London Financial Circles Welcome LSE-Shanghai Exchanges plan

Despite the market optimism, many challenges still need to be overcome before a viable link can be established.

Currently there are many practical problems for both side trading shares directly in each other's market, for example the procedure and requirements of opening trading accounts are different, Duan says.

"The clearing system behind the two stock exchanges might need to be synchronized. The Chinese currency needs to be freely convertible, perhaps starting at the Free Trade Zones in China as the first step," Duan says.

Because purchasing of the Chinese stocks listed on overseas exchanges is done using the renminbi, this can only be achieved if either the Chinese currency becomes freely convertible or if the offshore jurisdiction hosting the connect has an abundant pool of offshore renminbi available.

As Hong Kong has a large pool of offshore renminbi, investors can easily access renminbi to purchase Shanghai shares, but this could prove more difficult for London, which has less offshore renminbi liquidity.

Sean Tuffy, head of regulatory intelligence at Brown Brothers Harriman in Dublin, says Shanghai London connect would face additional complexity that does not exist in the Hong Kong model.

"For example the time-zone difference would impact the trading and settlement of the securities. There would almost certainly have to be modifications to the existing set-up to address these issues," Tuffy says.

Mclean says that in addition to the technical difficulties, there are also differences in investor components in the two communities.

"Whereas retail investors made up 85 percent of the Chinese stock market, the majority of the London-based investors are institutional investors. The financial advisory communities would have to take a careful approach to accommodate these two groups of audiences.

"As a result of the majority retail investors in the Chinese stock market, the Chinese stock market tends to be more volatile than the London stock market and the linking of the two stock markets could be tricky," Mclean says.