Business, Legal & Accounting Glossary
The Shanghai Stock Exchange (SSE) is based in the city of Shanghai, China. This stock exchange is one of the two exchanges that operate independently in the People’s Republic of China (the other stock exchange is the Shenzhen Stock Exchange).
In terms of market capitalization, the Shanghai Stock Exchange is the fifth largest exchange in the world. As of December 2011, its market capitalization was US$ 2.3 trillion.
While the Hong Kong Stock Exchange in Greater China is entirely open to international investors, the Shanghai Stock Exchange keeps few restrictions on foreign investors. Tight capital account controls are maintained by the Chinese authorities in Mainland China.
Re-established on November 26, 1990, the SSE is directly administered by the China Securities Regularity Commission (CSRC). It is a non-profit organization and became operational from 19th December 1990.
The “Treaty of Nanking” of 1842, which brought an end to first opium war, resulted in the formation of “International Settlements” (foreign concession areas) in Shanghai.
This and subsequent agreements between the Chinese and foreign governments were critical for the development of foreign trade in China and of the foreign community in Shanghai.
Afterwards, in the 1860s, a market for securities trading commenced in Shanghai. The first shares list emerged in June 1866 and by then Shanghai’s International Settlement had developed the conditions favourable to the existence of a share market such as the creation of several banks, a setting up of a legal framework for joint-stock companies, and interest in diversification among the established trading houses (even though the trading houses themselves existed as partnerships).
In 1891, while mining shares had a boom time, foreign businessmen founded the “Shanghai Share- brokers’ Association” headquartered in Shanghai as China’s first stock exchange.
Then in 1904 the Association applied for registration in Hong Kong under the provision of the Companies regulation and was renamed as the “Shanghai Stock Exchange“.
During this period, local companies mainly supplied the securities. While banks dominated private shares initially, by 1880 only the Hong Kong and Shanghai local banks remained.
By 1920 and 1921, “Shanghai Securities & Commodities Exchange” and “Shanghai Chinese Merchant Exchange” began their operations respectively. In 1929, it eventually resulted in an amalgamation. The combined market operated thereafter was called as “Shanghai Stock Exchange“.
While shares related to shipping, insurance, and docks sectors persisted in the market until 1940, industrial shares overshadowed these shares after the Treaty of Shimonoseki of 1895, which allowed Japan, and by extension other nations which had treaties with China, to set up factories in Shanghai and other treaty ports.
Rubber plantations boomed in the second decade of the 20th century and consequently, stock prices also rose sharply.
Later in the 1930s, Shanghai had developed as the financial centre of the Far East, where both Chinese and foreign investors could trade stocks, debentures, government bonds, and futures.
However, the operation of the Shanghai Stock Exchange suddenly stopped after Japanese troops occupied the Shanghai International Settlement on December 8, 1941. Then in 1946, the Shanghai Stock Exchange recommenced its operations before shutting down again 3 years later in 1949, after the Communist revolution intensified.
Following the end of the Cultural Revolution and Deng Xiaoping’s subsequent rise to power, China was re-opened to the outside world in 1978.
During the period of 1980s, China’s securities market developed in tandem with the country’s economic reform along with the expansion of the socialist market economy. As a result, on 26 November 1990, Shanghai Stock Exchange was re-established and operations commenced a few weeks later on 19 December.
The securities listed on the SSE comprise of three main classes: stocks, bonds, and funds. Bonds traded on SSE consist of treasury bonds (T-bond), corporate bonds, and convertible corporate bonds. SSE T-bond market is the most dynamic of all securities markets in China. There are two kinds of stocks being issued in the Shanghai Stock Exchange: “A” shares and “B” shares. While “A-shares” are priced in the local renminbi (Yuan) currency, “B shares” are priced in U.S. dollars. Earlier, trading in A-shares was only permissible to domestic investors while B shares were available to both domestic (since 2001) and foreign investors.
However, following the implementation of 2002 financial market reforms in China, foreign investors are now permitted (with limitations) to trade in A-shares under the Qualified Foreign Institutional Investor (QFII) program which was officially launched in 2003.
At present, a total of 98 foreign institutional investors have been endorsed to buy and sell A shares under the QFII program. The maximum amount allowed (quota) under the QFII program is currently US$30 billion. Authorities are now planning to merge these two types of shares in the future
The SSE operates from Monday to Friday. The morning session starts with centralized competitive pricing from 09:15 to 09:25 and continues with successive bidding from 09:30 to 11:30. This is followed by the afternoon consecutive bidding session, which begins from 13:00 to 15:00. The market is closed on Saturday and Sunday and other public holidays announced by the SSE.
The SSE Composite (also called the Shanghai Composite) Index is the most frequently used indicator to reflect SSE’s market performance together with the overall economic outlook. Components for the SSE Composite Index are all listed stocks (A shares and B shares) at the Shanghai Stock Exchange. While the Base Day for the SSE Composite Index is December 19, 1990, The Base Period is the combined market capitalization of all stocks of that day. The Base Value is 100. The index was started on July 15, 1991. By the end of 2006, the index reached at 2,675.47. Other significant indexes used in the Shanghai Stock Exchanges include the SSE 50 Index and SSE 180 Index.
According to the regulations of Securities Law of the People’s Republic of China and Company Law of the People’s Republic of China, limited companies applying for stock market listing must comply with the following criteria:
Other conditions set by the State Council.
China at present has a preference for only domestic firms to list onto their stock exchanges; India has similar rules. However, China was considering opening up its capital markets to foreign firms in 2010, but until 2012 it didn’t materialize.
The requirements for applications for the listing of shares by limited companies dealing in high and new technology are set out separately by the State Council.
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This glossary post was last updated: 14th April, 2020 | 6 Views.