China sets ownership limits on Hong Kong-Shanghai cross-border stock investment

SHANGHAI, June 16 Sun Jun 15, 2014 11:14pm EDT

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SHANGHAI, June 16 (Reuters) - China has specified ownership limits for overseas investors buying shares in companies listed in China via the recently announced Hong Kong-Shanghai cross-border stock investment pilot programme.

According to rules published by the China Securities Regulatory Commission (CSRC) over the weekend, a single foreign investor cannot hold more than 10 percent of a company listed on a mainland exchange. The programme is set to launch in October.

The maximum combined holdings of all foreign investors in a single Chinese listed firm will be 30 percent, the CSRC announced, but added that these limits do not include stakes held by strategic investors.

The regulations did not define what it meant by "strategic investors" but in China the term is ordinarily used to describing long-term investors, many of whom typically have their shares subject to a lock-up period extending several years.

The CSRC published a draft of the regulations in May to seek public opinion. The announcement over the weekend means that rules have now been finalised.

China announced in April that it would allow cross-border stock investment between Shanghai and Hong Kong in a step towards opening China's capital account and also letting Chinese individuals buy foreign equities overseas.

The programme will allow foreign individuals to buy Chinese stocks directly for the first time, although the selection is restricted mostly to dual-listed shares and index heavyweights. .

Currently, only selected foreign institutions are permitted to trade Chinese equities through mutual funds operating under the Qualified Foreign Institutional Investor (QFII) programme or the similar, yuan-denominated RQFII scheme (the R stands for renminbi, the official name of China's currency).

Among other restrictions, the CSRC said in the rules that cross-border trading can only be conducted in the exchanges.

"Any securities service firms, houses and brokers must not privately provide matching for such transactions," the regulator said in the new rules published in its website,

"They must also not use any other forms to transfer stocks outside the exchanges, unless specially permitted by the CSRC."

The regulations come into effect immediately, it said. (Reporting by Lu Jianxin and Pete Sweeney; Editing by Kim Coghill)

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