Newsflash: Chinese Regulator Responds to Lingering Concerns over Ownership of Stock Connect Securities

May 22, 2015

Since its inception in 2014, the Shanghai-Hong Kong stock connect program (“Stock Connect”) promised to open the doors of the Shanghai Stock Exchange to foreign investors. But the program’s details raised concerns among some market participants: Stock Connect equities are held in an omnibus account in China in the name of the Hong Kong Securities Clearing Corporation (“HKSCC”) for the benefit of the ultimate shareholders. But Chinese law does not have a long tradition of recognizing the concept of beneficial ownership, leading some to question what kind of interest shareholders actually possessed. While the Hong Kong Stock Exchange consistently provided guidance that Chinese regulators and courts should recognize beneficial ownership of Stock Connect equities, many market participants still hoped to hear a similar message from Chinese regulators.

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