In brief
Inclusion of REITs within Stock Connect
On 19 April 2024, the China Securities Regulatory Commission (CSRC) announced five new key initiatives to enhance the integration and development of the capital markets in Mainland China and Hong Kong SAR. One of these initiatives is the expansion of Stock Connect to include Hong Kong- and PRC-listed real estate investment trusts (REITs).
These initiatives are expected to enhance the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect frameworks and solidify Hong Kong's position as an international financial center. As a next step, the CSRC will collaborate with the relevant parties, including the Securities and Futures Commission of Hong Kong as well as the stock exchanges and the clearing companies in both Mainland China and Hong Kong SAR, to implement these initiatives as soon as possible.
Baker McKenzie has long been advocating for the inclusion of REITs into Stock Connect, particularly since the introduction of the PRC REIT regime in 2020. From our perspective, REIT Connect is a commendable development that will expand the investor base and trading liquidity of REITs, helping to unlock their true potential as a publicly accessible investment product for real estate and infrastructure assets.
Eligibility criteria
It remains to be seen what eligibility criteria (whether an existing set of criteria or a new one) will be used for inclusion of REITs into Stock Connect. For example, if applying the current inclusion criteria for stocks, only two Hong Kong REITs would be eligible for admission into Stock Connect. However, if applying the new AUM inclusion criteria for ETFs (i.e., HKD 550 million for Southbound trading), all Hong Kong REITs would be eligible.
We expect that REITs will have their own specific inclusion criteria, with the number of eligible REITs falling somewhere between the number that would be included if applying the stock and ETF criteria. We look forward to further announcements regarding this.
Talk to us!
We will continue to monitor further developments on REIT Connect. If you have any questions on any of the above matters, please do not hesitate to liaise with your usual contact at Baker McKenzie or the lawyers listed in this client alert.
* * * * *
Click here to read the Chinese version.