Japan Exchange Group, the owner of the Tokyo Stock Exchange, and Shanghai Stock Exchange have announced they are collaborating on a scheme for linking the ETF markets of both exchanges.
Akira Kiyota, Japan Exchange Group CEO.
The “Japan-China ETF Connectivity” is the result of negotiations based on a Memorandum of Understanding signed by the two exchanges in October 2018.
Under the scheme, which aims to boost cross-border investment between the two countries’ securities markets, a Japanese or Chinese ETF provider will be able to develop a feeder ETF that will invest at least 90% of its assets in a target ETF from a provider in the other country.
Eligible target ETFs will initially be limited to those that track stock indices. They must also satisfy liquidity requirements and have been listed for more than one year.
Trading will be based on additional Qualified Foreign Institutional Investor (QFII), Renminbi Qualified Institutional Investor (RQFII), and Qualified Domestic Institutional Investor (QDII) quota specially created for the scheme.
Outline of Japan-China ETF Connectivity
Source: Japan Exchange Group.
Akira Kiyota, Japan Exchange Group CEO, said, “I am very pleased to see the establishment of Japan-China ETF Connectivity. This scheme is the result of our negotiations with the Shanghai Stock Exchange and the Chinese and Japanese authorities as well as market participants. We will continue to collaborate with Shanghai Stock Exchange on this scheme and other ways to increase cross-border investment flows between China and Japan as we contribute to the continued development of the capital markets of both our countries.”
A similar scheme between China and Hong Kong, known as the ETF Connect, has been in the making for several years; however, the program has faced delays due to issues normalizing the settlement infrastructure between the respective exchanges.
As a result, regulators have begun to review alternative options for mutual market access for ETFs, including cross-listing ETFs through the existing Mutual Recognition of Funds (MRF) program that is already in place for mutual funds.