Source: Broker China Author: Liu Yiwen
There have been changes to the H share “full circulation” holdings reduction rule.
On May 6, the “Notice of the State Administration of Foreign Exchange on Issuing the 'Foreign Exchange Business Guidelines for Capital Projects (2024 Edition) '” officially came into effect. According to this regulation, some brokerage firms have also issued notices to adjust the full circulation business of H shares.
According to reports, previously, when shareholders reduced their holdings of fully circulating H shares, they should first register with the local foreign exchange bureau, and then register quota information with the brokerage sales department with certification from the Foreign Exchange Bureau to control the sales amount and prevent overselling. After the implementation of the new regulations, investors are not required to register before reducing their holdings. After reducing their holdings, they must register with the Foreign Exchange Bureau within 20 working days. The brokerage firm removed transaction amount control.
Remove transaction amount control
Recently, a brokerage firm issued the “Notice Concerning the Adjustment of the “Full Circulation” Business of H Shares under the New External Management Regulations.
According to the notice, according to the “Notice of the State Administration of Foreign Exchange on Issuing the 'Foreign Exchange Business Guidelines for Capital Projects (2024 Edition) '” (Huifa [2024] No. 12), the above guidelines will come into effect on May 6, 2024. The new regulations have adjusted the “full circulation” business management requirements for H shares. In order to comply with the latest regulations, brokerage firms plan to adjust arrangements relating to full circulation business transactions from the date of implementation of the new regulations.
According to reports, under the current arrangement, investors must first go to the local foreign exchange bureau to complete domestic shareholders' shareholding registration and receive a business registration certificate, then use this certificate to register quota information with the brokerage sales department to control the sales amount and prevent investors from overselling.
The revised new regulations stipulate that “after an overseas listed domestic company is approved to participate in the “full circulation” business of H shares, its domestic shareholders should go to the local foreign exchange bureau to apply for domestic shareholder shareholding registration within 20 working days after reducing their holdings, receive a business registration certificate after registration is completed, and hold a domestic shareholders' shareholding business registration certificate to a domestic bank to open a relevant account.” According to this new regulation, the transaction process was adjusted so that investors reduced their holdings and then applied for shareholding registration and business certificates with the local Foreign Affairs Administration. Furthermore, it is reported that currently the full circulation business only supports the reduction of holdings, and restrictions on increasing holdings have not been liberalized.
According to the new regulations mentioned above, the “full circulation” business of brokers' H shares has undergone the following adjustments since the implementation of the new regulations. The first is the cancellation of transaction quota control, but short selling or buying is still prohibited. Second, in terms of quotas, the amount already applied for before the implementation of the new regulations is still valid. After the new regulations are implemented, holdings can continue to be reduced with the existing quota. There is no need to apply for an ex post facto quota in accordance with the requirements of the new regulations to reduce holdings within the existing amount and amount. After the stock credit is used up, the additional credit is processed in accordance with the following requirements.
After reducing their holdings, investors must go to the local foreign exchange bureau as soon as possible within 20 working days to apply for shareholding registration for domestic shareholders, obtain a business registration certificate after registration is completed, and open a special bank account with the registration certificate (those that have already opened a special account do not need to be opened repeatedly). After obtaining a business registration certificate or opening a special bank, investors should promptly submit a corresponding information maintenance application to the brokerage sales department.
In terms of withdrawals, according to China's settlement requirements, investors can only withdraw funds after the investor reports the information with the brokerage firm and the brokerage submits foreign exchange information to China Settlement. Among them, the stock amount is controlled by “quantity+amount”. If an investor applies for a reduction in holdings or the maximum amount of shares approved by the Foreign Affairs Administration, it is determined that the stock amount has been used up and must apply for the full additional amount in accordance with the requirements of the new regulations before withdrawing funds.
Many companies are applying for full circulation
The reporter noticed that since this year, the Securities Regulatory Commission has issued a total of 17 companies' full circulation filing notices. There will be 21 in 2023.
On April 18, the Securities Regulatory Commission issued the “Notice on the Filing of “Full Circulation” of Unlisted Shares in Guohong Hydrogen Energy Technology (Jiaxing) Co., Ltd.” The notice stated, “We have received the filing materials for 'full circulation' of unlisted shares in your company. According to the “Securities Law of the People's Republic of China”, “Trial Measures on the Administration of Overseas Issuance of Securities and Listing by Domestic Enterprises” and “Business Guidelines for H-share Companies Applying for “Full Circulation” for Domestic Unlisted Shares, I will notify the filing matters as follows”:
First, the 46 shareholders of the company plan to convert their total holdings of 273 million domestic unlisted shares into overseas listed shares and list them for circulation on the Hong Kong Stock Exchange. The company shall strictly abide by relevant domestic and foreign laws, regulations and rules during the share conversion process.
Second, if the company has not completed the share conversion within 12 months from the date this filing notice is issued and plans to continue, the filing materials should be updated.
The Securities Regulatory Commission stated that this filing notice only confirms the “full circulation” filing information of the enterprise. It does not indicate that the China Securities Regulatory Commission makes a substantial judgment or guarantee on the investment value of the enterprise's securities or the income of investors, nor does it indicate that the China Securities Regulatory Commission guarantees or determines the authenticity, accuracy, and completeness of the enterprise's filing materials.
According to the “Overseas Issuance of Securities and Listing Filings by Domestic Companies” issued by the Securities Regulatory Commission (Initial Public Offering and Full Circulation) (as of April 25, 2024), there are currently 2 companies applying for full circulation.
From pilot to full rollout
According to reports, the Securities Regulatory Commission successfully completed the “full circulation” pilot work for 3 H share companies in 2018. The two markets operated smoothly during the pilot period, achieved good results, and received good feedback from all sides. With the approval of the State Council, in November 2019, the Securities Regulatory Commission fully implemented the “full circulation” reform of H shares.
The Securities Regulatory Commission will actively and steadily push forward this reform in accordance with the law and regulations in accordance with the principle of “one mature family, one company launched”. The stock of unlisted shares in a single H share company involved in the “full circulation” of H shares is small, which is equivalent to less than 7% of the total market value of shares listed on the Hong Kong Stock Exchange. After the “full circulation” application is approved, the domestic unlisted shares of the relevant company can be converted to H shares listed and circulated on the Hong Kong Stock Exchange.
According to reports, the following types of shares of an H share company or a company planning to apply for the initial listing of H shares can apply for “full circulation” of H shares: first, domestic shares held by domestic shareholders before the overseas listing, second, additional domestic shares issued domestically after overseas listing, and third, unlisted tradable shares held by foreign shareholders. At this stage, “full circulation” shares are listed and traded on the Hong Kong Stock Exchange.
How can relevant domestic shareholders trade H shares through the “full circulation” mechanism of H shares? Domestic shareholders should select a domestic securities company through the corresponding H share company to participate in the H share “full circulation” transaction. The specific route is to submit a transaction entrustment order through a domestic securities company and transmitted through Shenzhen Securities and Communications Co., Ltd. to the Hong Kong securities company designated by the above securities company to cooperate. The Hong Kong securities company carries out corresponding securities transactions in the Hong Kong market in accordance with the rules of the Hong Kong Stock Exchange.
Under the “full circulation” mechanism of H shares, domestic shareholders can only increase or decrease their holdings of the Company's shares traded on the Hong Kong Stock Exchange in accordance with relevant business rules. Currently, this hold-up function has not yet been launched due to technical reasons, and will be launched according to the procedure after the technical system and other conditions are met.
Domestic securities companies participating in the “full circulation” transaction of H shares shall comply with the relevant requirements of the brokerage business management of the China Securities Regulatory Commission, verify the transaction qualifications, funds, securities, prices, etc. involved in the customer's request, check whether the funds and securities are in full, ensure that the scope of the subject matter, foreign exchange amount, etc. entrusted by the customer complies with relevant regulations, and maintain normal transaction order.
At the same time, participating securities companies should have relevant technical systems and operation and maintenance capabilities required for “full circulation”, and should meet the testing and acceptance of technical systems connected to China Settlement and Shenzhen Stock Exchange to ensure the stable operation of the technical systems.
edit/lambor