Today this entry is a little bit more technical, in fact having exposed the functioning of the Chinese Bourses , it is now necessary to spend a few words about the practical aspects of buying shares.
Buying shares in China: lot size in the different bourses, and permitted gateways.
On mainland stock markets, stocks are traded in a lot size of 100 units. Trading in less than 100 shares can be sold during trading hours but cannot be bought. However, placements of shares during rights issues are exempted and can be traded in odd units during the rights issue trading period.
Odd lot
means
a
number of shares that are less than the board lot. For example, 499 shares of China Mobile is an odd lot that cannot be traded in board lot. The share price of odd lot is lower than that of the board lot. There are odd lot traders who collect odd lots at lower prices to make board lots selling at regular board lot prices. How much the odd lot share is lower than board lot share depends on the popularity of the stock. If a stock is unpopular, it is not a surprise to find its odd lot price lower than that of the board lot by more than 5%. Similarly, it is easier to trade odd lots of blue chips such as HSBC than unpopular stocks, especially penny stocks. (
from: Trading of China Stocks—Lot Size—at:
http://chinastockventure.com/2010/02/china-stocks-lot-size/
).
On the Hong Kong Stock Exchange, stocks are also traded in lots. Unlike mainland China, the lot sizes are not unified into 100 shares per lot. Instead, every stock has an individual board lot size. Therefore another a different type of lot size is the so-called
Mixed lot
.
Board lot size
means a quantity of shares that is equal to or a multiple of a set figure that is set by each exchange. For example, the board lot size of China Mobile is 500 shares per lot. Accordingly, trading orders for China Mobile must be placed in lots of 500, such as 500, 1,000, 1,500, 2,000, etc. Trading in amounts which are not multiples of the board lot size are done in odd lot market. Each stock has an individual board lot size. An online broker will usually display this along with the stock price when you get a quote.
The lot size information could be gotten from the stock exchanges. (See also: Trading of China Stocks—Lot Size—at:
http://chinastockventure.com/2010/02/china-stocks-lot-size/
).
Mixed lot, i.e.
the amount of shares exceeds one board lot but is not enough to meet the next level, for example 602 shares of China Mobile trades in lots of 500 (one board lot of 500 + one odd lot of 102 = a mixed lot of 602). Generally, all purchases must be made in board lots. Mixed and odd lot purchase lots will not be accepted. Sales can be placed in mixed and odd lots. The sale of an odd lot will be made in the end of day auction. For mixed lots the available board lot will be traded first with the remainder treated as an odd lot.
(Trading of China Stocks—Lot Size—at:
http://chinastockventure.com/2010/02/china-stocks-lot-size/
).
For foreigners interested in A-shares, there are only two channels available up to now. First, since February 2006, special foreign investors have been allowed to make strategic investments in A-shares of the listed companies having completed the shareholding structure reform. The foreign strategic investors are required to purchase 10% or more of the said companies.
The second and better known means is through the QFII and thus make investment indirectly. QFII stands for qualified foreign institutional investors (
http://blawg.lehmanlaw.com/wordpress/?p=1840
). In 2003, China permitted qualified foreign institutional investors to invest in listed domestic securities denominated in local currency, subject to a quota approved by the State Administration of Foreign Exchange (SAFE), China’s foreign exchange controller. QFIIs are in the form of pension funds, insurance funds, mutual funds, charity funds, donation funds, and government or monetary authorities. “Open-ended China Funds,” that is open-ended securities investment funds established overseas by a QFII through public issue, where at least 70% of the assets of the fund are to be invested in China, is also approved. There is, however, a lock-up period of three months to one year, depending on the type of QFII, during which the principal amount invested is restricted from being repatriated outside of China.
All applicants for QFII status must satisfy a rigorous qualification criteria, which disqualifies all but the largest and capable financial investors. A qualified foreign institutional investor is only permitted to hold up to a 10% interest in the A-shares of any particular listed company, with the combined QFII holding not to exceed 20% in any company. These rights, however, are of limited utility to operating investors, as the shareholding limitation effectively precluded the possibility of obtaining management control. The QFII rules, however, are undergoing further liberalization. By regulation, QFII must appoint a commercial bank as the custodian of its assets, and foreign-owned banks have been gradually permitted to provide QFII custodian services.
In the next entry I will explain the new takeover regime and I will also introduce some characteristics of the new Takeovers Code to complete this theme.
Cristiano Rizzi
(Some of my entries are extracted from my work titled M&A and Takeovers in China, so if you are interested in this topic, please visit:
http://www.kluwerlaw.com/Catalogue/titleinfo.htm?ProdID=9041140484
).