Navigating China’s Capital Market Infrastructure Changes
Navigating China’s Capital Market Infrastructure Changes
April 2022
By Magdalene Tay
As China’s capital markets continue to open up and become more established as an international hub, investment structures are being created to meet demand. Key market developments and infrastructure changes recently enacted can help navigate the various market access schemes of this complex and evolving landscape.
Interconnectivity Between Interbank and Exchange-traded Bond Markets
On January 20, 2022, the Shanghai Stock Exchange, the Shenzhen Stock Exchange, the China Foreign Exchange Trade System, the China Securities Depository and Clearing Corporation (CSDC) and the Shanghai Clearing House, collectively known as infrastructure entities, jointly announced interim measures for building interconnectivity between the China Interbank Bond Market (CIBM) and the Exchange-traded Bond Market.
Beijing Stock Exchange (BSE)
China’s third stock exchange, the Beijing Stock Exchange (BSE) became operational on November 15, 2021. The bourse, which was set up primarily to support innovative start-ups and small and medium enterprises, has 85 listed companies with a total market capitalization of US$35 billion.*
Securities traded on the BSE are settled and held via the CSDC Beijing Branch. Foreign investors registered under the Qualified Foreign Investor (QFI) scheme are permitted to trade on this exchange. To participate, QFIs can make arrangements with their existing brokers to expand their trading to BSE. They will be required to contribute the minimum reserve fund, calculated based on 0.06% of the monthly average accumulated net-remitted amount, to the CSDC Beijing Branch before commencement of trading.
Commodities Futures
As of November 2021, QFIs are permitted to access commodity instruments listed and traded via four futures exchanges, including the Dalian Commodity Exchange, the Shanghai Futures Exchange, the Shanghai International Energy Exchange and the Zhengzhou Commodity Exchange. Though further implementation details, including the list of eligible commodity instruments, have yet to be announced, this notable market change will help broaden foreign investors’ access to more diversified investments in China.
HKEX Synapse: A New Stock Connect Settlement Acceleration Platform
Hong Kong Exchanges and Clearing Limited (HKEX), in collaboration with The Depository Trust & Clearing Corporation (DTCC), is launching a centralized post-trade processing platform called Synapse for Stock Connect. This new platform, using Digital Asset Modeling Language (DAML) smart contract technology, aims to ease access into the China A-share market by standardizing and streamlining post-trade processing workflows from institutional investors to local custodians, with the goal of improving transparency and instituting operational efficiency. The project is at the development phase and testing is expected to convene during the second half of 2022.
Learn more by visiting the Greater Gateway to China series page.
*Source: Beijing Stock Exchange, data as of February 28, 2022.
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