The Shanghai Hong Kong Stock Connect (Shanghai Connect) kicked off in November 2014. About two years later in December 2016, China's second largest stock market also joined in with the launch of the Shenzhen Hong Kong Stock Connect (Shenzhen Connect). Stock Connect now boasts more than 2,000 eligible stocks for cross-border trading.

At the Boao Forum on April 10, 2014, Chinese Premier Li Keqiang's announced a pilot program for mutual interactive trading and clearance of securities between the Mainland and Hong Kong. To formalize the matter at the operational level, the Securities and Futures Commission of Hong Kong and the China Securities Regulatory Commission jointly announced that plans were afoot to launch this mutual market access scheme in six months.

Under Shanghai Connect, Mainland Chinese and Hong Kong (including international) investors would be able to buy and sell securities in each other's market using an interactive technological setup for trading and clearance in their home exchange. Thus was laid the groundwork for a feasible, controllable and expandable scheme for mutual securities trading between investors in free markets and on the Mainland. Over time, that would pave the way for the further liberation of China's capital market and the internationalization of its currency.

All Hong Kong and overseas investors – be they individuals or institutions – now may trade in eligible Shanghai and Shenzhen securities. ChiNext, the Shenzhen Stock Exchange's equivalence of a board for growth enterprises, remains off limits to most investors except for institutional and professional investors. Mainland China is more restrictive in qualifying southbound investors. Only Chinese institutional investors and individual investors with a minimum combined balance of RMB500,000 in their brokerage and cash accounts are allowed to conduct trades on the Stock Exchange of Hong Kong (HKEX).

While shares listed on HKEX can be traded intra-day, those listed on Mainland exchanges cannot. Investors must bear in mind that shares bought via Stock Connect can be sold only on the trade day following the transaction day, ie, T+1. As it is, although Mainland exchanges deliver the shares on transaction day (T day), it is only on the day after (T+1) that they settle the payment. In Hong Kong, both the shares and the payment are settled two days after transaction day (T+2).

While Hong Kong stocks have no price limit, those on Mainland exchanges do. In general, the limit is set at plus or minus 10 per cent of the previous day's close. (For stocks on risk alert in Shanghai and Shenzhen, the limit is five per cent [5%] above or below.) Any northbound order deviating from the limits will be rejected by the two exchanges. In addition, HKEX reviews the price movements of northbound A shares, rejecting most of the buy orders priced at below the best bidding price. Only up to the appointed maximum (currently three per cent [3%]) of price-deviating orders are accepted. (In the absence of a bidding price, the price reference to place a buy order of A shares is the latest transaction price. The previous close is used if the stock has had no transaction on that day.)

Hong Kong stockholders can opt to hold physical certificates of their own shares in their own name. Mainland China listed companies, on the other hand, adopt a paperless system to issue shares. Therefore, investors do not hold physical A share certificates in their own name. A shares bought through Stock Connect are registered under the Central Clearing and Settlement System of the Hong Kong Securities Clearing Company Limited and held in the custody of brokerages or trusts.

The Hong Kong securities regulatory regime requires that a "substantial shareholder" holding five per cent (5%) or more of any class of a listed company's shares disclose his/her/its interest by filing notification to HKEX. Such a declaration is to be made within three business days of the time the investor becomes "aware of" the situation. The investor may continue to buy or sell shares in that company but must report any subsequent change in shareholding position. In any event, the so-called "initial notification" must be given no later than 10 business days after the occurrence of the "trigger event" as opposed to the awareness of the event. On the Mainland, investors holding up to five per cent (5%) of any company's shares must notify the China Securities Regulatory Commission as well as the local stock exchange in three working days. During those three days, they must cease further trading in that company's shares.

In any given company, Hong Kong has no limit on the shareholding percentage of a single investor. On the Mainland, the ceiling for a single shareholder is 10 per cent, and for all Hong Kong and overseas investors, 30 per cent.

From 17/9/2018, HKEX will roll out the so-called “Investor ID Model” to better monitor northbound trades under Stock Connect. Under the scheme, brokerages and other exchange participants will assign a unique number in a set format to all Stock Connect clients engaging in northbound trades. This Broker-to-Client Assigned Number (BCAN) will include such data as the investor’s full name and for an individual, his or her Hong Kong identification number. BCANs are to be filed with Hong Kong Exchanges and Clearing Limited. For a better understanding of the ID model, please check out HKEX website.