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Linklaters Insights: Stock Connect: the Beneficial Ownership conundrum

27 March 2015

Since the launch in November of the Shanghai-Hong Kong Stock Connect programme, various concerns have been expressed in relation to investments made by certain collective schemes, in particular EU-regulated Undertakings for Collective Investment in Transferable Securities or UCITS.

Some investors claim that Chinese law does not explicitly recognise the concept of beneficial ownership, while others have remarked that the concept can be found in Chinese regulations dating back to 2006 but the real issue may be enforcement.

This article, which was first published in Finance Asia, seeks to explain how concerns about beneficial ownership of A shares through Stock Connect shares can be addressed. In addition, Stock Connect is compared with investment via Qualified Foreign Institutional Investor and Renminbi Qualified Foreign Institutional Investor channels. The article concludes that an investment through Stock Connect is not only as robust as QFII/RQFII from a legal perspective but also benefits from additional enhancements.

The full article is available on the Linklaters website.