors.
Article 36 Overseas agency brokers shall effectively conduct the front-end monitoring of sales of shares in the H-share “full circulation” pilot program. In the event of short-selling by an investor, an overseas agency broker must handle the businesses such as repurchasing according to the Hong Kong market procedures. In the event of short-selling by investors due to failure in the front-end monitoring of overseas agency brokers, overseas agency brokers shall assume the spreads and penalties therefrom.
Article 37 Where a domestic clearing participant violates these Detailed Rules in the course of handling securities and fund clearing and settlement or any other business, CSDC may take corresponding regulatory measures against the violator by reference to relevant provisions of the Rules for the Management of Clearing Participants of China Securities Depository and Clearing Co., Ltd.
Article 38 Where a domestic securities company violates these Detailed Rules in the process of sending investor sale orders and providing other related services, the SZSE may take corresponding regulatory measures against the violator in accordance with the relevant provisions of the Member Management Rules of the Shenzhen Stock Exchange.
Article 39 CSDC and overseas agency brokers shall sign agreements on daily business flow, technology system interconnection, risk control fund payment, default risk management, and emergency response involved in the H-share “full circulation” pilot program.
Article 40 Where partial or all of the H-share “full circulation” pilot program fails to proceed normally due to unexpected events such as force majeure, accidents, and technical failure, CSDC and the SZSE may decide to suspend partial or all of the H-share “full circulation” pilot program, announce to the market and report it to the CSRC in a timely manner.
Article 41 CSDC, the SZSE and SSSCC shall not assume liabilities for losses caused by unexpected events such as force majeure, accidents, and technical failure, and relevant countermeasures taken by CSDC, the SZSE and SSSCC.
Chapter IX Supplementary Provisions
Article 42 The following terms in these Detailed Rules shall have the following meanings:
“Exact algorithm” means that after rounding down the securities obtained in special investors' accounts, the part that is less than one share/part will be registered as one share/part by ranking the mantissa after the decimal point in a descending order (if the decimal is the same, the part will be randomly ranked by the electronic clearing system), until that the number of securities obtained by CSDC from HKSCC is equal to the number of securities obtained by special investors' accounts.
“T day” means a H-share “full circulation” trading day. “T+N day” means the Nth Hong Kong stock settlement day following the H-share “full circulation” trading day.
Article 43 The taxation arrangements on the H-share “full circulation” pilot program shall be implemented in accordance with the provisions of state tax authorities, and business fees shall be charged in accordance with the provisions of relevant entities.
Article 44 The formulation of and amendment to these Detailed Rules shall be reported to the CSRC for approval.
Article 45 These Detailed Rules shall be subject to interpretation by CSDC and the SZSE.
Article 46 These Detailed Rules shall come into force on the date of issuance.