China Securities Depository and Clearing Corporation Limited Shanghai

China Securities Depository and Clearing Corporation Limited Shanghai- Hong Kong Securities Market Connect and Future Connects between China and Asian Countries ---From the perspective of CSDs Dr. DAI Wenhua Nov. 4, 2015 www. chinaclear. cn

Contents Institutional Framework of SH-HK Stock Connect Operational Features of SH-HK Stock Connect Significance of SH-HK Stock Connect 2 Food for Thinking

Institutional Framework of SH-HK Stock Connect 3

Nov. 17, 2014 Official Launch of SH-HK Stock Connect 4

Institutional Framework of SH-HK Stock Connect Three Components + Regulatory Cooperation between CSRC and SFC Trading Links between SSE and SEHK + Clearing Links between CSDC and HKSCC Clearing and Settlement in Net for Minimum Cross-boundary Capital Flow All RMB Conversion in HK to Promote Cross -border Usage of RMB Closed Loop of Settlement Cycle and Capital Flow Quota Applied for Smooth and Stable Launch “Home market Principle” is preferred “Minimum cost principle”, which means the settlement cost will not be collected twice. “Risk segregation principle” between the two markets 5

Operational Features of SH-HK Stock Connect 6

Operational Features of SH-HK Stock Connect Buy trades volume Sell trades volume 7

Operational Features of SH-HK Stock Connect(Continued) Buy trades volume Sell trades volume 8

Operational Features of SH-HK Stock Connect(Continued) Trends of Shanghai and Hong Kong Stock Markets Shanghai Composite index Nov. 17. 2014 --Jun. 15. 2015 Hang Seng Index 9

Operational Features of SH-HK Stock Connect(Continued) Northbound Net Buy Trade Volume Southbound Net Buy Trade Volume 10

Operational Features of SH-HK Stock Connect(Continued) u Investors inherit their own trading habits from their own markets. Northbound Trade • Mainly institutional investors • Blue chips, A share rare stocks • Mainly individual investors Southbound Trade • Stocks related to finance, manufacturing industry, information technology industries 11

Operational Features of SH-HK Stock Connect(Continued) u Trading is more rational than expected. Barely touch the daily trading quota Northbound average daily trading Southbound average daily trading volume is 2. 8 billion RMB(USD 0. 44 billion) volume is 7 billion RMB(USD 1. 1 billion) Trading Quota Aggregate Quota (AQ) Daily Quota (DQ) Northbound Trading Southbound Trading RMB 300 b (USD 48. 8 b) RMB 13 b (USD 2. 1 b) RMB 250 b (USD 40. 6 b) RMB 10. 5 b (USD 1. 7 b) 12

Operational Features of SH-HK Stock Connect(Continued) u. Northbound trading volume is 2. 5 times as much as that of Southbound trading. u. Northbound trading reached the daily trading limit for 8 times. u. Southbound trading reached the daily trading limit for 2 times. Heated Northbound trade VS Cool Southbound trade u. Northbound trading has been quite active. u Since April, Southbound trading has been improved remarkably. 2014. 11. 17— 2015. 3. 31 daily trading volume is 978 million RMB 2015. 04. 01— 2015. 9. 10 daily trading volume is 4. 318 trillion RMB 13

Operational Features of SH-HK Stock Connect(Continued) u Successful implementation of clearing, currency exchange, settlement and corporate action. Ø Steady exchange of clearing data. Ø Smooth settlement process, sometimes delayed delivery of stocks. Ø Currency exchange is widely acknowledged by the market. Ø Cross-border money transfer is smooth. Ø Southbound corporate actions are properly and quickly handled. 14

of SH-HK Significance Stock Connect 15

Significance of SH-HK Stock Connect Facilitate the domestic and international investors to invest in A share and H share markets. 1 2 Significance 3 4 5 6 Promote the common development and prosperity of two capital markets. Consolidate Hong Kong’s status as the international financial center. Speed up the construction of Shanghai as the international financial center. Promote the RMB internationalization. Act as a signal of deepening the openness of mainland capital market. 16

Significance of SH-HK Stock Connect(Continued) u It’s beneficial to promote A share to be included in MSCI Index and speed up the opening of mainland capital market. June. 9 th Sept. 7 MSCI: A share will be included into MSCI sooner than expected. 17

Food for Thinking on SH- HK Stock Connect 18

Food for Thinking on SH-HK Stock Connect u Challenges Ø 1. Institutional linkage– NOMINEE system ü Mainland market acknowledges nominee system and international investors enjoy the rights and interests of A Share. ü International investors can realize most of their shareholders’ rights. ü Yet some of shareholders’ rights can not be achieved---being directly shown on shareholders’ list. ü Solution：directly opening account in the name of international investors in mainland China? 19

Food for Thinking on SH-HK Stock Connect Ø 2. Whether or not to provide shareholding data of mainland investors to Hong-Kong listed companies? ü Hong Kong Securities and Futures Ordinance---Issuers enjoy the investigation rights on the shareholding status. ü Securities Law of the People’s Republic of China---CSDC has the obligation of confidentiality on the investors’ account information. ü Legal feasibility ü CSRC is deliberating on this issue. To Refuse? To Provide? 20

Food for Thinking on SH-HK Stock Connect(Continued) Ø 3. Currency exchange cost of southbound investors ü At present --- “Daily currency exchange for the netting volume(buy trade minus sell trade), the exchange cost shared by all the investors(in the buy and sell trade)” ü If investors have multiple tradings on T+0, the exchange cost will be increased. ü Improve or not? Ø 4. Risk management is more complicated. ü Liquidity risk Daily limit: liquidity risk is controlled to a certain extent. Cross-border capital transfer Typhoon, black rainstorm ü Operational risk much manual processing of Southbound corporation actions 21

Food for Thinking on SH-HK Stock Connect(Continued) Ø 4. Risk management will be more complicated(continued). ü Correlation between Mainland Hong Kong markets is stronger. Shanghai Composite index May 2015 --Sept. 2015 Hang Seng Index 22

Food for Thinking on SH-HK Stock Connect(Continued) u 5. Bigger-scale buy-in and sellout, which can influence investors psychologically. u 6. Too much expectation and wish to regard each other as the market’s Savior. u 7. Pose new challenges to regulatory bodies. 23

Food for Thinking on SH-HK Stock Connect(Continued) u In the pipeline Ø Shanghai- Hong Kong stock connect is not perfect, yet the model is feasible. Ø Expand the openness of Chinese capital market and achieve linkages with more Asian countries. u “Expand the opening of the capital market in both directions” ---Several opinions on further promoting the healthy development of Chinese capital market u by the State Council “We will promote the opening of the capital market in both directions, raise the convertib ility of cross-border capital and financial transactions in an orderly way. ” ---Decision of the Central Committee of the Communist Party of China on Some Major Issues Concerning Comprehensively Deepening the Reform (Passed on the Third Plenum of the Chinese Communist Party’s 18 th Congress) u " One belt, one road "Strategy 24

China Securities Depository and Clearing Corporation Limited (CSDC) Address: No. 17 Taipingqiao Street, Xicheng District, Beijing Tel： 8610 -50938818 Fax： 8610 -66210938 Post Code： 100033 www. chinaclear. cn