Trading rules and arrangement
Investors must be aware of the differences in the operation and rules between the Mainland and Hong Kong stock markets.
Day (turnaround) trading
While day trading is possible in the Hong Kong stock market, it is not allowed in the Mainland. Shanghai/Shenzhen stocks purchased through the stock trading link can only be sold one day after the transaction day, i.e. T+1 day.
Clearing and settlement
Shares are settled on the transaction day, i.e. T day, and money is settled on T+1 day in the Mainland. While both shares and money are settled on T+2 day in Hong Kong.
In contrary to trading Hong Kong stocks, trading Mainland stocks is subject to price limit. The general price limit for Shanghai/Shenzhen stocks is ±10% of the previous closing price (±5% for stocks in the risk alert board). All northbound trades of Shanghai/Shenzhen stocks must be within the price limit; otherwise, the trade order will be rejected by Shanghai Stock Exchange (SSE)/Shenzhen Stock Exchange (SZSE). Besides, Stock Exchange of Hong Kong (SEHK) will put in place a dynamic price checking for northbound buy orders of A-shares. Buy orders with input prices lower than the current best bid (or last traded price in the absence of current best bid, or previous closing price in the absence of both current best bid and last traded price) for a certain percentage (currently 3%) will be rejected.
Allow to trade the specified A-shares on margin via a Hong Kong broker, provided that the relevant requirements of SSE/SZSE are met. For example, the volume of margin trading for each A-share cannot exceed the prescribed threshold. The relevant requirements are different from those for Hong Kong stocks. Find out the list of A-shares eligible for margin trading on the HKEX website.
Covered short selling
Allow to short sell the specified A-shares via a Hong Kong broker, provided that the front-end monitoring and other SSE/SZSE's relevant requirements are met. For example, there is limit in the volume of short selling for each A-share. The relevant requirements are different from those for Hong Kong stocks. Find out the list of A-shares eligible for covered short selling on the HKEX website.
Ways of stock holding
Shareholders of the listed companies in Hong Kong can choose to hold shares in paper form, and register the shares under their own names. However, the Mainland shares are issued in scripless form, so investors cannot hold paper certificates and register the shares under their own names. Hong Kong Securities Clearing Company Limited (HKSCC) is the registered shareholder of all A-shares purchased through the stock trading link; the shares are held by brokers or custodians.
Language of corporate announcements
Available in Traditional Chinese and English for the Hong Kong stock market, but available only in Simplified Chinese for the Mainland stock market.
Shareholding disclosure obligations
For Hong Kong stocks, once the shareholding reaches 5% or more, the shareholder must disclose to SEHK within 3 working days, but trading in the relevant stock can continue. If the shareholding reaches 5% for the first time, the shareholder must disclose within 10 working days. As for the Mainland stock market, once the shareholding reaches 5%, the shareholder has to disclose to China Securities Regulatory Commission (CSRC) and the relevant exchange within 3 working days, and trading in the relevant stock is not allowed during the 3 days.
Foreign shareholding restrictions
There is no limit for Hong Kong stocks. For Mainland stocks, shareholding by any single Hong Kong or overseas investor must not exceed 10% of the total issued shares; and the aggregate shareholding by all Hong Kong and overseas investors must not exceed 30% of the total issue shares.
Under Stock Connect, individuals and companies investing in A-shares are required to pay tax on cash dividend at a standard rate of 10%, which will be withheld and paid to the relevant tax authority by the respective listed companies. However, capital gains tax (i.e. the profit from the sale of shares) and business tax (i.e. income from A-shares transaction) are exempted. Please refer to the Notice on Tax Policies for Shanghai-Hong Kong Stock Connect Pilot Program and Notice on Tax Policies for Shenzhen-Hong Kong Stock Connect Pilot Program, issued by the Ministry of Finance, the State Administration of Taxation and China Securities Regulatory Commission on 14 November 2014 and 01 December 2016 respectively.
The trading suspension rules and arrangement are different between Hong Kong and Mainland stock markets. For A+H shares, the listed company's A and H shares will be suspended in both markets under the following circumstances: An A+H issuer has any inside information or material information or where there is concern about the possible development of a false market. For suspension due to other reasons, trading suspension will not be required in both market, but to follow the respective home market rules and the listed company's current practice. Please refer to the FAQs for Listed Issuers for details.
Starting from the 3rd quarter of 2018, northbound trading under Stock Connect will implement investor identification regime, where individual investors will be assigned an unique number from their broker, known as the Broker-to-Client Assigned Number (BACN), for conducting northbound trades. Each BACN should be mapped to the identification information including full name and ID card number of that particular investor. Please refer to the information paper provided by HKEX to know more about the regime.
7 December 2017