Regulation of listed companies and securities firms will be based on the location they go public and gain business licenses under a pilot program of cross-market stock investment by Chinese mainland and Hong Kong investors, the China Securities Regulatory Commission said on Friday.

When security firms help in cross-border investments, the outbound regulators can also regulate the trade, said the commission.

"Regulators at the locations where investors undertake trading will protect their interests," said Zhang Xiaojun, a commission spokesman.

The commission released a statement on Thursday saying the pilot program will begin in six months and enable dealers to invest in designated shares through local securities firms or brokers.

The program allows a maximum cross-border investment of 550 billion yuan ($90 billion). Investors in Shanghai and Hong Kong will be able to buy and sell up to 23.5 billion yuan of stocks in certain companies each day on each other's exchanges.

Zhang said the China Securities Regulatory Commission and the Securities and Futures Commission of Hong Kong are signing supplementary agreements to deal with illegal activity and perfecting the mechanism of information-sharing based on previous memorandums of cooperation.

The CSRC will develop supporting rules for trading methods, arrangements for the timing of trades, information disclosure and an emergency disposal scheme.

"Although the pilot program and the programs for QFII, RQFII, and QDII play the same role in diversifying the methods of cross-border investment, they are different in many aspects," said Zhang. QFII, RQFII and QDII stand for Qualified Foreign Institutional Investors, RMB Qualified Foreign Institutional Investors and Qualified Domestic Institutional Investors respectively.

Zhang said the Shanghai and Hong Kong stock exchanges will be the vehicles for the pilot program, because trading orders are made through the connectivity of the two bourses.

Asset management companies issue financial products to investors and raise funds to undertake investments, so they are the vehicles for the programs of QFII, RQFII and QDII.

The pilot program of cross-market stock investment by Chinese mainland and Hong Kong investors has two investment directions, but the programs of QFII, QDII, and RQFII go in only one direction.

The yuan is the trading currency for the pilot program, but QFII investors can use other foreign currencies to undertake other investments.

Investors of the pilot program can choose whatever stocks they like but those in the QFII, QDII, and RQFII programs must first submit applications for investments that must then be approved before proceeding.

Currently, overseas investors can invest in Shanghai and Shenzhen only as QFII. They are granted quotas for A-share investments.

"Therefore, the pilot program will not influence the operations of the programs of QFII, RQFII, and QDII and it will complement them by providing more investment choices for investors," said Zhang.

Hong Hao, managing director and chief strategist at BOCOM International Holdings Co Ltd, said the pilot program is a positive move toward opening up China's capital account.

Hong told China Daily the move will revalue the share price differences in Shanghai and Hong Kong stock exchanges. Blue chip stocks in the insurance, securities, cement and steel sectors in the A-share market are expected to benefit from it.

Zhang said the CSRC is positively studying same-day settlement (also known as T+0 settlement) for the A-share market.

With the approval of the CSRC, the Shanghai Stock Exchange has already amended some of its regulations.

The new rules, released in October, state that same-day settlement is permitted for bond exchange-traded funds and gold exchange-traded funds.

caixiao@chinadaily.com.cn