What is a Dual Tranche, Dual Counter (DTDC) model?
The DTDC model of the HKEx support simultaneous offering and listing of two tranches of shares in different trading currencies (i.e. renminbi and HKD) by the same issuer.
Under the DTDC model, all shares in the RMB tranche and the HKD tranche must be of the same class with the same shareholders' rights and entitlements. Shareholders under the two tranches are expected to be treated equally. Upon listing, shares of the two tranches will be traded on the Stock Exchange of Hong Kong Limited (SEHK) under two separate counters and in two different currencies (i.e. one counter in renminbi and the other in HKD). Trades of the two counters will be cleared and settled separately under Central Clearing and Settlement System (CCASS). A shareholder may transfer his/her shares from one counter to the other through the share registrar of the issuer or CCASS.
A listed issuer whose shares are already traded in HKD on the Exchange may choose to raise funds through the issue of new shares of the same class and apply for those shares to be traded in RMB in a new counter, in parallel with its existing shares traded in the HKD counter.
What kinds of account do I need if I would like to trade shares of renminbi counter?
Renminbi bank account
Similar to trading other listed renminbi-denominated products, you will need a renminbi bank account in Hong Kong and also sufficient renminbi for trading renminbi counter. The renminbi bank account can be used for IPO subscription, depositing refund cheque, dividend distribution and settling renminbi payment for any subsequent trading on the SEHK in the secondary market etc. Under the current regulations, only Hong Kong SAR residents with Hong Kong SAR identity cards may open personal renminbi bank accounts in Hong Kong. You should be aware of the lead time required for opening renminbi bank accounts and requesting renminbi cheque book as the banks may not be able to process your request immediately.
The daily maximum exchange limit for renminbi is RMB20,000 per individual. Investors should check with the banks for the account opening procedures as well as terms and conditions of the renminbi bank account. Some banks may impose restrictions on your renminbi cheque account and fund transfer to third party account. Therefore you should check with your bank beforehand.
Securities trading account
What you need is a securities trading account with an intermediary (e.g. brokerages, banks). Normally, you do not need to set up a separate account specific for trading renminbi counter, but it is more prudent to check with your intermediary. It is also advisable to double check with your intermediary whether there are specific terms, such as settlement procedures and risk disclosure related to trading listed renminbi securities.
In addition, you should confirm readiness of your intermediary to carry out renminbi securities business by asking them directly.
Investor Participant Account
If you are going to use your Investor Participant Account (IP Account) opened with HKSCC to settle trades of renminbi counter, you should make sure you have set up an RMB Designated Bank Account with CCASS.
When I trade shares of renminbi counter, is the daily exchange limit applicable to me?
Before you trade shares of renminbi counter, you should ensure that you have sufficient renminbi to settle your trades. If you convert HKD into renminbi, or vice versa, with a bank, there is a maximum daily exchange limit of RMB 20,000. For non-bank financial institutions (e.g. brokerages), however, such restriction will not be applicable but whether your brokerage would provide currency exchange service is a commercial decision.
How can I invest in renminbi counter?
Under the DTDC model, investors may invest in the shares of renminbi counter through:
- Initial Public Offering (IPO): company to be listed on the SEHK may choose to offer dual tranche of shares (RMB and HKD) for public subscription. They will have the same denomination but different trading currencies. As a result, two counters (RMB and HKD) will be available for trading on the SEHK;
- RMB Follow-on offering: companies already listed on the SEHK can raise fund in renminbi by means of placing, rights issue, open offer, public offer, or a combination of these methods. This will create a new counter of renminbi-traded shares in addition to the existing HKD counter;
- Secondary market trading after the renminbi counter is listed on the SEHK; or
- Transfer of existing HKD counter holdings: if a company has both HKD counter and renminbi counter traded on the SEHK, holders of HKD counter can transfer their holdings into renminbi counter through either their intermediaries or respective share registrars, depending on how their shares are held.
IMPORTANT NOTE: If you request your intermediary to apply IPO on your behalf; or intend to sell physical share certificates registered under your own name in the future; or if you intend to transfer your holdings of HKD counter from your existing intermediary to another intermediary before converting your holdings into renminbi counter, you need to verify if the intermediary concerned is ready to carry out renminbi securities business by asking them directly.
How can I differentiate between HKD counter and renminbi counter of the same company?
Apart from trading currencies, HKD counter and renminbi counter of the same company can be differentiated by:
The stock code for the HKD counter will be a 4-digit number following the existing allocation arrangement. For a renminbi counter, its stock code has five digits which starts with "8".
Stock Short Name:
For the renminbi counter, the stock short name will end with -R to indicate that the shares are traded in RMB. There will be no specific marking in the stock short name of the HKD counter.
The following is an illustrative example of the stock short names:
- HKD counter - "XYZ Holding"
- Renminbi counter - "XYZ Holding - R"
How long will it take for the shares of my HKD counter to be transferred into renminbi counter, or vice versa?
If you hold the shares through your intermediary, you can check with them the lead time required for such transfer.
If you hold physical scrips, you can check with the respective share registrar the lead time required for such transfer.
Please note that there may be a fee involved in such transfers.
Can I get renminbi margin financing for IPO from my brokerage or bank?
Although it is common for investors to get margin financing in HKD for HKD-denominated IPO, under the current agreement between banks and the Clearing Bank for RMB Business in Hong Kong, banks are not permitted to provide RMB lending to personal customers.
For non-bank financial institutions, such as brokerages, such restriction will not be applicable but whether brokerage would provide financing services or finance individual customer is a commercial decision of the brokerage. Investors should check with your brokerages on the availability of renminbi margin financing and the detailed arrangements. If no such financing will be available from brokerages, then investors need to have sufficient renminbi funds to settle the transactions.
How can I subscribe shares of the renminbi counter of DTDC securities through an IPO?
Under the DTDC Model, company to be listed on the SEHK can choose to offer dual tranche of shares (RMB and HKD) for public subscription and there will be separate applications for each tranche. Therefore, if you want to subscribe to the renminbi tranche, you should ensure that you have used the correct application form and follow the required application process.
In general, you can submit your applications through either one of these channels:
- Physical white forms (via receiving banks)
- Physical yellow forms (via intermediaries)
- White forms eIPO (via the service provider specified in the prospectus)
- CCASS EIPO (via CCASS)
IMPORTANT NOTE: If you request your intermediary to apply on your behalf, or intend to sell physical share certificates registered under your own name in the future, you need to verify if your intermediary is ready to carry out renminbi securities business by asking them directly.
Fees and payment
For IPO application, please note that you will have to pay for the number of units subscribed, plus the SFC levy, SEHK trading fee and brokerage commission in renminbi.
For payment made by renminbi cheques or renminbi cashier orders, you should be aware of the lead time required for requesting renminbi cheque book from bank and the availability of renminbi cashier order services.
If you choose to submit your application through White Form eIPO, you should have maintained both a renminbi bank account and internet banking service with one of the banks specified by the White Form eIPO service provider to settle the relevant payment.
If you are a CCASS Investor Participant and wish to subscribe through this account, please make sure you have set up an RMB Designated Bank Account with CCASS for settling the payment.
After the IPO result is announced
In case of partial or unsuccessful allotment, depending on your IPO application channel, you will receive refund from either the share registrar or your intermediary. You can deposit the refund in your renminbi bank account.
If you apply for both HKD tranche and renminbi tranche at the same time, you should check respective allotment results and will receive separate refunds in HKD and renminbi for amounts not allotted.
If the stock concerned has both HKD and renminbi counters traded on the SEHK, and I hold shares of the HKD counter, how can I sell my holdings as if they are renminbi counter under the DTDC model?
In order to do so, you should first transfer your shares of HKD counter into renminbi counter before you sell them. However, before you proceed you are advised to check with your intermediary the lead time and fees involved for such transfer.
Is it possible to buy shares of renminbi counter and sell them as HKD counter, or vice versa, on the same day?
Although it is possible to transfer between HKD counter and renminbi counter under the DTDC model, you are advised to check with your intermediary about the lead time of such transfer and if there is any other restrictions which may hinder the transfer from completion within the same day. In addition, you should be aware of the fee involved between transferring shares of different trading currencies and check with your intermediary about the impact on you in case the entire transaction cannot be settled on time.
In case of RMB follow-on offerings, if the share of the HKD counter is already a Designated Security eligible for short selling, will the new share of the renminbi counter become a Designated Security too?
In principle, if the share of the HKD counter is already a Designated Security eligible for short selling, HKEx will also designate the new share of the renminbi counter as a Designated Security upon its listing.
The list of Designated Securities eligible for short selling is published on the HKEx website.
What transaction costs are involved in trading renminbi counter?
Trading of renminbi counter is subject to brokerage commission, stamp duty, SFC levy, SEHK trading fee, and other fees and charges. Currently stamp duty, SFC levy and SEHK trading fee on purchases and sales of renminbi counter are to be paid by a brokerage or bank to the HKEx in HK dollar, based on an exchange rate determined by the Hong Kong Monetary Authority on the day of the trade.
The exchange rates are published on the HKEx website by 11 am on each trading date. Check with your intermediary on details of all related fees (e.g. custody fees, scrip fee, dividend collection fees, etc), payment process including the currency that you should use for settling such fees and how they set the exchange rate to be used if any currency conversion is required during the transaction.
How to calculate stamp duty for products with trading currency other than HKD?
The stamp duty rate is 0.1% of the amount of the consideration or of its value on every sold note and every bought note. For stamp duty purposes, if the consideration is in a currency other than Hong Kong dollar, it should be converted into Hong Kong dollars by using the rate of exchange determined by the Hong Kong Monetary Authority.
Purchase of 10,000 XYZ shares @RMB 12.52 on T day
Exchange rate: 1.176 for T day
Step 1: Consideration in HK$ equivalent:
10,000 x RMB12.52 x 1.176 = HK$147,235.20
Step 2: Stamp duty in HK$:
HK$147,235.20 x 0.1% = HK$148 (round up to the nearest $)
(Source: Inland Revenue Department)
How can I find the rate of exchange for calculating the stamp duty?
To facilitate the calculation of stamp duty to be paid through the SEHK for transactions in RMB and USD, the exchange rates for each trading day are made available on the HKEx website by 11:00 am or earlier on that day.
You may check the exchange rates at HKEx website.
(Source: Inland Revenue Department)
How will my trades of renminbi counter be settled?
Other than the trading currency involved (i.e. renminbi) and the need of a renminbi bank account for settlement, the settlement method should be the same for normal transactions settled in HKD.
If my renminbi account does not have sufficient amount to settle the transaction, will my intermediary charge my Hong Kong Dollar account to cover the shortfall?
Please check with your intermediary on details regarding settlement methods for renminbi counter related transactions and their policy on settlement defaults by customers. You should watch out that if you default in settlement of a purchase or sale of renminbi counter, you may be liable to compensate the intermediary for any losses caused by or arising from the default, such as any exchange loss suffered by the intermediary in settling the transaction for you.
In terms of transaction documents, is there any difference in trading the renminbi counter compared to that for HKD counter?
Intermediary should follow the same set of rules in preparing trading documents such as contract note, statement of account, etc, for the trades of renminbi counter as in the case of other equity products listed on the SEHK. You should contact your intermediary if you have any questions about the information disclosed in the trading documents.
If I invest in renminbi counter, does it mean that I will always receive renminbi upon sale of my investments?
Currently, trading of renminbi counter on the SEHK would be cleared in renminbi through CCASS, so you would expect to receive renminbi when you sell shares of renminbi counter through the SEHK if your initial purchase was settled in renminbi.
How are dividends paid?
Dividends of renminbi counter may be paid in renminbi or other currencies. Due to the exchange controls and restrictions applicable to renminbi, the product issuer may not always be able to obtain sufficient amounts of renminbi in a timely manner to pay dividends in renminbi. As a result, dividends may be paid in currencies other than renminbi. Under the DTDC model, some issuers may allow investors to choose the currency of the dividend.
Can I convert renminbi sale proceeds into Hong Kong dollar with my intermediary?
If you want to convert renminbi sale proceeds into other currency with your intermediary, you should check with them whether they would provide such service to you. It is entirely a commercial decision of the intermediary whether to provide such service to their customers. You should also carefully study the terms of the service, exchange rate and any related charges before agreeing to use such service.