Rules for Registration, Depository and Clearing Services under the Interconnection Mechanism for Transactions

 2018-06-26  23


· Area of Law: Securities

· Level of Authority: Industry Regulations

· Date issued:09-30-2016

· Effective Date:09-30-2016

· Status: Effective

· Issuing Authority: China Securities Depository & Clearing Corporation Limited

 

Notice of China Securities Depository and Clearing Co., Ltd. on Issuing the Detailed Implementing Rules for Registration, Depository and Clearing Services under the Interconnection Mechanism for Transactions in the Mainland and Hong Kong Stock Markets
All market participants:
For purposes of assisting the launch of the interconnection mechanism for transactions in the Shanghai and Hong Kong stock markets (hereinafter referred to as the “Shenzhen-Hong Kong Stock Connect”), and regulating registration, depository and clearing services under the Shenzhen-Hong Kong Stock Connect, CSDC has revised the Detailed Implementing Rules for Registration, Depository and Clearing Services under the Pilot Program of the Interconnection Mechanism for Transactions in the Shanghai and Hong Kong Stock Markets, and developed the Detailed Implementing Rules for Registration, Depository and Clearing Services under the Interconnection Mechanism for Transactions in the Mainland and Hong Kong Stock Markets, which have been approved by the China Securities Regulatory Commission, are hereby issued for your compliance and implementation.

Annex: Detailed Implementing Rules for Registration, Depository and Clearing Services under the Interconnection Mechanism for Transactions in the Mainland and Hong Kong Stock Markets
China Securities Depository and Clearing Co., Ltd.
September 30, 2016
Annex:
Detailed Implementing Rules for Registration, Depository and Clearing Services under the Interconnection Mechanism for Transactions in the Mainland and Hong Kong Stock Markets
Chapter I General Provisions
Article 1 For purposes of regulating registration, depository and clearing services under the interconnection mechanism for transactions in the mainland and Hong Kong stock markets (including the interconnection mechanism for transactions in the Shanghai and Hong Kong stock markets and the interconnection mechanism for transactions in the Shenzhen and Hong Kong stock markets (hereinafter referred to as the “Shanghai-Hong Kong Stock Connect” and the “Shenzhen-Hong Kong Stock Connect”), these Detailed Rules are developed in accordance with the Securities Law of the People's Republic of China, the Measures for the Administration of Securities Registration and Clearing, the Several Provisions on the Interconnection Mechanism for Transactions in the Mainland and Hong Kong Stock Markets, other laws, regulations, departmental rules, the Joint Announcement of the China Securities Regulatory Commission and the Securities and Futures Commission of Hong Kong, as well as relevant business rules of China Securities Depository and Clearing Co., Ltd. (hereinafter referred to as “CSDC”).
Article 2 These Detailed Rules shall apply to services relating to registration, depository and clearing involved in northbound trading under the Shanghai-Hong Kong Stock Connect (Shanghai Connect) and the Shenzhen-Hong Kong Stock Connect (Shenzhen Connect). If they are not provided for in these Detailed Rules, relevant business rules of CSDC shall apply.
These Detailed Rules shall apply to the services relating to the management, depository and clearing of accounts involved in southbound trading (“southbound trading” in these Detailed Rules covers southbound trading under the Shanghai Connect and southbound trading under the Shenzhen Connect). If they are not provided for in these Detailed Rules, the services shall be provided by reference to CSDC's other business rules.
Article 3 Hong Kong Securities Clearing Company Limited (hereinafter referred to as “HKSCC”) and CSDC shall enter into an agreement. Both parties shall, in accordance with the agreement and their respective business rules, provide registration, depository and clearing services relating to the Shanghai Connect and the Shenzhen Connect.
Article 4 CSDC shall conduct industry self-disciplinary management in the business under the Shanghai Connect and the Shenzhen Connect.
Chapter II Northbound Trading under the Shanghai Connect and the Shenzhen Connect
Article 5 To participate in northbound trading under the Shanghai Connect, HKSCC shall apply for the qualification as a clearing participant of CSDC, and submit the following written application materials to CSDC:
(1) Official reply of the China Securities Regulatory Commission (hereinafter referred to as the “CSRC”) on HKSCC's participation in the business under the Shanghai Connect.
(2) An Application Form for the Qualification as a Clearing Participant.
(3) The company registration certificate and business registration certificate that have been notarized by China Legal Service (HK) Ltd.
(4) Resolution of the board of directors approving HKSCC's application to be a clearing participant of CSDC.
(5) A legal opinion issued by a Hong Kong law firm regarding HKSCC's application to be a clearing participant of CSDC.
(6) An overview of HKSCC's business operation, including but not limited to its company profile, organizational structure, management team and business flow.
(7) Relevant audited financial information in the past two years.
(8) The power of attorney of the board of directors or directors, and valid identity certificates of the authorized persons.
(9) Valid identity certificate of its agent and a photocopy thereof.
(10) An executed securities fund settlement agreement.
(11) The latest articles of association of HKSCC and the notarial certificate.
(12) Documents of the Securities and Futures Commission of Hong Kong (hereinafter referred to as the “SFC”) approving HKSCC's preparation for the Shanghai Connect.
(13) A statement on its internal clearing risk control system, which shall at least cover the following content: provision of technical facilities for clearing and staffing of its clearing department; measures for the prevention and monitoring of risks relating to clearing services; emergency response plan under abnormal circumstances; and major risk control rules.
(14) Other materials as required by CSDC.
To participate in northbound trading under the Shenzhen Connect, HKSCC needs to submit a written application for conducting northbound trading under the Shenzhen Connect to CSDC, and submit written application materials as set forth in the aforesaid items (1), (8), (9), (10), (12) and (14) applicable to northbound trading under the Shenzhen Connect.
Article 6 HKSCC shall, in the name of “Hong Kong Securities Clearing Company Limited,” open a SSE RMB common stock account and a SZSE RMB common stock account at CSDC's Shanghai branch and Shenzhen branch, and, as the nominee holder, hold the securities obtained by foreign investors from northbound trading under the Shanghai Connect and the Shenzhen Connect.
HKSCC that applies for opening a SSE RMB common stock account or a SZSE RMB common stock account shall submit the following documents to CSDC.
(1) An Application Form for Opening a Securities Account (applicable to institutions).
(2) A valid identity certificate of the authorized person and a photocopy thereof.
(3) The power of attorney of the board of directors or directors, and valid identity certificates of authorized persons.
Article 7 The securities which are obtained by investors eligible for northbound trading under the Shanghai Connect and the Shenzhen Connect and held by HKSCC as the nominee shall be deposited in CSDC in the name of HKSCC, and be registered in the register of shareholders of relevant companies listed on the Shanghai Stock Exchange (hereinafter referred to as the “SSE”) and the Shenzhen Stock Exchange (hereinafter referred to as the “SZSE”).
Article 8 With respect to any SSE-listed or SZSE's listed securities that are not included in the Shanghai Connect or the Shenzhen Connect but are obtained from events such as spin-offs, mergers and acquisitions, and takeovers, investors eligible for northbound trading under the Shanghai Connect or investors eligible for northbound trading under the Shenzhen Connect shall be entitled to sell, but not buy, such securities. With respect to any securities obtained that are not listed on the SSE or the SZSE, cash settlement or other arrangements will be made in light of the actual circumstances.
Article 9 Except as otherwise permitted by the SSE or the SZSE, neither HKSCC nor its participants shall effect any non-trade transfers of shares acquired through the Shanghai Connect and the Shenzhen Connect other than those resulting from succession, divorce, loss of legal person status, donation to a charitable foundation and assistance in enforcement.
Article 10 To conduct business under the Shanghai Connect and the Shenzhen Connect, HKSCC shall pay the client securities settlement guarantee fund to CSDC's Shanghai or Shenzhen branch respectively to cover the loss due to settlement default of HKSCC and liquidity advances. The spread proportion of equity disposal and disposal costs in the formula of calculating the client securities settlement guarantee fund shall be subject to the relevant agreement between both parties.
Based on the principle of “isolation of settlement risks of the two markets with no spill-over of risks across the markets,” HKSCC is not required to contribute to the securities settlement risk fund or the mutualized portion of the securities settlement guarantee fund, and shall not be responsible for sharing any potential losses arising from any default of a mainland clearing participant.
Article 11 HKSCC shall perform the settlement responsibility against CSDC in northbound trading under the Shanghai Connect and northbound trading under the Shenzhen Connect conducted by overseas investors.
In the event of any fund settlement default of HKSCC, HKSCC shall, as required, require CSDC's Shanghai or Shenzhen branch to designate securities with a value equal to the default amount or provide other collaterals to CSDC respectively.
If no or insufficient designation is made by HKSCC, CSDC will deduct the shortfall with the securities that are acquired on the trading day corresponding to the fund settlement default in HKSCC's securities settlement account on a last in first out basis or on the basis of other effective methods that may be adopted.
Article 12 In the event of any fund settlement default of HKSCC, CSDC may, in accordance with relevant business rules, take relevant measures such as collecting penalty and interest accrued on the default amount, increasing the minimum settlement reserve fund ratio, increasing the amount of securities settlement guarantee fund payable, reporting the default to relevant regulatory authorities and proposing the SSE or the SZSE to suspend buy transactions through HKSCC's stock account.
Article 13 In the event of any fund settlement default of HKSCC, if HKSCC fails to pay the default amount, interest and penalty on the next settlement day, CSDC is entitled to sell the deducted securities to offset the shortfall. Any proceeds remaining from the sale will be returned to HKSCC; if the amount of sale is insufficient, CSDC is entitled to take recourse against HKSCC.
Article 14 HKSCC shall appropriately preserve the original certificates and other relevant documents and materials relating to registration, depository and clearing services that are generated from the performance of its duties under these Detailed Rules for at least 20 years.
Chapter III Southbound Trading
Section 1 Account Setting
Article 15 CSDC shall, as the nominee holder, hold securities acquired by investors through southbound trading. CSDC's Shanghai or Shenzhen branch shall open securities accounts with HKSCC respectively and shall use them to conduct securities settlement with HKSCC.
Article 16 Southbound trading investors shall participate in southbound trading through their SSE RMB common stock accounts or SZSE RMB common stock accounts.
Section 2 Depository and Custody
Article 17 To participate in southbound trading, a southbound trading investor shall enter into a trading and custody agreement with a mainland securities company and place the acquired securities under the custody of the company. The mainland securities company shall assume the relevant custody responsibilities in respect of such securities.
The mainland securities company shall deposit the securities acquired for itself or for clients through southbound trading with CSDC.
Article 18 The securities holding record issued by CSDC is the legal certificate of a southbound trading investor's rights and interests in such securities.
Physical deposit or withdrawal of securities by southbound trading investors is not allowed, unless otherwise provided by the CSRC.
Article 19 CSDC shall, as the nominee holder, deposit the securities obtained by southbound trading investors in the name of CSDC and exercise its rights against securities issuers through HKSCC.
The securities held by southbound trading investors in the name of CSDC shall be registered in the registers of shareholders of relevant companies listed on the Stock Exchange of Hong Kong Limited (“SEHK”) in the name of HKSCC Nominees Limited.
Article 20 CSDC shall conduct account transfers of the relevant securities based on the settlement results of southbound trading.
Article 21 Where southbound trading investors effect non-trade transfers due to succession, divorce, loss of legal person status, donation to a charitable foundation or any other events permitted by the competent authority of the state, pledging and assistance in enforcement, they shall refer to the relevant business rules of CSDC.
Section 3 Nominee Services
Article 22 CSDC shall, as the nominee holder, provide nominee services to southbound trading investors through mainland clearing participants.
Article 23 The nominee services provided by CSDC include the distribution of cash dividends, subscription for scrip shares, bonus issue, rights issue within the prescribed limit, open offers within the prescribed limit, sub-division and consolidation of shares, voting, takeover offer and issuance of securities holding certificates, among others.
CSDC will not provide services relating to IPO subscriptions, excess rights issue and excess open offers, among others, for the time being.
Article 24 With respect to any SEHK-listed securities that are not included in southbound trading but are obtained from events such as the distribution of rights and interests over southbound trading stocks, conversions and takeovers, southbound trading investors shall be entitled to sell, but not buy, such securities.
With respect to any SEHK-listed warrants obtained from events such as the distribution of rights and interests over southbound trading stocks and conversions, southbound trading investors shall be entitled to sell, but not exercise, such warrants.
With respect to any securities that are not listed on SEHK but are obtained from events such as the distribution of rights and interests over southbound trading stocks, conversions and takeovers, southbound trading investors shall be entitled to the relevant rights and interests over such securities, but shall not buy or sell such securities through southbound trading. CSDC will consult with HKSCC to make specific arrangements.
Article 25 In providing services relating to the distribution of cash dividends and bonus issue, CSDC shall, within three southbound trading days as of receipt of any dividend in a foreign currency from HKSCC or the listed company, effect currency exchange, clearing and distribution, among others.
Article 26 In providing services relating to bonus issue and subscription for scrip shares, CSDC shall, depending on the time of receipt from HKSCC, process such bonus shares on the same day or the following day, and such securities will be available for trading on the SEHK on the southbound trading day following processing by CSDC. The first day on which southbound trading investors may sell such equity securities may therefore be one southbound trading day later as compared to the Hong Kong market.
In providing services relating to rights issue and open offers, among others, CSDC shall, depending on the time of receipt from HKSCC, process such securities on the same day, and corresponding equity securities will be available for trading on the SEHK on the southbound trading day following processing by CSDC.
CSDC shall round down fractional equity securities that are less than one share in southbound trading investors' accounts. If the aggregate number of equity securities obtained by CSDC from HKSCC is more than that in southbound trading investors' accounts after rounding down, CSDC shall allocate the difference according to the exact algorithm.
Article 27 In providing services relating to the sub-division and consolidation of shares, CSDC shall, in accordance with the business rules of the SEHK and HKSCC and taking into account any trading arrangement adopted by the SSE or the SZSE, convert the stock code and adjust the amount of holdings in each account.
The fractional shares resulting from the sub-division and consolidation of shares in a southbound trading investor's account will be handled according to paragraph 3 of Article 26.
Article 28 In providing voting services, CSDC shall consolidate the voting instructions of southbound trading investors during the voting period and submit such consolidated voting instructions to HKSCC.
Southbound trading investors may vote for, against, or abstain from voting on each resolution according to the arrangement of the SEHK-listed company. If the aggregate number of valid votes exceeds the amount of holdings on the shareholding date or the voting deadline date prescribed by HKSCC, CSDC shall allocate these votes pro rata based on the actual holdings.
Article 29 In providing services relating to mandatory takeover offers, CSDC shall cancel the relevant shares acquired by southbound trading investors in accordance with instructions from HKSCC.
In providing services relating to conditional and unconditional non-mandatory takeover offers, CSDC shall cancel the relevant shares based on the instructions submitted by southbound trading investors during the subscription period. If a conditional non-mandatory takeover offer is cancelled, CSDC will return the relevant shares in accordance with the instructions of HKSCC.
Upon receipt of the funds or shares from a takeover offer from HKSCC, CSDC shall complete the corresponding processing of such funds or shares within three southbound trading days.
Article 30 Where underlying securities are delisted due to such reason as takeovers, CSDC may, in accordance with relevant provisions of the CSRC and the agreement with HKSCC, continue to provide nominee services for southbound trading investors.
Section 4 Clearing and Settlement
Article 31 As a clearing agency participant of HKSCC, CSDC shall accept the appointment by the SSE's or SZSE's securities trading service company to effect securities and fund settlement with HKSCC and assume the settlement obligations towards HKSCC in accordance with the business rules of HKSCC and based on the clearing data provided by HKSCC.
Article 32 The clearing of southbound trading in the mainland will be undertaken by CSDC. As the central counterparty of mainland clearing participants, CSDC will provide multilateral net settlement services for southbound trading.
Where HKSCC fails to perform its settlement obligation in full with CSDC due to default or insolvency or any other reason, CSDC shall allocate any securities and funds received from HKSCC among mainland clearing participants on a pro rata basis. As for any outstanding securities and funds, the responsibility of CSDC is only limited to assisting mainland clearing participants in taking recourse against HKSCC according to relevant legal proceedings in Hong Kong. Any securities and funds recovered will be allocated on a pro rata basis among mainland clearing participants who suffered loss.
Article 33 Settlement of securities and funds shall follow a tiered clearing principle.
CSDC shall be responsible for the clearing and settlement of securities and funds with mainland clearing participants. Mainland clearing participants shall fulfill their ultimate settlement responsibilities to CSDC in respect of the settlement obligations which are determined to be borne by them upon trade execution.
Mainland clearing participants shall be responsible for the clearing and settlement of securities and funds with southbound trading investors. Securities delivery between mainland clearing participants and southbound trading investors shall be delegated to CSDC.
Article 34 Except for risk management operations for which RMB shall be the clearing and settlement currency, the clearing and settlement currencies for all other dealings between HKSCC and CSDC shall be as determined by HKSCC.
RMB shall be the clearing and settlement currency between CSDC and mainland clearing participants. Other currencies may be taken as the clearing and settlement currency if the competent department has particular provisions.
Article 35 For the purpose of fund settlement under southbound trading, mainland clearing participants shall apply to CSDC's Shanghai or Shenzhen branch for opening separate client and proprietary southbound trading settlement reserve fund accounts.
There is no minimum settlement reserve fund requirement in respect of mainland clearing participants' proprietary and client southbound trading settlement reserve fund accounts.
Article 36 CSDC will allocate interest received from settlement banks and HKSCC in proportion to the cumulative amounts in mainland clearing participants' respective fund accounts for southbound trading during the interest calculation period.
Article 37 At the end of each southbound trading day (“T day”), CSDC's Shanghai or Shenzhen branch shall conduct securities and funds clearing based on trade details received from the SSE's or the SZSE's securities trading service company, as well as the non-trade data uploaded by mainland clearing participants and generated by CSDC in accordance with its business rules.
If HKSCC adjusts the clearing results issued on the T day, CSDC shall, on the T+1 day, upon receiving the adjusted clearing data from HKSCC, add it to that day's clearing data at day end.
Article 38 Funds clearing shall be conducted based on the principle of “clearing in foreign currencies first, followed by clearing in RMB”.
Funds clearing shall include the clearing of funds related to trading, risk management, corporate action, taxes and fees such as the securities portfolio fee and other non-trade-related funds.
Among them, the securities portfolio fee shall be calculated according to the market value of the securities held in each securities account at the end of each calendar day.
Article 39 Prior to market open on a southbound trading day, upon receipt of the reference HKD/RMB buying rate and the reference HKD/RMB selling rate provided by settlement banks for southbound trading, CSDC shall release the information to the market through the SSE and the SZSE in a timely manner.
After market closes on a southbound trading day, CSDC's Shanghai or Shenzhen branch shall conduct currency exchanges with settlement banks for southbound trading according to the required settlement amount under southbound trading, and allocate the currency exchange costs to each transaction.
For funds generated from corporate actions, such as dividends and takeover offers, CSDC shall apply such exchange rates as may be negotiated and agreed with the settlement banks for southbound trading.
Article 40 The respective settlement date and settlement time for mainland clearing participants in respect of each type of funds are set forth as below:
(1) The settlement date of corporate action and risk management funds is T+1 day, and settlement time is 10:30.
(2) The settlement date of securities portfolio fee is T+1 day, and settlement time is 18:00.
(3) The settlement date of net payables in respect of trades executed is T+2 day, and settlement time is 10:30.
(4) The settlement date of net receivables in respect of trades executed is T+2 day, and settlement time is 18:00.
CSDC reserves the right to adjust any of the above settlement times as required.
Article 41 CSDC shall conduct securities settlement based on the clearing results on the T+2 day.
Where HKSCC conducts cash settlement due to its inability to deliver securities, CSDC shall implement corresponding operational arrangements with reference to the relevant operational principles of HKSCC.
Article 42 The settlement calendar for southbound trading shall be determined and released in advance by CSDC taking into account HKSCC's settlement calendar, the SSE's and the SZSE's southbound trading calendar and other factors such as funds transfer and risk management.
Where HKSCC temporarily makes special settlement arrangements due to reasons such as typhoon and black rainstorm, CSDC may, as the case may be, make arrangements and notify mainland clearing participants in a timely manner.
Where CSDC is unable to conduct southbound trading in a normal manner due to any natural disaster such as typhoon and earthquake in the mainland or any other reason, CSDC and HKSCC shall make clearing and settlement arrangements according to their agreement; and CSDC and mainland clearing participants shall make clearing and settlement arrangements by reference to the arrangements on the clearing and settlement of A-shares.
Section 5 Risk Management
Article 43 Based on the principle of “isolation of settlement risks of the two markets, with no spill-over of risks across markets,” mainland clearing participants are not required to contribute to mutualized portion of the guarantee fund of HKSCC and shall not share any losses that may arise from any default by a participant of HKSCC in the SEHK market.
Article 44 Mainland clearing participants shall develop sound risk control rules in accordance with these Detailed Rules.
With respect to a securities account with any outstanding business, mainland securities companies shall restrict the client to cancel its designation in the Shanghai Connect, and custody in the Shenzhen Connect shall be handled by reference of provisions on A-shares.
Article 45 Mainland clearing participants shall apply to CSDC's Shanghai or Shenzhen branch for opening separate client and proprietary southbound trading risk control fund accounts, which shall be used for holding funds payable relating to risk management in southbound trading.
Article 46 Based on the risk management requirements of HKSCC, CSDC's Shanghai or Shenzhen branch shall, in accordance with the unsettled positions of mainland clearing participants, collect marks and margin from mainland clearing participants.
In the event that HKSCC collects concentration collateral from CSDC's Shanghai or Shenzhen branch, CSDC's Shanghai or Shenzhen branch shall allocate it among mainland clearing participants according to the proportion of their net long positions in high risk securities.
Article 47 At the end of the T day, CSDC's Shanghai or Shenzhen branch shall, based on the difference between the net position value and T day market value of a mainland clearing participant's unsettled positions which may be due for settlement on different days, calculate marks to be paid and settled on the T+1 day by the mainland clearing participant, subject to any applicable principle.
Article 48 At the end of the T day, CSDC's Shanghai or Shenzhen branch shall, after calculating a mainland clearing participant's margining positions in accordance with the net position value and the T day market value of its unsettled positions and securities holdings, calculate the margin payable and to be settled on the T+1 day by the mainland clearing participant based on the margin rate and margin multiplier, among others.
Article 49 CSDC's Shanghai or Shenzhen branch may, in accordance with the relevant business rules of HKSCC, provide to HKSCC the securities in CSDC's nominee account as collateral for its unsettled short positions.
Article 50 Each mainland clearing participant participating in southbound trading shall pay to CSDC's Shanghai or Shenzhen branch 200,000 yuan as the mainland clearing participant's contribution to the settlement guarantee fund, and this contribution shall be included in the mutualized portion of the settlement guarantee fund according to its administrative requirements.
Article 51 The failure by a mainland clearing participant to complete fund settlement by the required settlement time shall constitute an event of default, entitling CSDC to take the following measures:
(1) Collection of penalty and interest advance:
Penalty = max [intra-day settlement default amount, day-end settlement default amount] × 0.1% × number of days of default
Interest advance = day-end settlement default amount × mainland RMB account interest rate as agreed with settlement bank × number of days of default/360
(2) A mainland clearing participant shall on the day of default designate southbound trading securities not to be delivered; if no designation is made or the designation is insufficient, CSDC shall be entitled to deduct the mainland clearing participant's proprietary securities up to the default amount.
(3) From the southbound trading day following the day of settlement default, CSDC shall have the right to dispose of the deducted securities and the interests therein. The proceeds from the disposal shall be used to cover the amount of default and any remainder shall be returned to the mainland clearing participant. CSDC shall have the right of recourse in respect of any shortfall. The specific disposal methods and procedures shall be separately stipulated by CSDC.
Article 52 In the event of any material violation of any law or regulation by a mainland clearing participant, CSDC shall have the right to suspend in whole or in part its eligibility to settle southbound trading and request the SSE or the SZSE to restrict in whole or part its right to effect buy trades in southbound trading.
Section 6 Management of Settlement Banks
Article 53 A settlement bank applying to conduct cross-border fund settlement in southbound trading shall meet the following conditions:
(1) It has been qualified as a settlement bank of CSDC according to the Measures for the Administration of Securities and Fund Settlement by Settlement Banks, and can offer clearing services to all of the clearing participants of CSDC.
(2) It has set up branches which meet local regulatory requirements in Shanghai, Shenzhen and Hong Kong.
(3) It has obtained all relevant qualifications relating to its business in RMB and foreign currency and has conducted business operation for not less than five years.
(4) Its total assets are not less than five trillion yuan and its net assets are not less than 400 billion yuan.
(5) If it is a designated account opening bank, it shall be a bank designated by HKSCC in Hong Kong and has the qualification and experience for completing fund settlement for HKSCC's participants.
(6) It has a Shanghai-Hong Kong and Shenzhen-Hong Kong real-time transfer system to effect real-time availability of transferred funds.
(7) It shall provide CSDC's Shanghai or Shenzhen branch with an intra-day credit line of not less than 20 billion yuan or an equivalent amount in HK dollar free of charge, and an overnight credit line of not less than 12 billion yuan or an equivalent amount in HK dollar.
(8) It has formulated sound risk management rules and an emergency response plan for cross-border fund settlement.
(9) It shall abide by the business rules, guidelines and other relevant requirements of CSDC, and shall enter into settlement and currency exchange agreements with CSDC.
(10) Other conditions as required by CSDC.
Article 54 A settlement bank applying to conduct cross-border fund settlement in southbound trading shall submit the following documents to CSDC:
(1) An application report, including basic information, and qualifications, among others.
(2) An application form.
(3) An undertaking to provide credit lines to CSDC.
(4) Its risk management rules and emergency response plan for conducting fund settlement in southbound trading.
(5) Other documents as required by CSDC.
Article 55 Once CSDC has approved the aforesaid application, the Shanghai (Shenzhen) branch and Hong Kong branch of the settlement bank shall respectively enter into a supplementary agreement or a memorandum of understanding with CSDC's Shanghai (Shenzhen) branch concerning such matters as the daily business flow, the connection between the technical systems and the emergency response plan with respect to fund settlement in southbound trading according to the securities trading settlement funds management agreement entered into between the head office of the settlement bank and CSDC's Shanghai (Shenzhen) branch.
Article 56 For any issue relating to the settlement banks in southbound trading that is not prescribed by these Detailed Rules, the relevant provisions of CSDC on the administration of settlement banks shall apply.
Chapter IV Supplementary Provisions
Article 57 The following terms in these Detailed Rules shall have the following meanings:
“Rights issue” means an offer provided by a company listed on the SEHK to existing shareholders to subscribe for new shares on a pro rata basis according to their respective holdings on the record date. The nil paid rights issued to shareholders are allowed to be traded in the secondary market. Investors may subscribe for new shares in excess of their pro rata entitlements. The number of excess shares allocated will depend on the allotment ratio.
“Open offer” means an offer provided by a company listed on the SEHK to existing shareholders to subscribe for new shares. Open offer is similar to rights issue except that relevant rights and interests cannot be transferred in the secondary market.
“Subscription for scrip shares” means the election by shareholders to receive scrip dividend in lieu of cash where an option to receive cash dividend or scrip dividend is available to shareholders.
“Exact algorithm” means that after rounding down the securities obtained in the investor account, 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 investors' accounts.
“T day” means a southbound trading day.
“T+N day” means the Nth settlement day following the southbound trading day.
“Securities portfolio fee” means the depository and corporate action service fee charged by HKSCC which is calculated based on the market value of H-shares held in CSDC's nominee account at the end of each calendar day and according to a sliding fee scale. CSDC will collect from each mainland securities account holding H-shares at the same rate.
“Marks” means an amount payable by clearing participants which is calculated at the end of each trading day by CSDC by marking-to-market all unsettled positions in the different types of securities standing to the credit of the reserve fund account of each participant based on the market price of the securities as compared to the traded price and in light of relevant levying principles.
“Unsettled positions” means each securities account's net long and/or net short positions created on each trading day but not yet settled. Usually both the positions on the T-1 day and those on the T day are included. In the event of special settlement arrangements, positions which are created and due for settlement on the previous trading day but whose settlement is delayed to the following settlement day will also be included.
“Margin” means an amount payable by mainland clearing participants which is calculated by CSDC's Shanghai or Shenzhen branch at the end of each trading day with reference to the margining position in a clearing participant's reserve fund account, the margin rate and the margin multiplier.
“Margining position” means the higher of the value of the total cross-day net long positions and the total cross-day net short positions in a clearing participant's reserve fund account at day-end. The values are computed by CSDC's Shanghai or Shenzhen branch with reference to the mark-to-market value of the relevant positions and will be reduced by the value of any eligible collateral security that may have been provided by a clearing participant to cover its short positions.
“Margin rate” means the percentage determined by HKSCC to be applied to the margining position in the computation of margin, on the basis of the historical maximum cross-day volatility of the Hang Seng Index in any two-day period.
“Margin multiplier” means a parameter used in making adjustments to the required amount of margin, which is determined by CSDC's Shanghai or Shenzhen branch based on its risk exposure to mainland clearing participants.
“Concentration collateral” means a type of risk control fund collected by HKSCC from a participant where the value of the participant's unsettled long position in high risk securities is more than twice the participant's liquid capital and exceeds the benchmark concentration value determined by HKSCC.
“High risk securities” means securities whose closing price on the last trading day is more than 10% higher or less than that on the trading day immediately preceding the last trading day.
Article 58 CSDC does not provide any depository services involving cross-border transfers under the Shanghai Connect and the Shenzhen Connect.
Article 59 The taxation arrangement under the Shanghai Connect and the Shenzhen Connect shall be governed by the provisions of tax authorities of the state.
Article 60 These Detailed Rules and any amendment thereto shall come into force after being approved by the CSRC.
Article 61 These Detailed Rules shall be subject to revision and interpretation by CSDC.
Article 62 These Detailed Rules shall come into force on September 30, 2016. The former Detailed Implementing Rules for Registration, Depository and Clearing Services under the Pilot Program of the Interconnection Mechanism for Transactions in the Shanghai and Hong Kong Stock Markets (No. 109 [2014], CSDC) shall be repealed concurrently.
Annex: Charging Arrangements and Standards for Registration and Clearing Services under the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect