关键词：Securities

Replies of the Relevant Department Leaders of the China Securities Regulatory Commission to the Reporters’ Questions


on the Client Asset Management Business of the Securities Companies

On December 18, Shang Fulin, the Chairman of the China Securities Regulatory Commission (hereinafter referred to as the CSRC) issued Decree No. 17 of the CSRC, namely, the Measures on Trial Implementation of the Client Asset Management Business of Securities Companies (hereinafter referred to as the Measures on Trial Implementation).

As regards the questions in which all the parties in the market have much interest, the reporters have interviewed the relevant leaders of the CSRC.

Question (hereinafter referred to as the Q): Would you please introduce the background for issuing the Measures on Trial Implementation?

Answer (hereinafter referred to as the A): In 1995, the People’s Bank of China started to approve the asset management business of securities companies. Through the development for several years, the asset management business has developed into one of the three major businesses together with the brokerage and investment bank in our domestic securities companies. Up to November 2003, 70 of 132 securities companies throughout the country have developed the asset management business with the total asset of some CNY 70 billion, imposing a very significant influence on the securities market. As the asset managed by the securities companies continue to expand, the form of asset management has developed from the targeted asset management (namely, one-to-one asset management business) to the collective asset management business (namely, one-to-many asset management business).

However, this business has been developed only for a short period, and lacks the necessary regulations and supervisory measures. The actual operation of securities companies finds no specific rules to follow so that the asset management activities are not standardized and claim the considerable potential risks. In order to standardize the asset management business of securities companies, the CSRC promulgated in November 2001 the Circular on Standardizing the Business of Entrusted Investment Management of Securities Companies (hereinafter referred to as the Circular of 2001). In May 2003, in consideration of the collective wealth management between some securities companies and the banks, the CSRC promulgated the Circular on Several Issues concerning the Business Collective Entrusted Investment Management of Securities Companies (hereinafter referred to as the Circular of 2003) to prevent the possible risks, requiring the securities companies undertaking such business to regulate their business and other securities companies to suspend this business.

The actual implementation indicates that the two Circulars hereinbefore can’t effectively regulate the asset management business of securities companies, and sufficiently supervise the innovative business such as the collective asset management business; thus, they fail to meet the demands of market development. To solve this problem, the CSRC, after the comments are solicited from all the market parties concerned, drafts and promulgates the Measures on Trial Implementation to standardize the business of client asset management.

Q: Compared with the Circular of 2001 and the Circular of 2003, what changes has the Measures on Trial Implementation experienced?

A: The Measures on Trial Implementation are formulated on the basis of the two Circulars, and witness the further improvement and development. In comparison with the original Circular, the Measures on Trial Implementation have the following development and changes.

I. The “entrusted investment management business” of the securities companies is renamed to the “client asset management business”, and the new business is provided. The qualified securities companies can not merely handle the targeted asset management business for the single clients and claim the status as the pilot units as approved by the CSRC, but can conduct the collective asset management business for several clients and the special asset management business for the clients as well. 

II. The business of client assets management has a scope of investment in the shares and securities listed in Shanghai and Shenzhen Stock Exchanges, and also in the securities investment funds and other lawful financial products.

III. The targeted asset management business is further standardized on the basis of the Circular of 2001. It’s reiterated that the securities companies shall not promise in the business of client asset management the forever safety of the clients’ asset principals or the sure acquisition of their lowest benefits. The securities companies are also required to strengthen the risk control and the minimum amount of the entrusted assets is limited to CNY  1 million.

IV. The business of collective asset management shall be standardized as a focus. The Measures on Trial Implementation regulate in a comprehensive manner the qualifications for conducting the business of collective asset management, and the related parties, arrangement of contract, development, review and approval and continuous supervision of the collective asset management plans.

V. Much stress is placed on protecting the investors’ interests and the contents about the supervisory measures and legal liabilities are added. In an aim to promote the standardized operation of the business of client asset management, the Measures on Trial Implementation specify in a definite way the continuous supervisory measures and the external audit system. In case the securities companies and their executives and personnel directly responsible act in violation of relevant regulations during the business of client asset management, they shall be subjected to the rigorous administrative supervision and penalties. Once they are suspected of any crimes, they shall be transferred to the judicial organs for having their criminal liabilities pursued. The civil liabilities must be assumed according to law if the lawful rights and interests of the clients are impaired.

Q: Does the Measures on Trial Implementation have any influence on the business of entrusted investment management currently developed by the securities companies and their qualification for the said business?

A: The Measures on Trial Implementation fully maintains the continuity of policies and has no actual influence on the development of and qualification for the business of entrusted asset management.

Before the Measures on Trial Implementation are executed, the qualification of securities companies for conducting the business of entrusted investment management, once reviewed and approved by the CSRC, shall maintain the validity. Since the execution of the Measures on Trial Implementation, the said qualification will be automatically changed to the qualification for the business of client asset management. The securities companies which have obtained the qualification for the business of entrusted investment management can receive the new Certificate of the Securities Business. Yet, the securities companies shall clear up and regulate, in accordance with the Measures on Trial Implementation, the un-standardized business of entrusted investment management of securities companies.

Q: What’s the difference between the business of collective asset management, the business of securities investment funds and other asset management business?

A: As a new business, the business of collective asset management is t subjected to the emphasized standardization of the Measures on Trial Implementation. The three types of businesses as stated above mainly have the following differences:

I. The management entities are different. The entities of collective asset management business are the securities companies established according to law, verified by the supervisory departments and undertaking such business. The entities of securities investment funds are the fund management companies established according to law.

II. The criteria of conducts are different. The securities companies shall establish the plans of collective asset management and develop the business of collective asset management in compliance with the contracts of collective asset management, the related laws and administrative regulations as well as the provisions of the Measures on Trial Implementation. The establishment and operation of the securities investment funds shall conform to the Law of Securities Investment Funds and other laws and administrative regulations as well as the departmental rules concerned.

III. The market positioning and customer base are different. The business of collective asset management is targeted at the specific investors with certain investment experience and risk-bearing capacity while the securities investment funds are mainly targeted as the public investors. According to the provisions of the Measures on Trial Implementation, the limited plans of collective asset management shall accept the fund of single customer no more than CNY 50000 while the unlimited plans of collective asset management shall accept the fund of single customer no more than CNY 100000. The number of clients participating in the plans of collective asset management is not restricted and shall be determined and regulated by the market.

IV. The promotion methods are different. Different from the securities investment funds, the plans of collective asset management shall not be sold or promoted in public. In compliance with the provisions of the Measures on Trial Implementation, the securities companies and the promotion institutions shall not promote the plans of collective asset management through radio, TV, newspaper and other mass media. In the meantime, the clients involved in the plans of collective asset management shall be those of relevant securities companies or promotion institutions. 

To sum up, the plans of collective asset management and the securities investment funds both belong to the asset management business, but they have some obvious differences and claim the strong mutual complementation in the business. They can satisfy the investment preferences of different investors and boost the development of asset management business in our financial market.

Q: What conditions shall the securities companies have in order to conduct the business of collective asset management?

A: The business of collective asset management is the complex form of the business of customer asset management of the securities companies. In comparison with the targeted asset management business, the business of collective asset management involves more parties, has very complicated relationship among different parties, and poses high requirements and much difficulty for the management work. Therefore, the pilot work will be restricted to the certain scope at present if the securities companies are to establish the plans of collective asset management and go through the business of collective asset management.

During the trial period, the CSRC shall pursue the principle of strict control when the securities companies are to handle the business of collective asset management, and only the securities companies with the well-established governance, strict internal control, sufficient capital, standardized operation and sound reputation are allowed to go through such business on a trial business. The business will be gradually spread as some experiences have been accumulated.

In compliance with the Measures on Trial Implementation, the securities companies shall, when the business of collective asset management is conducted, meet the following requirements in addition to the acquisition and maintenance of the qualification for the business of client asset management: 1. Having and effectively executing the well-established legal person governance structure and the sound internal control system and risk management system;

2. Restricting the net capital to no less than CNY 0.3 billion if the limited plans of collective asset management is developed, and restricting the net capital to no less than CNY 0.5 billion if the unlimited plans of collective asset management is developed; 3. No misappropriation of client trading and settlement funds and other client assets during the last year; 4. Other conditions as stipulated by the CSRC.

Q: What kinds of plans have the securities companies made to conduct the business of collective asset management?

A: According to the Measures on Trial Implementation, the securities companies can develop the limited or unlimited plans of collective asset management when they conduct the business of collective asset management. The assets involved in the limited plans of collective asset management shall be mainly invested in the national debts, the bonds for key state construction projects, the bond-related securities investment funds, the enterprise bonds listed in the stock exchanges as well as other financial products of fixed returns with high credit and strong liquidity. The assets invested in the equity-related securities and the share-related securities, including the shares with sound performance, vigorous growth and strong liquidity shall not exceed 20% of net asset values in the plans. Besides, the principle of investment risk diversification shall be pursued. The scope of investment for the unlimited plans of collective asset management shall be stipulated by the contracts of collective asset management, and shall not be restricted by the provisions hereinbefore.

Q: What review and approval procedures shall the securities companies go through if the plans of collective asset management are to be established?

A: The CSRC shall, in accordance with the laws, the administrative regulations, the Measures on Trial Implementation and the principle of prudent supervision, examine the applications of securities companies for conducting the business of collective asset management and developing the plans of collective asset management, and arranging the experts to conduct the appraisal and review work.

The different kinds of collective asset management plans shall have different review and approval procedures. When it comes to the filing materials for the establishment of limited plans of collective asset management, the CSRC shall review and verify their compliance to the related laws and regulations, and issue to the securities companies the written opinions on any disagreements. The securities companies shall not promote the plans of collective asset management submitted for recording unless the CSRC has no disagreements whatsoever. As regards the application materials for establishing the unlimited plans of collective asset management, the CSRC shall conduct the overall review and verification, make the decisions on approval or disapproval, and notify the applicants in written form.

Q: How to understand the relationships among the business, plans, contracts and planned shares of collective asset management?

A: The securities companies shall conduct the business of collective asset management through establishment and operation of the collective asset management plans. The said plans contain a series of collective asset management contracts, each of which shall be signed by three parties including the securities company, asset custody institution and single client. The contracts under the same plans of collective asset management shall have the same contents except the client names and contracted volumes.

According to the provisions of the Measures on Trial Implementation, for the limited collective asset management plan, the minimum amount of each collective asset management contact shall be no less than CNY 50000; for the unlimited collective asset management plan, the minimum amount of each collective asset management contact shall be no less than CNY 100000.

The collective asset management plan shall be divided into equal shares, and the contract amount shall be the integer times of the amount represented by each share. The customers shall enjoy the revenue and assume the loss according to the proportion of the shares of their contract amounts in the net assets of the collective asset management plan. The securities company can participate in the collective asset management plan with its self-owned capital. Relevant stipulation shall be made on the investment amount and the obligations in the collective asset management contract.

Q: What institutions are qualified as the asset custody institutions? What kind of responsibilities shall the said institutions take in the business of collective asset management?

A: In an aim to protect the safety of client assets, the Measures on Trial Implementation provides the definite stipulation that the securities companies shall hand over the assets involved in the plans of collective asset management to the asset custody institutions for trusteeship. The asset custody institutions shall be the commercial banks or other institutions approved by the CSRC as long as they have the qualifications for conducting the business of legal-person deposit and custody of client trading and settlement funds. Currently, no more than 21 commercial banks can undertake the custody business of collective asset management.

During the operation of collective asset management plans, the asset custody institutions shall perform the following obligations: 1. conducting the safety custody of the assets in the plans of collective asset management; 2. executing the investment or liquidation instructions from the securities companies, and handling the fund transactions involved in the asset operation of collective asset management plans; 3. supervising the operation of collective asset management plans of securities companies, and demanding the immediate rectification if the investment or liquidation instructions of securities companies are found to infringe upon the related laws, administrative regulations as well as the provisions of the CSRC and the stipulations of the collect asset management contracts, and reporting to the CSRC once the securities companies concerned reject any rectification or execution; 4. issuing the asset custody reports; 5. other items as stipulated by the contracts of collective asset management.

Q: What special requirements shall the promotion institutions of collective asset management plans meet?

A: According to the Measures on Trial Implementation, the securities companies can promote the collective asset management plans independently or entrust other securities companies or commercial banks to promote the said plans on their behalf. Other institutions than the securities companies and commercial banks are not allowed to promote the collective asset management plans.

Q: What shall the securities companies be forbidden to do when they undertake the business of client asset management?

A: In compliance with the Measures on Trial Implementation, the securities companies shall not have the following acts when they undertake the business of client business management: 1. misappropriation of the client assets; 2. making the commitment to the clients that their asset principals will not suffer any loss or they can obtain the lowest benefits; 3. misleading or inducing the clients by fraudulent or other unfair means; 4. mixing the business of client asset management and other businesses; 5. aiming at transferring the benefits or losses of asset management accounts, and conducting the transactions between the self-operated accounts and asset management accounts or among different asset management accounts to impair the interests of clients; 6. the self-operated business conducted before the asset management business harms the interests of clients; 7. developing the unnecessary securities transactions to obtain the commissions or other benefits; 8. the behind-screen transactions or market manipulation; 9. Other acts as forbidden by the related laws and administrative regulations or the provisions of the CSRC.

The securities shall abide by the following stipulations when they conduct the business of collective asset management.

1. They shall not intend the assets of collective asset management plans for the fund lending, loans, mortgaged financing or external guaranty;

2. They shall not intend the assets of collective asset management plans for the investment with unlimited liability.

Q: Which party shall assume the responsibilities for the investment risks of collective asset management plans? Can the securities companies make the pledge of "guaranteed principals"? Can the said pledge be made by the collective asset management plans developed by their self-owned funds or their profit forecast of the collective asset management plans? 

A: The most fundamental characteristics of asset management business is that the clients must undertake the investment risks. The Measures on Trial Implementation reemphasize that the securities companies, when conducting the business of client asset management, shall not promise the complete safety of their fund principals or the guaranteed minimum returns. However, If any losses are incurred by the breach of contracts or failed performance of the duties during the client asset management business of the securities companies and the asset custodian institutions, the clients can require them to make the compensations according to law.

Without the pledge of "guaranteed principals", the securities companies can use their self-owned funds to participate in the collective asset management plans, and also stipulate in the contracts of collective asset management the sum of funds and the undertaken risks. These stipulations shall not constitute the pledge of "guaranteed principals" in legal sense.

The securities company can provide the clients with the forecasts of investment and earnings. Yet, the related earnings forecasts shall have the rational basis. The securities companies shall be honest and creditable, and have nothing like the false statements or fraudulent acts. They must make the special announcements in written form that their forecasts are just for the reference of clients. The previous investment performances and earnings forecasts shall not constitute the warranty or pledge that the fund principals of clients will not be damaged or will surely create the minimum earnings.

Q: How do the investors participate in the plans of collective asset management?

A: As the plans of collective asset management are developed, the investors can sign the contracts of collective asset management with the securities companies and custodian institutions to deposit the invested funds in the plans and open the special accounts so as to participate in the future plans of collective asset management.

Whether the investors can participate in the existing and operating plans of collective asset management shall be independently agreed upon by the relevant contracts of collective asset management. If approved by the contracts, the funds of investors can have their net shares determined based on the net values in the plans.

Before the investors participate in the plans of collective asset management, they shall carefully read the plan description and the contract of collective asset management, and understand their own rights and obligations. In an aim to protect the investors' interests, the CSRC shall earnestly summarize the experiences and continuously improve the supporting documents concerned.

Q: What rights and duties shall the clients undertake in the plans of collective asset management?

A: In accordance with the stipulations of the Measures on Trial Implementation, the clients mainly enjoy the following rights in the plans of collective asset management: 1. claiming the gains on investment according to the proportion of invested funds in the net asset values of collective asset management plans unless otherwise stipulated; 2. participating in and withdrawing from the plans of collective asset management according to the contracts of collective asset management; 3. having the right of being informed. The securities companies shall provide the accurate and complete asset management reports to the clients every three months, and describe in detail the allocation status and value variation of client assets within the reporting period. As the contracts of collective asset management of the securities companies may affect the client interests, they shall report in time to the clients. In the meantime, the securities companies shall guarantee that the clients can inquire the allocation status of client assets according to the agreed time and manner in the contracts of collective asset management.

In the plans of collective asset management, the clients mainly assume the following duties: 1. bearing the investment risks as prescribed in the contracts; 2. guaranteeing the legitimacy of the source and purpose of entrusted assets; 3. forbidden to unlawfully collect others’ funds to participate in the plans of collective asset management; 4. banned to transfer the related contracts of collective asset management or the shares in the plans of collective asset management; 5. paying the administrative fees, custodian fees and other expenses according to the contracts.

Besides the stipulations as stated above, the clients shall have their rights and duties further defined in the contracts of collective asset management.

Q: Can the clients transfer the related contracts of collective asset management or the shares in the plans of collective asset management? If not, how to withdraw?

A: The plans and related contracts of collective asset management shall be neither openly promoted, nor transferred or traded. Unless stipulated otherwise by the laws and administrative laws and regulations, the clients shall not transfer the related contracts of collective asset management or the shares in the plans of collective asset management, and the trading activities are especially banned.

After the investors make investments in the plans of collective asset management, they can withdraw, according to the agreed conditions in the contracts, from the plans by terminating the contracts.

Q: What supervisory obligations shall the stock exchanges and the securities registration and settlement companies shall perform in the activities of collective asset management?

A: When the securities companies go through the business of collective asset management, the stock exchanges and the securities registration and settlement companies shall perform the main responsibilities as follows; 1. conducting the account-opening issues in the plans of collective asset management; 2. monitoring the investments of securities companies within the fixed seats of stock exchanges; 3. monitoring the transfer and liquidation of assets under the plans of collective asset management; 4. reporting without delay to the CSRC any acts in violation of relevant laws and regulations.

Q: What stipulations do the Measures on Trial Implementation provide for the protection of client interests?

A: The protection of client interests is the top principle as well as the starting point and standpoint of the Measures on Trial Implementation. Generally speaking, as far as the protection of lawful client rights and interests, the Measures on Trial Implementation mainly involves several systems as below:

1. Independent management system of the client assets: The securities companies conducting the business of client asset management shall separate the client assets or the assets in the plans of collective asset management from their own assets, other clients’ assets or the assets in the plans of collective asset management, establish the different accounts, pursue the independent accounting and manage by different accounts.

2. Custodian system of the third party: The securities companies conducting the business of client asset management shall hand over all the assets in the plans of collective asset management to the independent asset custodian institutions for trusteeship, and manage and operate the assets under the supervision of the aforesaid institutions. The securities companies conducting the business of client asset management shall, according to the stipulations of the CSRC, manage the monetary funds of client assets as required by the deposit and management regulations on the client trading and settlement funds. If required by the clients, the securities companies shall hand over the client assets to the asset custodian institutions for trusteeship.

3. Information disclosure system: The securities companies shall provide the accurate and complete asset management reports at least once every three months to guarantee the clients’ rights of being informed and making inquiries.

4. External supervision system: The CSRC, the stock exchanges, the securities registration and settlement companies and the Securities Association of China will perform their respective responsibilities, supervise the business activities of the securities companies and asset custodian institutions, and protect the lawful rights and interests of investors and clients. In the meantime, the securities companies shall especially audit the business of collective asset management and the operation of collective asset management plans during the annual auditing work.

The China Securities Regulatory Commission

Interim Measures for the Administration of Stock Investment of


Insurance Institutional Investors Jointly Released by the China Insurance Regulatory Commission and the China Securities Regulatory Commission

Recently, upon approval of the State Council, the China Insurance Regulatory Commission (hereinafter referred to as the CIRC) and the China Securities Regulatory Commission (hereinafter referred to as the CSRC) officially released the Interim Measures for the Administration of Stock Investment of Insurance Institutional Investors (hereinafter referred to as the Measures). As an important practice of the CIRC and the CSRC to actively carry out the Several Opinions of the State Council on Promoting the Reform, Opening-up and Steady Development of the Capital Market, the Measures are expected to have a profound influence on strengthening the construction of capital market, promoting the coordinated development of insurance and capital markets, expanding the fund employment channel in the domestic insurance sector, dispersing the risks incurred by the use of funds, and gradually developing the new investment capacity for insurance fund use.

The related department leaders of the CIRC point out that the scale of insurance fund has never ceased to expand along with the rapid growth of Chinese insurance market. Up to the end of August 2004, the balance of insurance funds has totaled CNY1001.2 billion, with a rise of 39% over the same period of last year, creating a favorable condition for the direct investment of insurance funds in the stock market. In the meantime, since 1999, there have been some positive exploration and experience in the direct investment of insurance funds in the stock market to purchase the securities investment funds. Moreover, as the reform of insurance fund use system is deepened, the insurance sector has made great progress in developing the centralized management and professional operation mechanism of insurance funds, and creating the internal control mechanism of the risks incurred by the use of insurance fund, laying a foundation for the direct investment of insurance funds in the stock market. The insurance institutional investors are allowed by the Measures to invest directly in the stock market under the rigorous supervision, participate in the transactions of primary and secondary markets, and buy and sell the RMB ordinary shares, convertible company bonds as well as other investment products as specified by the CIRC. This contributes not merely to expanding the fund operating potentials and dispersing the investment risks by the insurance companies, but to improving the investor structure of capital market, increasing the steady fund sources in the market, optimizing the concept of market investment, and promoting the steady and healthy growth of capital market.

The leader especially mentions that the market access of insurance funds as the investors can be deemed as the significant positioning for market access of insurance funds, and will help the insurance companies build the concepts of long-term and value investments, and develop towards the professional business. In terms of the international experiences, the market access of insurance funds as institutional investors is also an international practice, contributing to the internalization process of insurance companies.

The leader stresses that the stock market claims the high investment risks and the effective control of investment risks will mean much to the successful market access of insurance funds and the guaranteed fund safety. Towards this end, the Measures, with the risk control as a center, control the risks involved in the direct market access of insurance funds through the systems. Above all, the market access control; the market access conditions are created for the insurance institutional investors to treat them differently according to different circumstances. Next, the proportional control; the investment proportion of insurance institutional investors shall, if calculated according to the cost prices, not exceed 5% of the total asset scale at the end of the first half of this year. The CIRC will regulate the investment proportion in accordance with the stock market volume, risk degree and investment condition of insurance companies. Thirdly, the strengthened construction of the risk prevention mechanism; as the insurance institutional investors intend to invest in the stock market, it’s necessary to establish the sound internal control system, formulate the banned conducts. Additionally, it’s imperative to construct the stock investment custody system, implement the independent third-party monitoring, prevent the administrators from impairing the rights and interests of investors, guard against the internal management risks, and develop the investment benchmark with the listed companies of excellent-performance stocks, blue chips, good liquidity and steady financial condition as the sampled indices. Fourthly, the tightened supervision; The supervisory departments will develop the dynamic supervision mode and the risk supervision technical mode by compiling the supervisory indicator system and the statement system to discover and handle in time any abnormal stock transactions of insurance institutional investors so that any potential risks can be prevented. In the meantime, the related supervisory departments shall build the coordinated supervision mechanism to strengthen the supervision information exchange and the coordination and cooperation, avoid any vacant supervision and guarding against the risks effectively.

The related department leader of the CSRC mentions that, in recent years, the CSRC has devoted itself to allowing more compliance funds into the stock market. The issuance of the Measures indicates that a major breakthrough has been made in the fund employment channel of the domestic insurance companies, providing the new source of long-term funds for the securities market. As one of the importance institutional investors, the insurance companies and the insurance asset management companies can invest their insurance funds directly in the stock market, further enhancing the strength of our domestic institutional investors and meaning much to guiding the rational investment concept, urging the standardized operation of listed companies and promoting the sustainable, steady and healthy growth of our securities market.

The related department leader of the CSRC points out that the direct investment of insurance funds in the stock market constitute an important component for carrying out the related policies of the Several Opinions on encouraging the market access of compliance funds. The implementation of such policies shows the national supports for vigorous development of the capital market and the confidence of such institutional investors as the insurance companies in our capital market. The CSRC and the related parties will further execute the Several Opinions so that all the policies on developing our capital market will be well executed.

The related department leaders of the CIRC and the CSRC stress that their supervisory departments will impose the senior punishments upon the insurance institutional investors according to law as long as the insurance companies and the insurance asset management companies are found to have violated the Measures and the relevant laws and regulations

The Measures will come into effect upon promulgation.



Interim Measures for the Administration of Stock Investment of Insurance Institutional Investors

Chapter I General Provisions

1. For the purpose of strengthening the administration of stock investment business by insurance institutional investors, regulating the investment activities, preventing the investment risks and guaranteeing the interests of insurants, the Measures are formulated according to the Insurance Law of the People's Republic of China, the Securities Law of the People's Republic of China and other laws and administrative regulations.

2. The insurance institutional investors mentioned in the Measures shall mean the insurance companies or insurance asset management companies that meet the conditions prescribed by China Insurance Regulatory Commission (hereinafter referred to as the CIRC) and engage in the stock investment. The insurance group companies and the insurance holding companies engaging in stock investment shall be governed by the Measures.

The stock investment mentioned in the Measures shall mean the activity in which an insurance institutional investor engages in or entrusts a qualified institution to engage in the trading of stocks, convertible company bonds and other stock market products.

The stock asset trusteeship mentioned in the Measures shall mean the activity in which an insurance company concludes, according to the relevant provisions of the CIRC, a trusteeship agreement with a commercial bank or other professional financial institution entrusted by the insurance company to keep in custody of the stocks and the funds for investment in stocks, and to be responsible for the settlement and transaction, assets valuation and investment supervision.

3. When investing in stocks, an insurance institutional investor shall set up an independent trusteeship mechanism, follow the principles of prudence, safety and value increase, and operate the business and bear the risks, profits and losses independently.

4. The CIRC and the China Securities Regulatory Commission (hereinafter referred to as the CSRC) shall, according to their respective duties, conduct supervision and administration over the stock investment activities carried out by insurance institutional investors.

Chapter 2: Qualification Requirements

5. An insurance asset management company shall, if entrusted to engage in the stock investment, meet the following conditions:

(1) Its internal management system and risk control system accord with the Guide to Risk Control on Utilization of Insurance Funds;

(2) It has established an independent trading department;

(3) Its relevant senior managers and major business personnel meet the requirements prescribed in the Measures;

(4) It has professional investment analysis system and risk control system;

(5) Other conditions prescribed by the CIRC.

6. An insurance company meeting the following conditions may, upon approval of the CIRC, entrust an insurance asset management company which meets the conditions prescribed in Article 5 of the Measures to engage in the stock investment:

(1) Its solvency accords with the relevant provisions of the CIRC;

(2) Its internal management system and risk control system accord with the Guide to Risk Control on Utilization of Insurance Funds;

(3) It has established a special department responsible for entrusting the insurance funds;

(4) The relevant senior managers and major business personnel meet the requirements prescribed in the Measures;

(5) It has set up a stock asset trusteeship mechanism;

(6) It has no investment records that severely violate the laws or rules for the last three years;

(7) Other conditions prescribed by the CIRC.

7. An insurance company meeting the following conditions may, upon approval of the CIRC, directly engage in the stock investment:

(1) Its solvency accords with the relevant provisions of the CIRC;

(2) Its internal management system and risk control system accord with the Guide to Risk Control on Utilization of Insurance Funds;

(3) It has established a professional fund utilization department;

(4) It has set up an independent trading department;

(5) It has set up a stock asset trusteeship mechanism;

(6) The relevant senior managers and major operating personnel meet the requirements prescribed in the Measures;

(7) It has professional investment analysis system and risk control system;

(8) It has no investment records that severely violate the laws or rules during the last three years;

(9) Other conditions prescribed by the CIRC.

8. An insurance company that applies for directly engaging in or entrusting an insurance asset management company to engage in the stock investment shall submit the following documents and materials to the CIRC in triplicate:

(1) Application letter;

(2) Board resolution on stock investment;

(3) Its internal management system, risk control system and the condition on the setup of its internal frameworks;

(4) Relevant materials on stock asset trustees and the draft of the trusteeship agreement;

(5) List and resumes of the relevant senior managers and major operating personnel;

(6) Financial statements of the company, audited by an accounting firm for the last three years;

(7) Current trading seats, securities accounts and fund accounts;

(8) Stock investment strategies, at least describing the concept of stock investment, the investment objective and the investment portfolio;

(9) Other documents and materials as prescribed by the CIRC.

An insurance company shall, if applying for directly engaging in stock investment, submit the statement on the investment analysis system and the risk control system as well.

9. When examining the application of an insurance company for directly engaging in or entrusting an insurance asset management company to engage in stock investment, the CIRC shall make a decision on approving or rejecting the application within 20 days in receipt of the complete application documents and materials. If the CIRC decides not to approve the application, it shall notify the applicant in written form and state the reason thereof.

If considering it necessary, the CIRC may conduct the expert appraisal on the application proceedings of the insurance company and shall inform the insurance company in written form of the time needed by the expert appraisal.
10. Where an insurance company directly engages in stock investment, it shall, within 10 days after completing the relevant procedures for stock investment, submit to the CIRC the formal trusteeship agreement, the benchmark for evaluating investment performance, as well as the relevant materials on trading seats, securities account and fund account.

Where an insurance company entrusts an insurance asset management company to engage in stock investment, it shall, within 10 days after completing the relevant procedures for stock investment, submit to the CIRC the entrustment agreement, the formal trusteeship agreement, the guide on investment, the benchmark for evaluating investment performance, as well as the relevant materials on trading seats, securities account and fund account.

In case that the contents prescribed in the preceding two paragraphs are modified, the insurance company shall report it to the CIRC within 5 days after completing the modification procedures.
The insurance company shall submit copies of the relevant materials on trading seats, securities account and fund account to the CSRC simultaneously.

Chapter 3: Investment Scope and Proportions

11. The stock investment of an insurance institutional investor shall be limited to the following varieties:

(1) Ordinary RMB stocks;

(2) Convertible company bonds;

(3) Other investment varieties prescribed by the CIRC.

Ordinary RMB stocks mentioned in Item (1) of the preceding paragraph shall mean the stocks that are issued publicly in territory of China and circulates on the market, and subscribed and traded in RMB.

12. An insurance institutional investor may make the stock investment by the following means:

(1) To be subscribed on the primary market, including distribution based on market value, online or offline subscription and participation in distribution as a strategic investor;

(2) To be traded on the secondary market.

13. The stocks of one listed company which are held by an insurance institutional investor shall be less than 30% of the ordinary RMB stocks of the listed company.

The concrete proportion of the investment stocks held by an insurance institutional investor shall be separately prescribed by the CIRC.

An insurance asset management company may not use its own funds in stock investment.
14. An insurance institutional investor may not invest in ordinary RMB stocks of the following types:

(1) Those which are under special penalty or warnings on special penalty due to risks on termination of the listing imposed by the stock exchange, or have been terminated by the stock exchange to be on listing;

(2) The rise of price of the stocks during the past 12 months exceeds 100%;

(3) The stocks are suspected of being manipulated by others;

(4) Its listed company has been issued with opinions on refusal to comment or reservation opinions on the financial statements of the listed company by an accounting company in the latest year;

(5) Its listed company has disclosed that its performance has gone down by a big margin, and it is in heavy loss or will be in heavy loss in the future;

(6) Its listed company has disclosed that it is investigated by the supervisory department or has been severely punished by the supervisory department within the latest year;

(7) Other types of stocks prescribed by the CIRC.

15. The balance of the investment by an insurance institutional investor in convertible company bonds shall be calculated into the investment balance of the enterprise bonds, and shall accord with the relevant provisions of the Interim Measures for the Administration for Insurance Companies to Invest in Enterprise Bonds.

Where an insurance company converts the convertible company bonds held by it into stocks, such bonds shall be calculated into the investment balance of the ordinary RMB stocks at cost price, and shall accord with the relevant provisions of the CIRC on the proportion of stock investment.

16. In an investment account set up by an insurance institutional investor for investment-linked insurance, the proportion of investment stocks can reach 100%.

In an investment account set up by an insurance institutional investor for omnipotent life insurance, the proportion of investment stocks may not exceed 80%.

In an independent account set up by an insurance institutional investor for other insurance products, the proportion of investment stocks may not exceed the relevant rate prescribed by the CIRC.
In an independent account set up by an insurance institutional investor for the insurance products mentioned above, the proportion of investment stocks may not exceed the promissory proportion in the insurance clauses.

Chapter 4: Trusteeship of Assets

17. To select a stock asset trustee, an insurance company shall select a commercial bank or other professional financial institution which meets the conditions prescribed in the Guide to Stock Asset Trusteeship for Insurance Companies.

18. The stock asset trustee of an insurance company shall perform the following obligations:

(1) Safely keeping custody of the insurance company's funds and stock assets;

(2) Handling the matters of settlement and transaction in time in accordance with the orders of the insurance company or the insurance asset management company;

(3) Supervising the investment operation of the insurance company or the insurance asset management company;

(4) Valuating the stock assets entrusted by the insurance company;

(5) Periodically providing the reports on stock asset trusteeship to the insurance company or the insurance asset management company;

(6) Upon the supervisory requirements of the CIRC, submitting to the CIRC the relevant data on the stock assets and providing periodically or aperiodically the intervals reports on risk evaluation and performance evaluation of the stock assets;

(7) Keeping completely the records, account books, statements on stock asset trusteeship as well as other relevant documents. The relevant important documents such as vouchers, trading records, contracts on custody of the stock assets shall be kept for no less than 15 years;

(8) Other obligations prescribed by the CIRC.

19. The stock asset trustee of an insurance company must strictly separate its own assets from the stock assets under its management upon entrustment, and must set up relevant accounts for different insurance companies for the sake of separate management.

20. The stock asset trustee of an insurance company may not have the following acts:

(1) Mixing its own assets with the stock assets entrusted by the insurance company to manage;

(2) Mixing other assets under its trusteeship with the stock assets entrusted by the insurance company to manage;

(3) Mixing stock assets of different insurance companies under its trusteeship to manage;

(4) Peculating stock assets entrusted by the insurance company;

(5) Taking advantage of stock assets entrusted by the insurance company and other relevant information to seek benefits for itself or for a third person;

(6) Violating the laws, administrative regulations, relevant provisions of the state or the trusteeship agreement;

(7) Other acts prohibited by the CIRC.

21. An insurance company shall conclude a trusteeship agreement with the stock asset trustee. The trusteeship agreement must set forth the following contents:

(1) Obligations of the stock asset trustee as prescribed in Articles18, 19 and 20 of the Measures;

(2) Where the stock asset trustee violates the obligations in Item (1) of this Article and the CIRC requires the insurance company to change the stock asset trustee, the insurance company shall have the right to terminate the trusteeship agreement in advance.

22. Where a stock asset trustee is lawfully disbanded, revoked, or runs into bankruptcy, the stock assets of the insurance company entrusted to it shall not be listed as assets for liquidation.

Chapter 5: Prohibited Acts of Insurance Institutional Investors

23. The scope and proportion of the stock investments of insurance institutional investors may not exceed the relevant provisions of the CIRC.

24. In respect of decision-making, research, trading and settlement concerning the stock investments, none of the management staff and other relevant persons of an insurance institutional investor may engage in insider trading.

Insider trading mentioned in the preceding paragraph shall be cognized according to the Securities Law of the People's Republic of China and the Interim Measures for Prohibiting Securities Frauds.

25. An insurance institutional investor engaging in stock investment may not commit any of the following acts:

(1) Transferring the profits between the securities accounts for insurance funds of different natures;

(2) Buying the stocks through financing by illegal means;

(3) Other acts prescribed by the CIRC.

26. The insurance institutional investor may not obtain the inappropriate benefits or transfer the risks by the following means:

(1) Centralizing the advantages of funds or share holding either alone or by conspiracy, or utilizing the information advantage to trade jointly or continuously, so as to manipulate the securities trading prices;

(2) Colluding with others to trade in securities pursuant to the time, price and method agreed upon in advance, or to trade in securities held by neither of them, so as to affect the securities trading price or amount;

(3) Trading with itself without transferring the ownership, so as to affect the securities trading price or amount;

(4) Manipulating the securities trading prices by other means.

27. Where a listed company holds directly or indirectly more than 10% of the shares of an insurance institutional investor, the said investor may not invest in the stocks of the listed company or its associated companies.

28. No insurance institutional investors, stock asset trustees, securities operation institutions or other securities intermediary institutions may fabricate the false trading records, financial information or other materials.

29. An insurance company investing in stocks may not entrust any institution other than the insurance asset management companies (except the ones prescribed by the CIRC).

Chapter 6: Risk Control

30. An insurance institutional investor shall have the ideology of long-term investment and value investment, optimize the allocation of assets and disperse the risks of investment.

31. The insurance institutional investor shall, in accordance with the Guide to Risk Control on Utilization of Insurance Funds, found a well-developed risk control system of stock investment.

32. The risk control system of stock investment of an insurance institutional investor shall at least include the following contents:

(1) The investment decision-making process;

(2) The investment authorization system;

(3) The research report system;

(4) The system of stock scope selection;

(5) The index systems of risk assessment and performance appraisal;

(6) The criteria on vocational ethics;

(7) The mechanism for dealing with major incidents.

Where an insurance company entrusts an insurance asset management company to engage in stock investment, its risk control system of stock investment shall at least include the stock trusteeship system as well.

Where an insurance company directly engages in stock investment, its risk control system of stock investment shall at least include the stock trusteeship system, the stock trading management system and the information management system as well.

The risk control system of stock investment of an insurance asset management company shall at least include the stock trading management system and the information management system as well.

33. When investing in the stocks, an insurance institutional investor must work out a written research report before making the following important decisions:

(1) A single-item-investment fund is to exceed the amount determined by the insurance institutional investor;

(2) Not less than 5% of the investable stock assets are to be involved;

(3) The investment portfolio or direction needs to be adjusted greatly;

(4) The standard for selecting the scope of stocks needs to be adjusted greatly;

(5) The degree of stock investment risk tolerance needs to be adjusted greatly.

34. When determining the scope of investable stocks, an insurance institutional investor shall consider various indices of the listed company such as the governance structure, earning capacity, information transparency and stock liquidity.

The insurance institutional investor must invest in the stocks within the scope of investable stocks.

35. Before investment, an insurance institutional investor shall determine the benchmark for evaluating the stock investment performance by taking into account the indexes of excellent-performance stocks, blue chips and shares of high liquidity.

The benchmark for evaluating stock investment performance of the insurance industry shall be separately prescribed by the CIRC.

36. When making use of the following funds, an insurance institutional investor shall separately open a securities account and a fund account for separate accounting:

(1) Funds for traditional insurance products;

(2) Funds for participating insurance products;

(3) Funds for universal insurance products;

(4) Funds for investment-linked insurance products;

(5) Funds for insurance products required by the CIRC to be accounted independently.

37. The insurance asset management companies and the insurance companies directly engaging in stock investment shall trade in stocks through independent seats. The administrative measures for independent seats of stock trading shall be separately formulated.

38. The stock investment trading orders of either an insurance asset management company or an insurance company directly engaging in stock investment shall be carried out by the independent trading department and full-time trading staff.

39. The insurance asset management companies and the insurance companies directly engaging in stock investment shall establish the information management systems on firewall, on-post duties, access, security and prevention.

40. The insurance asset management companies and the insurance companies directly engaging in stock investment shall regulate the operating programs of stock trading systems such as the computer room establishments, communication equipment, computer equipment, operating system software and database software.

41. Where an insurance institutional investor selects the seat of a securities operation institution to trade in stock, this securities operation institution shall meet the following conditions:

(1) It is in good financial condition and steady business operation, and its net capital is not less than RMB 1 billion;

(2) It has well-developed internal control system;

(3) The settlement funds of client trading are fully deposited in a commercial bank with the qualification for engaging in deposition and custody of securities trading settlement funds;

(4) It has set up two separate accounts in China Securities Registration and Clearing Co., Ltd., one for self-operation settlement of reserve account, the other for client settlement of reserve account;

(5) It sets up the seats separately for self-operated business and non-self-operated business in the stock exchanges of Shanghai and Shenzhen;

(6) The communication conditions and trading facilities are high efficient and secure, which can meet the requirements of stock trading, and the information service is all-sided;

(7) It has the capability for securities market research and is able to provide the consulting service in time;

(8) In the last 3 years, it has no records on major violation of laws or rules. And it has not been punished by the CSRC or is not in the process of investigation under a case filed;

(9) It has no ill records on honesty and credibility, and has no actions of occupying or peculating the guarantee money and securities of client in the latest year;

(10) It has promised in written form to accept the inspection of the CIRC on the stock trading of the insurance institutional investor and truthfully provides the CIRC with various stock trading information of the insurance institutional investor;

(11) Its local business departments have the normative management, good operation and complete service functions;

(12) Other conditions prescribed by the CIRC.

42. Where an insurance institutional investor selects the seat of a business department of a securities operation institution to trade in stock investment, it shall conclude a relevant agreement with the head office. The agreement shall set forth the obligations of the securities operation institution as prescribed in Item (10) of Article 41 of the Measures. If the securities operation institution violates the said obligations and the CIRC requires the insurance institutional investor to change the securities operation institution, the insurance institutional investor shall have right to terminate the agreement in advance. The insurance institutional investor shall submit a copy of the agreement to the CIRC within 5 days as of concluding the agreement prescribed in the preceding paragraph.

43. Before the opening of each day, the insurance asset management companies and the insurance companies directly engaging in stock investment shall check the balance of securities and funds with the stock asset trustees so as to guarantee the said balances to be enough for settlement.

44. Where the stocks held by an insurance institutional investor are under any of the circumstances prescribed in Article 14 of the Measures, the insurance institutional investor shall formulate the specific solutions.

45. Where the operational situation of an insurance company is changed and no longer meets the conditions prescribed in the Measures, the insurance company shall not add stocks and shall lower the stock investment proportion according to the time limit, methods and other requirements prescribed by the CIRC.

46. An insurance institutional investor shall reveal the situation of stock investment risks by adopting risk value and other risk measurement indexes.

47. The transfer of funds and the payment of expenses between an insurance company and an insurance asset management company, a stock asset trustee or a securities operation institution must be in a method of transfer between accounts.

48. The senior manager of an insurance institutional investor, who is in charge of stock investment, shall meet the following conditions:

(1) Claiming the academic qualification of university graduate or above;

(2) Having worked and experienced not less than 5 years in the field of securities or finance;

(3) Knowing well the operation of securities investment and having the necessary financial and legal knowledge;

(4) Other conditions prescribed by the CIRC.

49. The senior manager of an insurance institutional investor must, when making decisions on stock investment, strictly comply with the purview of power prescribed in the company's internal management system and risk control system. It is strictly prohibited to make investment or make decisions outside the purview of power.

50. The operating personnel in an insurance institutional investor, who engages in stock investment, shall meet the following conditions:

(1) Claiming the academic qualification of university graduate or above;

(2) Having worked and experienced not less than 3 years in the field of securities or finance;

(3) Knowing well the securities business rules and operational procedures;

(4) Other conditions prescribed by the CIRC.

The operating personnel mentioned in the preceding paragraph shall refer to the director and the persons who operate the stock investment business.

51. In an insurance asset management company or in an insurance company directly engaging in stock investment, the number of operating personnel engaging in stock investment shall fit in with the scale of stock investment, and the company concerned shall have a suitable number of researchers in the fields of macro-economics, industrial analysis and financial engineering.

In case the stock assets in use amount to RMB 100 million or more in an insurance asset management company or in an insurance company directly engaging in stock investment, there shall not be less than 5 major operating personnel engaging in stock investment.

52. A person under any of the following circumstances may not act as a senior manager in charge of stock investment business or a major operating personnel in an insurance institutional investor:

(1) He has been sentenced to criminal punishments due to the crime of embezzlement, bribery, malicious occupation of properties, misappropriation of properties, or destruction of socialist economic order;

(2) He has been imposed upon administrative penalties or sentenced to criminal punishments due to such illegal actions as gambling, taking drugs, visiting prostitutes and frauds;

(3) He has been a senior manager of a company or an enterprise running into bankruptcy and liquidation due to inappropriate management and bears individual liability or direct leadership liability for the bankruptcy. And it has not covered 5 years since the finalization of liquidation of the company or enterprise;

(4) He is presently investigated by a judicial organ, disciplinary supervision department, or the CIRC;

(5) He himself bears large amount of debts which have been due but unpaid;

(6) It has been decided by the financial supervisory departments that he may not hold any post in a financial institution within a time limit, and this time limit has not expired.

Chapter 7: Supervision and Administration

53. The CIRC and the CSRC shall, pursuant to their respective duties, inspect the stock investment business of insurance institutional investors.

The CIRC may retain intermediary institutions like accounting firms to inspect the stock investment of insurance institutional investors.

54. An insurance institutional investor shall submit the following statements, reports or other documents to the CIRC according to provisions:

(1) Benchmark for evaluating investment performance;

(2) Method of calculating risk indexes and the statement on the use thereof;

(3) Relevant statements on stock investment.

The contents of the statements and reports prescribed in the preceding paragraph and the methods of submission shall be separately prescribed by the CIRC.

55. An insurance institutional investor shall disclose the relevant information on stock investment in the method prescribed by the CIRC.

56. When investing in stocks, an insurance institutional investor shall abide by the laws, administrative regulations and relevant provisions of the state, and accept the CSRC's supervision over its market trading actions.

57. Where an insurance institutional investor violates the laws, administrative regulations or relevant provisions of the CIRC, the CIRC may have a supervisory talk or interrogation with the relevant senior managers and major operating personnel. If the case is serious, the CIRC may impose warnings or fines in accordance with the law or order to dismiss and replace such manager or operating personnel.

58. Where an insurance institutional investor violates the laws, administrative regulations and relevant provisions, the CIRC and the CSRC may impose administrative penalties in accordance with the law.

59. Where any stock asset trustee or securities operation institution prescribed in the Measures violates the laws, administrative regulations or relevant provisions of the state, the relevant supervisory departments shall impose administrative penalties pursuant to their respective purview of power or supervisory duties.

Where a stock asset trustee or securities operation institution mentioned in the preceding paragraph violates the present Measures and the case is serious, the CIRC may charge the insurance institutional investor to replace the insurance assets trustee or the securities operation institution.

Chapter 8: Supplementary Provisions

60. Days mentioned in the Measures shall only refer to working days, excluding the legal holidays.

61. The Measures shall come into force as of the date of their promulgation.

The China Securities Regulatory Commission

Circular of the General Office of the State Council Concerning Transmitting the Opinions of the Ministry of Science and Technology and


Other Departments on Establishing the Risk Investment Mechanism


No.105 [1999] GOSC

December 30, 1999

Upon the approval of the State Council, Opinions on Establishing the Risk Investment Mechanism, jointly formulated by the Ministry of Science and Technology, the State Development Planning Commission, the State Economic and Trade Commission, the Ministry of Finance, the People’s Bank of China, the State Administration of Taxation and the China Securities Regulatory Commission, are hereby forwarded to you and shall be implemented as a reference.

Opinions on Establishing the Risk Investment Mechanism

In order to carry out the spirits of cultivating the capital market conducive to the development of high-tech industry and gradually establishing the risk investment mechanism as stated in Decision of the Central Committee of the Communist Party of China and the State Council Concerning Strengthening the Technological Innovation, Developing the High Technology and Achieving the Industrialization (No.14 [1999] Promulgation CPCCC), guide and regulate the risk investment activities and promote the healthy development of risk investment undertakings, the Opinions on Establishing the Risk Investment Mechanism are hereby formulated. 

1. Significance of establishing the risk investment mechanism:

(1) Innovation is the soul of national progress and the inexhaustible drive behind national prosperity. The technological innovation is not just the basic motive force for the sustainable economic development, but the fundamental guarantee for improving the international competitiveness and achieving the economic security as well. If knowledge is to be transformed successfully to the new and high technology and the latter is to be successfully industrialized, the risk investment mechanism to be established shall effectively mobilize and attract the pioneering capitals, promote the transformation from knowledge to new and high technology, accelerate the commercialization and industrialization process of high-tech technological achievements. The establishment of standardized risk investment mechanism means much to propelling the construction of national technological innovation system, improving the overall quality of national economy, enhancing the comprehensive national strength, and attaining the great-leap-forward development. Meanwhile, the establishment of an effective risk investment mechanism plays a critical role in developing the high and new technology and industrializing the technological achievements.

(2) In recent years, the scientific and technological development of our country has boosted the construction of national economy and the technological advancement has made greater contributions to the economic growth. However, there has not been a radical change in the limited transformation of science and technology to real productivity, the low-level industrialization of new and high technology, and few high-tech enterprises with their own intellectual property rights. Since the international market is facing an increasingly intense competition, the absence of technological innovation capacity will have much trouble guaranteeing the sustainable development of national economy and the national economic security. The establishment of risk investment mechanism and the promotion of high-tech industrial development are the requirements for implementing the strategy of invigorating China through the development of science and education.

(3) The risk investment (or the pioneering investment) refers to the investment in which the scientific and technological pioneering enterprises with great development potentials are granted the equity capitals and offered the services of operation, management and consultation so that the invested enterprises can obtain the long and medium-term capital self-expansion through the equity transformation when they develop into a mature stage. The establishment of risk investment mechanism demands the creation of favorable external environments and reform systems and the cultivation of economic operating system so as to match the laws of socialist market economy, speed up the technical innovation and the technical achievements transformation, and achieve the sound combination between the role of economic departments in promoting the technical progress and the role of financial departments in offering the financial guarantee and support. The major contents shall include the investment entity, investment object, withdrawal channel, agency and regulatory system.

(4) The risk investment mechanism is established in an aim to promote the commercialization and industrialization of high-tech achievements, enhance the contribution of scientific and technological progress to economic growth, encourage the enterprises to participate actively in the technological innovation and the scientific and technological pioneering campaigns, and motivate the restructuring and upgrading of industries and products to form a good cycle by creating favorable external environments.

2. Basic principle for establishing the risk investment mechanism

(5) The risk investment mechanism shall be established in accordance with the laws of socialist market economy. It is imperative to be market-oriented and expand the source of pioneering capitals, and employ the market mechanism to strengthen the binding force of responsibility and the motivating force of interests within the risk investment entities. It is important to cultivate the agencies to serve the risk investment markets in line with the principle of standardization and orderliness. It is necessary to gradually develop, in conformity with the actual national status, the capital market system conducive to the risk investment withdrawal and the high-tech industrial development. It is critical to create the risk safeguard, information disclosure and regulatory system for risk investment, and design the corresponding laws and regulations to provide a convenient condition for the entry and withdrawal of international pioneering capitals so that our domestic risk investment market can gradually become integrated into the international one.

(6) It is necessary to fully mobilize the initiatives of the people’s governments of all levels and the social forces, and accelerate the construction of risk investment system. The State shall, in accordance with the principle of “formulating the policies, creating the environment, strengthening the supervision and controlling the risks”, promote the construction of risk investment system, encourage the local governments, enterprises, financial institutions, individuals and foreign businessmen and various investors to dynamically promote and participate in the development of risk investment campaigns. Additionally, the State shall expand the market access channels, and offer the supporting policies necessary for the risk investment activities and the investments of various agencies and individuals in the risk investment institutions. The State shall also formulate a series of laws, regulations and systems related to the risk investment, and set up the relevant regulatory standard and system. When the risk investment mechanism is to be established, much attention shall be paid to the functions of the scientific and technological pioneering service centers, high-tech development zones, scientific and technological parks of higher education institutions and other institutions.

3. Cultivation of the risk investment entity:

(7) The risk investment companies and funds are the dominant institutions of risk investment entities. Their services are mainly targeted at the high-tech enterprises and the small and medium-sized scientific and technological enterprises. Their chief functions include attracting the pioneering capitals from various investors and offering the supports in terms of capitals in cash, business and management and other fields. Their major members consist of the talents specialized in the risk investment. The capital operations shall adopt the major means, namely, “strategic investment” and various methods like equity investment and convertible securities as well.

(8) The risk investment companies are the non-financial enterprises with the risk investment as their chief business activities. Their main business is to invest in the new and high-tech enterprises and the small and medium-sized scientific and technological enterprises and transfer their equities formed by investment, provide the financing consultation services for the high-tech enterprises, and participate in the operation and management of those invested enterprises. When the risk investment companies are set up, it is important to separate government functions from enterprise management, and encourage the non-state-owned enterprises, individuals, foreign businessmen and other institutions to invest by purchasing the shares. The risk investment companies shall adopt the forms such as the limited liability companies and the joint stock limited companies, and actively explore the new operating models. The risk investment companies shall be permitted to make their investments through the full capitals in cash.

(9) The risk investment funds are a type of investment funds intended specially for the risk investment to promote the development of small and medium-sized scientific and technological enterprises. In a bid to match the features of risk investment, the risk investment funds shall adopt the method of private placement and the fund shares shall be issued to the defined investors. The funds shall be financed from the individuals, enterprises, institutional investors and overseas investors to expand the source of private capitals. Meanwhile, the certain requirements shall be raised for the risk bearing capacity of investors. The capitals promised by the investors shall be allocated on installment. The risk investment funds shall be established in the closed forms, namely, predefining the total issuance and duration, and the fund shares shall not be redeemed within the duration. 

(10) The risk investment companies and funds shall have a sufficient supply of paid-in money capitals and their amounts of investment in the high-tech enterprises shall account for a considerable part of paid-in capitals. In order to evade the risks, the investments in the special enterprises or the single projects shall be well controlled.

(11) The chief executives of risk investment institutions shall be familiar with the technology and management, have no bad records, honestly declare the personal properties and voluntarily assume the related responsibilities for business losses.

(12) The risk investment institutions shall develop the well-established internal incentive and binding mechanism. According to the principle that the factors of production such as capitals and technology are allowed to participate in the allocation of earnings, the executives shall be motivated through allowing them to own the shares. Through the contracts between the investors and the operating executives and on the basis of the operation performance, the category, quantity, granting conditions, binding conditions and execution methods of the share options as well as the responsibility of senior executives for the dereliction of duty and major mistakes can be defined.

The risk investment companies and funds shall be established and approved according to the methods and procedures as stipulated by the related departments under the State Council.

4. Establishing the withdrawal mechanism of risk investment

(13) The withdrawal channel shall be created and expanded in order to promote the development of risk investment. Withdrawal refers to the operating acts in which the risk investments obtain the returns through the equity transfer. It is necessary to follow the objective laws of capital operations and develop the smooth withdrawal channels so as to effectively attract the social funds into the risk investment fields, guarantee the good cycle of risk investment and resolve the equity mobility, risk diversification and value assessment of pioneering capitals. The risk capitals shall adopt the major withdrawal methods like the business acquisition and merger, equity repurchase and getting listed on stock market.

(14) The business acquisition and merger means that the high-tech enterprises transfer some or all the equities to other businesses or individuals before they get listed. The non-bank financial institutions, listed companies, industrial investment funds and other companies and individuals are allowed and encouraged to participate in the acquisition and merger of high-tech enterprises.

(15) The equity repurchase means that the businesses repurchase their equities claimed by the risk investment institutions. The financial institutions, the small and medium-sized credit guarantee funds and other guarantee institutions shall actively support the equity repurchase of high-tech enterprises.

(16) As long as the conditions are mature, the new and high-tech enterprise boards shall be specially set up in Shanghai and Shenzhen securities exchanges to provide the services of listing and trading for the small and medium-sized scientific and technological businesses. This not merely contributes to the full utilization of the current facilities and regulatory resources, and to the centralized and unified control of securities market, but also expands and perfects the risk investment withdrawal channels in a short period. The specific methods of issuing, getting listed and trading shall be formulated by the China Securities Regulatory Commission (hereinafter referred to as the CSRC).

(17) The overseas pioneering board stock market is also one of the possible risk investment withdrawal channels, and the pioneering boards launched by NASDAQ market in the United States and Stock Exchange of Hong Kong are two examples. The favorable policies shall be granted to the high and new technology enterprises which plan to get listed abroad so as to employ the international capitals to develop our high and new technology industries, attract the overseas pioneering capitals to enter our risk investment market and promote the high and new technology enterprises to enter the international market. The specific methods of getting listed and trading shall be formulated by the CSRC.

5. Improving the agency service system:

(18) The important role of agencies in consultation, supervision and evaluation shall be fully utilized. The risk investment requires the services from the existing agencies and the establishment of special agencies such as trade associations, scientific and technological project assessment institutions, technical broker agencies, risk investment consultation agencies to meet their special demands. 

(19) The establishment of agencies shall strictly adopt the principle of separating government functions from enterprise management and develop into the legal entity of self-created reputation, sole responsibility for profits and losses, and privately taking the economic and legal responsibilities. The business activities shall be conducted according to the principle of honest, justice and science.

(20) The risk investment trade association established after review and approval, as the industrial self-discipline organizations for the risk investment entities, high and new technology enterprises and the related agencies, shall formulate the industrial regulations and service standards, assess the professional performance of their members and create the self-discipline mechanism, and develop the risk investment talents training programs and the international non-governmental exchange activities. 

6. Establishing and improving the policy and legal systems to encourage and guide the risk investments

(21) In order to promote the establishment of regularized risk investment mechanism, the related departments under the State Council shall, in accordance with the Opinions, design the specific implementation methods of application, examination and approval, and administration for the risk investment companies and funds. It is necessary to study and formulate the taxation and financial supporting policies conducive to the risk investment development and the policies intended to encourage the overseas pioneering capitals to enter the risk investment market. It is necessary to study and formulate the implementation plans for setting up the “high and new technology enterprise boards” in Shanghai and Shenzhen securities exchanges. It is necessary to study and formulate the related policies and laws and regulations concerning the stock issuance, getting listed and trading for the small and medium-sized scientific and technological enterprises. It is necessary to study and formulate the related policies concerning the securities issuance and getting listed on the overseas pioneering boards for the small and medium-sized scientific and technological enterprises. It is necessary to study and formulate the methods of examination, approval and management for establishing the risk investment trade associations.

(22) The related departments under the State Council shall periodically formulate and promulgate, according to the national industrial policy, technological policy and industrial and product strategic target, the guidance for risk investment projects (fields) to guide the investment of pioneering capitals.

The risk investment is a special capital operating method with a long investment period, a high risk and a strong competitiveness. When the risk investment mechanism is established, all the local governments shall guard against the risks, conduct an orderly development to avoid rushing into the mass actions, and keep from solely or mainly depending on the governmental investments for creating the risk investment institutions. It is advisable to encourage the principle of adopting the private capitals as the primary means, and the government guidance, support and controlled participation as the secondary means. The people’s government of each province, autonomous region and municipality directly under the central government shall, based on the development levels of science and technology, economy and market in their regions, stick to the integration of short-term and long-term targets and take some feasible measures to create the environments, improve the market mechanism, attract the domestic and foreign pioneering capitals, and promote the development of risk investment undertakings in an active and steady manner.

The China Securities Regulatory Commission

Standards of the Contents and Formats of Information Disclosure Required for Securities Investment Funds - No.1 and No.2


No. 1 Contents and Formats of Listing Announcement Contents

Chapter 1 General Provisions

Chapter 2 Listing Announcement

Section 1 Important Notes and Statement

Section 2 Summary of Fund

Section 3 Funds Raising and Listing

Section 4 Numbers and Structure of Fund Unit Holders (and the Top Ten Holders)

Section 5 Introduction of Principal Parties to the Fund

Section 6 Summary of Fund Contract

Section 7 Financial Status of Fund

Section 8 Investment Portfolio of Fund

Section 9 Disclosure of Important Events

Section 10 Commitment of Fund Manager

Section 11 Commitment of Fund Custodian

Section 12 Opinion of Sponsor

Section 13 Contents of Documents for Reference

Chapter 3 Supplementary Provisions

Chapter 1 General Provisions
1.To standardize the information disclosure for the listing of the securities investment funds (hereinafter referred to as the Funds) and protect the legal rights and interests of the fund tranche holders, Standards Concerning the Contents and Formats of Information Disclosure Required for Securities Investment Funds-No.1 The Contents and Formats of Public Listing Announcement (the Standards) are formulated in accordance with Securities Investment Funds Law (hereinafter referred to as the Funds Law) and Administrative Measures on Information Disclosure for Securities Investment Funds (hereinafter referred to as the Administrative Measures).

2. For the funds for which the fund tranches are publicly offered in the People’s Republic of China and applied for listing in the stock exchange according to the Funds Law, the Fund Manager shall prepare and disclose the public listing announcement pursuant to the requirements of the Standards.

3. The board of directors and directors of the Fund Manager shall ensure the truth, accuracy and integrity of the contents of the public listing announcement. They shall undertake that there exists no false statement, misleading information or major omission in the report and assume the relevant separate and joint responsibilities.

The Fund Custodian shall ensure the truth, accuracy and integrity of the contents of the public listing announcement (e.g. the financial accounting data of the fund). The Fund Custodian shall undertake that there exists no false statement, misleading information or major omission in the announcement.

4. The Standards are to specify the minimum requirements on the information disclosure of the public listing announcement. The information that will have significant impact on the decision of the investors arising from the date of disclosure of the fund prospectus to the publishing date of the public listing announcement shall be disclosed by the Fund Manager, no matter it is prescribed in the Standards or not.

In case the specific requirements of the Standards are inapplicable to the Fund, the Fund Manager can make proper amendment according to the actual situations provided the integrity of the disclosure shall not be impaired and the amendment shall be disclosed. The Fund Manager shall provide written report to the stock exchange in which the fund is listed for approval and file with the China Securities Regulatory Commission (hereinafter referred to as the CSRC) if the Fund Manager intends not to disclose the required contents of the Standards.

6. The name of the fund, the words “Public Listing Announcement” and the date of announcement shall be printed on the cover of the public listing announcement.

7. After the fund tranche is approved to be listed in the stock exchange, the Fund Manager shall, in 3 working days before the date of listing of the fund, publish the public listing announcement on the website of the Fund Manager and on at lease one national periodical designated by the CSRC. The smallest character size for the public listing announcement published on the periodical shall be 10.5 pounds. 

8. Before the official publication of the public listing announcement, no one shall disclose any relevant information or seek improper profit with such information.

9. The Fund Manager shall perform the announcement provision duty as per article 31 of the Administrative Measures.

10. On the second working day after the official disclosure of the public listing announcement, the Fund Manager shall submit the announcement to the CSRC in both written version and electronic version. At least two copies of written announcement shall be submitted.

Chapter 2 Public Listing Announcement
Section 1 Important Notes and Statements
11. Important notes and statements shall be provided in the obvious place of the public listing announcement, including but not limited to:

The public listing announcement is prepared in accordance with Securities Investment Funds Law, Standards Concerning the Contents and Formats of Information Disclosure Required for Securities Investment Funds-No.1 The Contents and Formats of Public Listing Announcement and Rules for Listing of Securities Investment Fund Tranche in Stock Exchange. The board of directors and directors of the Fund Manager ensure the truth, accuracy and integrity of the contents of the public listing announcement. They undertake that there exists no false statement, misleading information or major omission in the report and assume the relevant separate and joint responsibilities. The Fund Custodian ensures the truth, accuracy and integrity of the contents of the public listing announcement (e.g. the financial accounting data of the fund) and undertakes that there exists no false statement, misleading information or major omission in the announcement.

The CSRC and the stock exchange do not provide any guarantee for the fund in their opinions on the issues concerning the listing of the fund. For the information not specified in the public listing announcement, please read carefully the fund prospectus published on XX newspaper and XX website on (date).

Section 2 Overview of Fund

12. The following information shall be disclosed: simplified name of the fund, transaction code, total fund tranches and net value of the fund tranche as of 2 working days before the date of announcement, the listed tranche, the stock exchange for listing, the date of listing, the Fund Manager, Fund Custodian and Listing Sponsor.

Section 3 Fund Raising and Listing

13. The particulars about the fund raising before the listing shall be disclosed, including the approving authority and approval number for the raising application, the operation mode of the fund, the period of the fund contract, the offering date, the offering price, the offering period, the offering method, the offering institution, the name of the capital verification institution, the total raised capital, account recording status, the filing status, the effective date of the contract and the total fund tranches on the effective date.

14. The information about the fund listing shall be disclosed, including the approving authority and approval number for the listing, the date of listing, the stock exchange for the listing, the simplified name of the fund, the transaction code, the tranche for the listing and the regulations on the liquidity of the unlisted tranche.

Section 4 Members and Structure of Fund Tranche Holders (and the Top Ten Holders)

15. The following information about the fund as of 2 working days before the date of announcement shall be disclosed: the number of the fund tranche holders, the average fund tranches held by each holder, the fund tranches held by the institutional investors and individual investors and the proportion of such tranches in the total tranches, the name of the top ten holders, the tranches held by them and the relevant proportions in the total tranches.

Section 5 Introduction to Fund Parties

16. The following information about the Fund Manager shall be disclosed: the name of the Fund Manager, the legal representative, the general manager, the registered capital, the domicile, the approval document for incorporation, the operation license number, the operation scope, the shareholders, the internal structure and functions, the staffing, the person in charge of information disclosure and the consulting hotline, the introduction to the fund management business, the names and resumes of the manager in charge of the fund (or the member of the fund manager team).

17. The following information about the Fund Custodian shall be disclosed: the name of the Fund Custodian, the legal representative, the registered capital, the domicile, the person-in-charge of the fund custodian department, the staffing, the person in charge of information disclosure and the consulting hotline, the introduction to the custodian business.

18. The following information about the Listing Sponsor shall be disclosed: the name of the sponsor, the legal representative, the domicile, the contact person and the contact phone number.

19. The following information about the capital verification institution shall be disclosed: the name of the capital verification institution, the legal representative, the domicile, the certified public accountant involved and the contact phone number. 



Section 6 Summary of Fund Contract

20. The contents of fund contract shall be extracted, including: 

(1) The rights and duties of the fund tranche holders, Fund Manager and Fund Custodian,

(2) The procedures and rules for the convening, discussion and voting of the general meetings of fund tranche holders,

(3) The distribution principles and implementation methods of fund income

(4) The withdrawal and payment methods for the remuneration to the Fund Manager and Fund Custodian (e.g. management fee and custodian fee),

(5) The withdrawal and payment methods and the relevant proportions of other expenses related to the operation and management of the fund assets,

(6) The investment directions and restrictions of the fund assets,

(7) The calculation and announcement methods of the net assets of the fund,

(8)The grounds for the release and termination of the fund contract, the relevant procedures and the clearing methods for the fund assets,

(9) The dispute solution, 

(10) The storage place of the fund contract and the method for the investor to access the contract.

Section 7 Financial Status of Fund

21.The financial accounting data disclosed in the fund prospectus (is any) shall be provided. The details and balance of the expenses incurred during the raising period shall be listed. The important financial issues arising from the offering of the fund to the release of the public listing announcement shall be described.

22. The balance sheet of the fund as of 2 working days before the date of announcement shall be disclosed.

Section 8 Investment Portfolio of Fund

23. The information about the investment portfolio as of 2 working days before the date of announcement shall be disclosed pursuant to Standards Concerning the Disclosure and Preparation Convention Required for Securities Investment Funds - No.4 Preparation and Disclosure of Investment Portfolios Report, including:

(1) Information about the fund asset combination,

(2) Share investment portfolio (if any) classified by industries,

(3) Details of the top ten shares (if any) sequenced based on the proportions of the market value in the net assets of the fund at the end of period. In case the index fund has both active investment and index investment, the details of the respective top five shares for the active investment and index investment shall be provided.

(4) Information about bond investment portfolio classified by bonds,

(5) Details about the top five bonds sequenced based on the proportions of the market values in the net assets of the fund,

(6) Notes to the investment portfolio report.

Section 9 Disclosure of Important Event

24. The events with significant impact on the fund tranche holders occurring from the offering of the funds to the publication of the public listing announcement shall be disclosed.

Section 10 Commitment of Fund Manager

25. The Fund Manager shall make commitment on its responsibilities after the public listing of the funds, including: 

(1) The Fund Manager shall strictly comply with the Funds Law, other laws and regulations and the fund contract, manage and operate the fund assets honestly and in due diligence.

(2) The Fund Manager shall ensure the truth, accuracy, integrity and prompt disclosure of the relevant documents, disclose the information with significant impact on the fund tranche holders and be subject to the supervision and administration of the CSRC and stock exchange.

(3) The Fund Manager shall make public clarification in time after being notified of the information appearing in the public media or the market that will have misleading influence on the fund price or cause material fluctuation of the price.

Section 11 Commitment of Fund Custodian

26. The Fund Custodian shall make commitment on its responsibilities after the public listing of the fund.

Section 12 Opinion of Listing Sponsor

27.The opinion of the listing sponsor shall be disclosed.

Section 13 Contents of Documents for Reference

28. The storage place and consultation method of the documents for reference shall be provided.

Chapter 3 Supplementary Provisions

29. The Standards shall come into force on July 1, 2004. Section 2 of Implementation Rules for Interim Administrative Measures on Securities Investment Funds-No.5 Instructions on Information Disclosure for Securities Investment Funds (No.11 [1999] CSRC) promulgated by the CSRC, Contents and Formats of Public Listing Announcement (Provisional), shall be repealed at the same time.

The China Securities Regulatory Commission

(This English version by Shenzhen Securities Information Co., Ltd. is for your reference only. In case any discrepancy exists between the Chinese and English context, the Chinese version shall prevail.)



Standards Concerning the Contents and Formats of Information Disclosure Required for Securities Investment Funds—No.3 and No.4

No. 2 Contents and Formats of Annual Report

Contents
Chapter 1 General Provisions

Chapter 2 Context of Annual Report

Section 1 Important Notes and Contents

Section 2 Fund Introduction

Section 3 Major Financial Indexes, Net Value Performance and Income Distribution of Fund

Section 4 Manager Report

Section 5 Custodian Report

Section 6 Audit Report

Section 7 Financial and accounting report

Section 8 Investment Portfolio Report

Section 9 Members and Structure of Fund Tranche Holders (and the Top Ten Holders)

Section 10 Change of Open-end Fund Tranche

Section 11 Disclosure of Important Event

Section 12 Contents of Documents for Reference

Chapter 3 Summary of Annual Report

Chapter 4 Supplementary Provisions

Chapter 1 General Provisions
1.To standardize the preparation and disclosure of the annual reports of the securities investment funds (hereinafter referred to as the Funds) and protect the legal rights and interests of the fund tranche holders, Standards Concerning the Contents and Formats of Information Disclosure Required for Securities Investment Funds-No.2 The Contents and Formats of Annual Report (the Standards) are formulated in accordance with Securities Investment Funds Law (hereinafter referred to as the Funds Law) and Administrative Measures on Information Disclosure for Securities Investment Funds (hereinafter referred to as the Administrative Measures).

2. For the funds for which the fund tranches are publicly offered in the People’s Republic of China and filing procedures are handled according to the Funds Law, the Fund Manager shall prepare and disclose the annual report pursuant to the requirements of the Standards.

3. The board of directors and directors of the Fund Manager shall ensure the truth, accuracy and integrity of the contents of the annual report. They shall undertake that there exists no false statement, misleading information or major omission in the report and assume the relevant separate and joint responsibilities. The approval of over 2/3 of the independent directors shall be obtained for the disclosure of the annual report, which shall be signed for release by the board chairman. In case any director cannot provide guarantee for or has dissent on the truth, accuracy and integrity of the contents of the annual report, the director shall provide the reasons and air his/her view separately. The names of the directors not present at the directors’ meeting shall be provided separately. 

The Fund Custodian shall check and review the financial indexes, net value performance, financial and accounting report and investment portfolio report in the annual report and provide comments to ensure the truth, accuracy and integrity of the report. The Fund Custodian shall undertake that there exists no false statement, misleading information or major omission in the report.

4. The Standards are to specify the minimum requirements on the information disclosure of the annual report. The information that will have significant impact on the decision of the investors shall be disclosed by the Fund Manager, no matter it is prescribed in the Standards or not. In case the specific requirements of the Standards are inapplicable to the Fund, with the approval of the China Securities Regulatory Commission (hereinafter referred to as the CSRC), the Fund Manager can make proper amendment according to the actual situations provided the integrity of the disclosure shall not be impaired.

5. The context of the annual report shall be prepared pursuant to the requirements of Chapter 2, and the summary of the annual report shall be prepared as per Chapter 3.

The summary does not need to include all the contents of the context, but it shall be based on the context. There shall not exist any conflict between the summary and the context.

6. The financial and accounting report in the annual report must be audited by the accounting firm with securities business practice license. The audit report must be stamped by the accounting firm and signed and stamped by at least two certified public accountants with securities business practice license.

7. The following information shall be provided on the cover of the annual report: the words “Annual Report”, the period and year for the report, the name of the Fund Manager and Fund Custodian and the delivery date. The contents of the annual report shall be arranged at the obvious place of the cover.

8. The Fund Manager shall complete the annual report in 90 days after the ending of each fiscal year. The context of the report shall be published on the website of the Fund Manager, and the summary of the report shall be published on at lease one national periodical designated by the CSRC. The smallest character size for the report summary published on the periodical shall be 10.5 pounds.

9. Before the official publication of the annual report, no one shall disclose any relevant information or seek improper profit with such information.

10. The annual report shall be concise and easy to understand.

11. The Fund Manager shall perform the report provision duty as per article 31 of the Administrative Measures.

12. The Fund Manager shall perform the filing duty following the time and method specified in article 22 of Administrative Measures.

Chapter 2 Context of Annual Report

Section 1 Important Notes and Contents

13. Important notes shall be provided in the head page of the annual report, including but not limited to:

The board of directors and directors of the Fund Manager undertake that there exists no false statement, misleading information or major omission in the report, and the directors will assume separate and joint responsibilities for the truth, accuracy and integrity of the report. The annual report has been approved by over 2/3 of the independent directors and signed by the board chairman. In case any director cannot provide guarantee for or has dissent on the truth, accuracy and integrity of the report, the Fund Manager shall make clear statement that XX, the director, cannot provide guarantee for the truth, accuracy and integrity of the report, with the following grounds: The investors shall pay special attention to this. The names of the directors not present at the directors’ meeting shall be provided separately.

XX, the Fund Custodian, reviewed the financial indexes, net value performance, financial and accounting report and investment portfolio report in the annual report on (date) pursuant to the fund contract and guarantees that there exists no false statement, misleading information or major omission in the report.

The Fund Manager undertakes to manage and operate the fund assets honestly and in due diligence, but there is no guarantee for the profitability of the fund.

The past performance of the fund does not indicate its future performance. There may be risks arising out of the investment, so the investors shall read carefully the fund prospectus before making investment decision.

If the audit report provided by the accounting firm in charge of the auditing of the financial and accounting report of the fund contains unqualified opinion, qualified opinion, disclaimer opinion or adverse opinion on matters for emphasis, the following statements shall be added to the important notes: XXX, the accounting firm, has provided an audit report with unqualified opinion (or qualified opinion, disclaimer opinion or adverse opinion) on matters for emphasis. The investors shall pay special attention to this.

14. The titles of the chapters and sections and the corresponding pages shall be clearly indicated in the contents of the report.

Section 2 Fund Introduction

15. The following information about the fund shall be disclosed:

(1) Name of fund, simplified name of fund, transaction code, operation mode, effective date of fund contract, total fund tranches at the end of report period, duration of fund contract (if any), stock exchange in which the fund tranche is traded (if any), listing date (if any),

(2) Investment target, investment strategy, performance comparison benchmark (if any), risk return features (if any),

(3) Information about the Fund Manager, such as the name, domicile, office address, postal code, legal representative, person in charge of information disclosure, contact phone number, fax number, email address,

(4) Information about the Fund Custodian, such as the name, domicile, office address, postal code, legal representative, person in charge of information disclosure, contact phone number, fax number, email address,

(5) Name of the newspaper for information disclosure, Fund Manager’s website for publishing the annual report context, place for providing the annual report,

(6) Other relevant information: name and office address of the accounting firm and the registration institution.

Section 3 Major Financial Indexes, Net Value Performance and Income Distribution of Fund

16. The following accounting data and financial indexes for the last three fiscal years shall be disclosed in data list: net income of the fund for this period, net income of the fund tranche for this period, distributable income of the fund at the end of period, distributable income of fund tranche at the end of period, net assets of the fund at the end of period, net assets of the fund tranche at the end of period, yield of the weighted average net value of the fund, yield of the weighted average net value of the fund tranche, accumulated growth rate for net value of the fund tranche.

The calculation and disclosure of the above accounting data and financial indexes shall observe the following requirements: 

(1) The relevant indexes of the fund shall be calculated and disclosed pursuant to Standards Concerning the Disclosure and Preparation Convention Required for Securities Investment Funds –No.1 Calculation and Disclosure of Major Financial Indexes.

(2) In case the fund contract has been effective for less than 3 years, the accounting data and financial indexes for the period after the effectiveness of the fund contract shall be disclosed. Where data and indexes for the effective year of the contract are not for a complete fiscal year, relevant explanation for the calculation period shall be provided. 

(3) The data shall be arranged from left to right, starting with the data for the report period.

(4) As to the financial indexes for which the calculation method is modified for this year, the financial indexes for the previous two years shall be calculated with both the new and old calculation methods and disclosed in a comparative way. The financial indexes for this year shall be calculated and disclosed with the new calculation method.

(5) In case the accounting data for the previous year are traced and modified for the change of accounting policy and accounting error correction, the data before and after the modification shall be disclosed. 

(6) The calculation formula of the financial indexes does not need to be disclosed.

17. The comparison between the growth rate of the net value of the fund tranche for past period and the growth rate of the performance comparison benchmark for the same period shall be provided in table. The periods include 3 months, 6 months, 1 year, 3 years, 5 years and the duration from the effective date of the contract to the date. The change of net value of the fund tranche ever since the effectiveness of the fund contract shall be illustrated and compared against the change of the performance comparison benchmark for the same period. The net value growth rate for each year shall be illustrated for the past three years (in case the fund contract has been effective for less than 3 years, the growth rate for the duration ever since the effectiveness of the contract shall be illustrated) and compared with the income rate of the performance comparison benchmark for the same period.

The net value performance of the fund shall be prepared and disclosed in accordance with Standards Concerning the Disclosure and Preparation Convention Required for Securities Investment Funds–No.2 Preparation and Disclosure of Net Value Performance of Fund.

The annual income distribution of the fund for the past three years shall be disclosed with the following format (in case the fund contract has been effective for less than 3 years, the income distribution for the duration ever since the effectiveness of the contract shall be disclosed):





Year
Dividends of Each 10 Fund Tranches (rounded with 3 decimal digits)
Remark


 
 


 
 


 
 

Total
 
 


Section 4 Manager Report

19. The information about the Fund Manager and the manager in charge of the fund (or member of the fund manager group) shall be provided, including the experiences of the Fund Manager in managing funds, the names and resumes of the manager in charge of the fund (or member of the fund manager group).

20. The information about the law compliance and commitment for the fund operation during the report period shall be provided, including whether the Fund Manager has conducted any activities impairing the interests of the fund tranche holder, whether the Fund Manager has tried to seek profit for the fund tranche holder in due diligence, and whether the Fund Manager has been strictly complying with the Funds Law, other relevant laws and regulations and the fund contract. In case there is any breach of laws and regulations or nonperformance of the contract, particulars and countermeasures shall be provided.

21. The investment strategies and performance of the fund during the report period shall be explained based on the situations of the macro economy and the securities market.

22. Prospective on the macro economy, securities market and industry trend shall be provided, but no trend forecast of specific securities shall be made.

23. Internal supervision report of the fund shall be provided, including the description about the supervision and inspection of the Fund Manager and the measures for preventing and removing the operation risks and ensuring the sound development of the business and the safety and integrity of the entrusted assets. 

Section 5 Custodian Report
24. The Custodian shall make a statement on whether it has conducted any activities impairing the interests of the fund tranche holder, whether it has been strictly complying with the Funds Law, other relevant laws and regulations and the fund contract and whether it has performed its duties in due diligence during the report period.

25. The Custodian shall state whether the Fund Manager has conducted any activities impairing the interests of the fund tranche holder or has been complying with the Funds Law and other relevant laws and regulations in terms of investment operation, calculation of fund net asset, calculation of subscription or redemption price of fund tranche and fund expenses, and whether the Fund Manger has been observing the fund contract in other significant issues. In case the Fund Manager fails to comply with the relevant regulations, the Custodian shall give clear indication of the problems found, the countermeasures taken by the Fund Manager and the improvements.

26. The Custodian shall provide comments on the truth, accuracy and integrity of the financial indexes, net value performance, financial and accounting report and investment portfolio report in the annual report.

Section 6 Audit Report
27. The full context of the audit report shall be disclosed. The audit report must be provided by the accounting firm and at least two certified public accountants with securities business practice license. The certified public accountant shall release audit report and provide audit opinion on the legality, fairness and contract compliance of the financial statement in accordance with China’s Independent Auditing Standards and other relevant regulations.

Section 7 Financial and accounting report
28. The audited financial statement and notes to financial statement shall be disclosed in the annual report.

29. The financial statement shall contain the comparative balance sheets for the end of report period and the previous year end, the comparative business performance statements and income distribution statements as well as the comparative net value change statements for two years. The financial statement shall be prepared and disclosed pursuant to the relevant regulations promulgated by the Ministry of Finance and the CSRC.

30. The notes to financial statement shall be disclosed in accordance with Standards Concerning the Disclosure and Preparation Convention Required for Securities Investment Funds - No.3 Preparation and Disclosure of Notes to the Financial statements. The following information shall be disclosed:

(1) General information of the fund,

(2) In case the preparation of the financial statement breaches the basic accounting assumptions, the breach and the relevant reasons shall be specified in the notes to financial statement.

(3) Major accounting policies, accounting estimates and the change,

(4) Tax

(5) Events Occurring After the Balance Sheet Date

(6) Affiliated relation and transaction: The data for at least the last two years shall be provided.

(7) Explanation to the important items of the financial statement: The data for the comparative statements for the two dates or periods shall be provided.

(8) Description about the fund assets whose liquidity and transfer are restricted at the end of the report period,

(9) Other matters helpful for the understanding and analysis of the financial statement.

Section 8 Investment Portfolio Report
31. The investment portfolio report shall be disclosed pursuant to Standards Concerning the Disclosure and Preparation Convention Required for Securities Investment Funds - No.4 Preparation and Disclosure of Investment Portfolios Report. The following information shall be disclosed.

(1) Information about the fund asset combination at the end of report period

(2) Share investment portfolios (if any) classified by industries at the end of report period

(3) Details of all the shares (if any) sequenced based on the proportions of the market values in the net assets of the fund at the end of report period

(4) Major change in the share investment portfolio (if any) during the report period

(5) Bond investment portfolios classified by bonds at the end of report period

(6) Details of the top five bonds sequenced based on the proportions of the market values in the net assets of the fund at the end of period

(7) Notes to the investment portfolio report.

Section 9 Members and Structure of Fund Tranche Holders (and the Top Ten Holders)

32. The following information for the fund at the end of the report period shall be disclosed: Number of the fund tranche holders, average fund tranches held by each holder, fund tranches held by institutional investors and individual investors and the proportions of such tranches in the total tranches. The names of the top ten holders, the tranches held by them and the proportions of such tranches in the total tranches shall also be disclosed for the listed funds.

Section 10 Change of Open-end Fund Tranche
33. The total fund tranches upon the effective date of the fund contract, the change of the fund tranche during the report period shall be disclosed for the open-end funds (As to the funds for which the fund contract takes effect during the report period, the change of the fund tranche ever since the effectiveness of the contract shall be disclosed). The following information shall be disclosed for the fund tranche change: the total fund tranches at the beginning of the report period, the total fund tranches at the end of the report period, the total tranche subscriptions and total redemptions during the report period.

Section 11 Disclosure of Important Event
34. The important events occurring during the report period shall be disclosed, including but not limited to:

(1) Resolution of general meetings of fund tranche holders,

(2) Major personnel change in the fund custodian department of the Fund Manager and Fund Custodian,

(3) Litigation involving the Fund Manager, fund assets and fund custodian business. If there is no litigation during the report period, it shall be clearly stated that there is no litigation involving the Fund Manager, fund assets and fund custodian business in this year.

(4) Change of fund investment strategy,

(5) Issues concerning the fund income distribution,

(6) Particulars about the replacement of the accounting firm auditing the fund, the remuneration paid to the accounting firm for the reporting year, and the continuous service years of the existing auditing institution, 

(7) The information about the investigation or penalty of the Fund Manger, Fund Custodian and their senior managers by the supervisory authorities, including the times of the investigation or penalty, the reason and the conclusion. In case the supervisory authority orders for rectification, the information about the rectification shall also be provided. 

(8) The information about special transaction seats of the securities company hired by the fund, including the name of the securities company, the number of the seats hired, the turnover of the shares, bonds, bond repurchase transacted through the special seats and the proportions of such turnover in the total turnovers of the fund for the transactions of the same kind for the year, the commission paid to the securities company and the proportion of such commission in the total commissions for the year, the change of the seats hired during the report period, the selection standards and procedures of the special seats.

(9) Other important events occurring during the report period and falling into the specification of Article 23 of the Administrative Measures or considered important by the Fund Manager.

If the above important events have been disclosed on the designated newspaper as interim report, the name of the newspaper for disclosure and the date of disclosure shall be provided.

Section 12 Contents of Documents for Reference
35. The contents, storage place and consultation methods of the documents for reference shall be disclosed.

Chapter 3 Summary of Annual Report
Section 1 Important Notes

36. In addition to the important notes provided as per Article 13, the following statement shall be made:

The summary is extracted from the context of the annual report. For details of the report, the investors shall read the context of the report.

Section 2 Fund Introduction

37. The following information shall be disclosed for the fund:

(1) The simplified name of the fund, the transaction code, the operation mode, effective date of the fund contract, total fund tranches at the end of report period, duration of fund contract (if any), stock exchange for the listing of the fund tranche (if any), date of listing (if any),

(2) The investment target, investment strategy, performance comparison benchmark (if any), risk return features (if any) of the fund,

(3) The name of the Fund Manger, the person in charge of information disclosure and the contact information,

(4) The name of the Fund Custodian, the person in charge of information disclosure and the contact information,

(5) The website of the manager for publishing the context of the annual report, the place for providing the report.

Section 3 Major Financial Indexes, Net Value Performance and Income Distribution of Fund

38. The accounting data and financial indexes for the last three fiscal years shall be disclosed in data list (or diagram), including net income of the fund for the period, net income of the fund tranche for the period, distributable income of the fund tranche at the end of period, net assets of the fund at the end of period, net assets of the fund tranche at the end of period, growth rate of the net value of the fund tranche for the period.

39. The net value performance of the fund shall be disclosed pursuant to Article 17.

40. The annual income distribution of the fund for the past three years shall be disclosed pursuant to Article 18.

Section 4 Manager Report

41. The information about the Fund Manager and the managers in charge of the fund (or members of the fund manager team) shall be disclosed as per Article 19.

42. Statement shall be made on the law compliance and commitment for the fund operation during the report period according to Article 20.

43. Explanations shall be provided for the investment strategy and performance of the fund during the report period pursuant to Article 21.

44. Prospective shall be made on the macro economy, the securities market and the industry trend in accordance with Article 22.

Section 5 Custodian Report
45. The Fund Custodian Report shall be disclosed according to the requirements of Articles 24, 25 and 26.

Section 6 Audit Report
46. In case an audit report with unqualified opinion, qualified opinion, disclaimer opinion or adverse opinion on matters for emphasis is provided for the fund, full context of the audit report shall be published when disclosing the summary of annual report. In case an audit report with unqualified opinion is provided for the fund, or there is no matter for emphasis, the full context of the audit report does not need to be disclosed. However, it shall be clearly stated that the certified public accountant has provided audit report with unqualified opinion.

Section 7 Financial and accounting report
47. The audited annual financial statement shall be disclosed, including the comparative balance sheets for the end of report period and the previous year end, the comparative business performance statements, income distribution statements and comparative net value change statements for the two years.

48. The Notes to Financial statements shall at least contain the following contents:

(1) The statement that the accounting policy and accounting estimates adopted for the report period are consistent with that of the latest annual report.

Whether the accounting policy and accounting estimates adopted for the report period are consistent with that of the latest annual report shall be specified. If the accounting policy and accounting estimates are changed, the change contents, reasons, influence or the grounds for being unable to determine the influence shall be provided.

If it is the first time to disclose annual report, the major accounting policy and accounting estimates for the report period shall be specified. 

(2) Major accounting error and correction

(3) Affiliated relation and transaction

(4) Details about the fund assets whose liquidity and transfer are restricted at the end of report period.

49. In case audit report with adverse opinion or disclaimer opinion is provided for the fund, the full context of notes to financial statement shall be disclosed according to Article 30. In case audit report with qualified opinion or with unqualified opinion and matters for emphasis is provided, in addition to the disclosure of notes to financial statement according to Article 48, the notes to the issues related to the qualified opinion or matters for emphasis shall also be disclosed. 

Section 8 Investment Portfolio Report
50. The investment portfolio report shall be disclosed pursuant to Standards Concerning the Disclosure and Preparation Convention Required for Securities Investment Funds - No.4 Preparation and Disclosure of Investment Portfolios Report. The following information shall be disclosed.

(1) Information about the fund asset combination at the end of report period,

(2) Share investment portfolios classified by industries (if any) at the end of report period,

(3) Details of the top ten shares (if any) sequenced based on the proportions of the market value in the net assets of the fund at the end of period. In case the index fund has both active investment and index investment, the details of the respective top five shares for the active investment and index investment shall be provided.

(4) Major change of the share investment portfolio (if any) during the report period,

(5) Bond investment portfolios classified by bonds at the end of report period,

(6) Details of the top five bonds sequenced based on the proportion of the market value in the net assets of the fund,

(7) Notes to the investment portfolio report.

When disclosing the share details for the fund investment, the following notes shall be provided: “For the details of all the shares for the fund investment at the end of report period, the investor shall read the context of the annual report published on the following website: xx”.

Section 9 Members and Structure of Fund Tranche Holders (and the Top Ten Holders)

51. Such information as the number of the fund tranche holders, the average fund tranches held by each holder and the holder structure shall be disclosed for the fund pursuant to Article 32. The information about the top ten holders shall be provided for the listed fund.

Section 10 Change of Open-end Fund Tranche
52. The change of the open-end fund tranche shall be disclosed pursuant to Article 33.

Section 11 Disclosure of Important Event
53. The important events occurring during the report period shall be disclosed according to Article 34.

Chapter 4 Supplementary Provisions
54. The Standards shall come into force on July 1, 2004. And section 3 of Implementation Rules for Interim Administrative Measures on Securities Investment Funds-No.5 Instructions on Information Disclosure for Securities Investment Funds (No.11 [1999] CSRC) promulgated by the CSRC, Contents and Formats of Annual Reports (Provisional), shall be repealed at the same time.

The China Securities Regulatory Commission

Decree No. 46 of China Securities Regulatory Commission


The Trial Measures for the Administration of Overseas Securities Investment by Qualified Domestic Institutional Investors have been deliberated and adopted at the 27th chairman's executive meeting of the China Securities Regulatory Commission on April 30, 2007. They are hereby promulgated and shall come into force as of July 5, 2007.

Chairman of China Securities Regulatory Commission: Shang Fulin

June 18, 2007

Trial Measures for the Administration of Overseas Securities investment by Qualified Domestic Institutional Investors

Chapter I General Principles

Article 1: In order to regulate the overseas securities investment by qualified domestic institutional investors and protect the legitimate rights and interests of investor, the Measures are formulated in accordance with the Law on Securities Investment Funds, the Securities Law and other related laws and administrative regulations.

Article 2: Qualified domestic institutional investors (hereinafter referred to as the QDII) referred to in the present Measures means the fund management companies, the securities companies and other securities institutions within the territory of China that satisfy the requirements as prescribed in the Measures, raise funds within the territory of the People's Republic of China upon approval of the China Securities Regulatory Commission (hereinafter referred to as the CSRC), and implement the securities investment management outside the territory of China in the form of portfolio by way of using part or all of the funds it has raised.

Article 3: Where a QDII engages in the business of overseas securities investment, it shall entrust a commercial bank within the territory of China to take charge of asset custody, and may entrust a foreign securities service institution as an agent for buying and selling securities.

Article 4: The CSRC and the State Administration of Foreign Exchange (hereinafter referred to as the SAFE) shall implement surveillance on the overseas securities investment by QDIIs.

Chapter II Qualification Requirements, and Examination and Approval Procedures for QDIIs

Article 5: When applying for the QDII qualification, an applicant shall satisfy the requirements as follows:

(1) Having a stable and good status of finance and credit, and its assets scale and operating life, etc. satisfy the requirements as prescribed by the CSRC;

(2) Having the related qualified staff that has the experiences in overseas investment management;

(3) Having a sound governance structure and a perfect internal control system, as well as a normalized business performance;

(4) Having not been subject to any major punishment by the regulatory organ for the last three years, and having nothing important under investigation of the judicial or regulatory organs;

(5) Other requirements as prescribed by the CSRC in accordance with the principle of prudent surveillance.

Article 6: The requirement referred to in Item 1 under Article 5 means that:

(1) For a fund management company: its net asset shall be no less than RMB 0.2 billion yuan, it has engaged in the business of managing securities investment funds (hereinafter referred to as the fund) for more than two years, and its asset management scale at the end of the latest quarter shall be no less than RMB 20 billion yuan or the foreign exchange assets in an equivalent value;

(2) For a securities company: all of its risk control indicators shall be consistent with the prescribed standards, its net capital shall not be less than RMB 0.8 billion yuan; the proportion of its net capital to its net assets shall be no less than 70%, it has engaged in the business of asset pool management plans (hereinafter referred to as the pool plan) for at least one year, and its asset management scale at the end of the latest quarter shall be no less than RMB 2 billion yuan of assets or the foreign exchange assets in an equivalent value.

Article 7: The requirement referred to in Item 2 under Article 5 means that: an applicant shall have one or more medium-level manager(s) that have the investment management experiences in the foreign securities market for at least five years and the related professional qualifications, and shall have three or more staff members that have the investment management experiences in the foreign securities market for at least three years.

Article 8: When applying for the QDII qualification, an applicant shall submit to the CSRC the documents (one original and one duplicate thereof) as follows:

(1) An application form;

(2) A certification document as prescribed in Article 5 herein;

(3) Other documents as required by the CSRC.

Article 9: The CSRC shall examine such application documents as of the receipt of a complete set of qualification application documents, and make a decision on approval or disapproval. In the case of approval, the CSRC shall issue a licensing document for overseas securities investment business; and in the case of disapproval, the CSRC shall inform the applicant of the decision in written form.

Article 10: After an applicant has obtained the QDII qualification, it may submit the documents for a product raising application to the CSRC.

Article 11: After receiving a complete set of the documents for a product raising application, the CSRC shall examine the application materials, make a decision on approval or disapproval, and inform the applicant of the decision in the written form.

Article 12: A QDII shall apply to the SAFE for the qualification for foreign exchange business in accordance with the related provisions.

Chapter III Overseas Investment Consultant

Article 13: The overseas Investment consultants (hereinafter referred to as the investment consultants) referred to in the Measures are those financial institutions outside the territory of China that comply with the requirements as prescribed in the Measures, and provide suggestions for buying and selling securities or provide the management service of investment portfolio concerning the overseas securities investment to QDIIs in accordance with the contract, and obtain proceeds therefrom.

Article 14: A QDII may entrust an investment consultant that meets the following requirements for the overseas securities investment:

(1) It is established abroad, and engages in the investment management business upon approval of the regulatory organ of its country or region;

(2) The regulatory organ of its country or region has signed a memorandum of understanding on bilateral regulatory cooperation with the CSRC, and keeps an effective regulatory cooperation with each other as well;

(3) It has engaged in the investment management business for at least five years, and the securities assets under its management for the latest fiscal year shall be no less than 10 billion USD or the equivalent value in a foreign currency;

(4) It has a sound governance structure, a perfect internal control system, as well as a normalized business performance; and it has not been subject to any major punishment by the regulatory organ of its country or region and has no major matter that is being put on files of or investigated by the judicial or regulatory organs for the last five years.

Where a branch established abroad by a domestic securities company acts as an investment consultant, it shall not be restricted by Item 3 in the preceding paragraph.

Article 15: A QDII shall assume the fiduciary responsibility, and perform the obligation of fidelity surveys during the selection or authorization of an investment consultant.

Article 16: An investment consultant shall rigidly observe the laws and regulations of the state, the fund contract or the asset pool management contract, and always put the interests of the fund or pool plan holders at the first place, bring forward suggestions subject to reasonable evidences, seek for the best transactions of the fund or pool plan, treat all clients in a fair and objective manner, always carry out the investment decisions in light of the investment purposes, strategies, policies, guidelines and restrictions of the fund or pool plan, fully reveal all the important facts involving the conflict of interests, and respect the confidentiality of clients' information.

Article 17: Where a QDII entrusts an investment consultant to make investment decisions, it shall specify in the agreement that the investment consultant shall bear the liabilities accordingly for any property loss as caused because of its omission, negligence and failure to perform duties.

Chapter IV Asset Custody

Article 18: When a QDII engages in the overseas securities investment business, there shall be a bank with a qualification for securities investment fund custody (hereinafter referred to as the custodian) to take charge of the asset custody.

Article 19: A custodian may entrust an asset custodian outside the territory of China that satisfies the following requirements to be responsible for the asset custody business outside the territory of China:

(1) It shall be established in a country or region outside the Mainland China, and is subject to the surveillance of the local government, financial or securities regulatory organ;

(2) It has at least one billion USD of paid-in capital or the equivalent value in a foreign currency in the latest fiscal year, or its scale of custody assets shall be no less than 100 billion USD or the equivalent value in a foreign currency;

(3) It has sufficient full-time staff members that are familiar with the overseas custody business;

(4) It shall be with the conditions for keeping the assets safe;

(5) It shall be able to make settlement and delivery safely and high efficiently; (6) It has not been subject to any major punishment by the regulatory organ and has nothing important being investigated by the judicial or regulatory organs for the last three years.

Article 20: A custodian shall perform the duties for the trustee as follows in accordance with the related laws and regulations:

(1) Protecting the holders' interests, supervising the daily investment as well as the outward and inward remittance of capital for a fund or pool plan in conformity with the related provisions, and in the case of any illegal or irregular investment directive, and outward or inward remittance of capital, it shall report to the CSRC and the SAFE in a timely manner;

(2) Safely protecting the property of a fund or pool plan, punctually notifying the information on the company's behaviors to the QDII, and ensuring that proper incomes could be obtained for the fund or pool plan in a timely manner;

(3) Ensuring that the fund or pool plan is managed in accordance with related laws, regulations, as well as the investment targets and restrictions as stipulated in the fund contract or the asset pool management contract;

(4) Implementing the directives of the QDII or the investment consultant, and making settlement and delivery in time in accordance with the related laws, regulations as well as the fund contract or the asset pool management contract; (5) Ensuring that the net value of the fund or pool plan units is calculated in light of the methods as prescribed in related laws, regulations, as well as the fund contract or the asset pool management contract;

(6) Ensuring that the fund or pool plan is applied for, subscribed or redeemed in accordance with the related laws, regulations, as well as the fund contract or the asset pool management contract;

(7) Ensuring that the proceeds distribution scheme for a fund or pool plan is determined and implemented in accordance with the related laws, regulations, as well as the fund contract or the asset pool management contract;

(8) Registering the assets in the name of the custodian or the designated agent in accordance with the related laws, regulations, as well as the fund contract or the asset pool management contract;

(9) Reporting the conditions concerning the overseas investment by the QDII to the CSRC and the SAFE within 7 workdays after conclusion of each month, and declaring the balance of payments in accordance with the related provisions;

(10) Other responsibilities as prescribed by the CSRC or the SAFE in light of the principle of prudent surveillance.

Article 21: With respect to the overseas assets of a fund or pool plan, a custodian may entrust an overseas custodian to perform the duty for the trustee on its behalf. Where the overseas custodian leads to any loss to the assets of a fund or pool plan because of its fault or negligence during the process of performing duties, the custodian shall bear the liabilities accordingly.

Article 22: A custodian shall perform the following custody responsibilities in accordance with the related laws and regulations:

(1) Safely keeping the assets of a fund and pool plan, and opening a capital account and a securities account;

(2) Handling the settlement, sales, collection and payment of foreign exchange as well as the Renminbi settlement business for the QDII;

(3) Keeping the related materials concerning outward remittance, inward remittance, conversion of capital, collection and payment of foreign exchange, capital flows, authorization and transaction records of the QDII for no less than 20 years;

(4) Other responsibilities as prescribed by the CSRC or the SAFE according to the principle of prudent surveillance.

Article 23: A custodian or an overseas custodian shall severely separate its own assets from the assets under the management of the QDII.

Chapter V Capital Raising, Investment Operation and Information Disclosure

Article 24: A fund management company that has obtained the QDII qualification may raise the capital by publicly selling fund shares in line with the related laws and regulations, and invest fund assets in the overseas securities market. Where a fund management company applies for raising a fund, it shall submit the application materials in accordance with the related laws and regulations.

Article 25: A securities company that has obtained the QDII qualification may raise the capital by establishing a pool plan, and invest the capital it raised in the overseas securities market. In the case of the establishment of a pool plan, a securities company shall submit the application materials, raise the capital and make the investment in accordance with the related provisions.

Article 26: Related benchmarks for the comparison of investment performance shall be selected for a fund for which a raising application is filed as required.

Article 27: A fund or pool plan shall be used to invest in the financial products or tools as prescribed by the CSRC.

Article 28: A fund or pool plan shall follow the provisions on the proportion of investment.

Article 29: Where a QDII or investment consultant selects or entrusts an overseas securities service institution for buying and selling securities, it shall severely perform the fiduciary responsibility, and manage the procedures of investment transactions, the information disclosure and the records keeping in accordance with the related provisions.

Article 30: Where a QDII, an investment consultant carries out the securities trading and the research service arrangement with a foreign securities service institution, it shall observe the principles as follows:

(1) The trading commissions shall be the property of the holders of a fund or pool plan;

(2) The QDII and the investment consultant have the responsibility of ensuring the trading quality on behalf of holders, and such responsibilities shall include, but shall not be limited to:

(a) Seeking for the best implementation of trading;

(b) Seeking the minimized trading costs;

(c) Using the trading commissions of holders for the benefits thereof.

Article 31: Where a QDII carries out the overseas securities investment, it shall follow the related laws and regulations as prescribed by the local regulatory organ and the local stock exchange.

Article 32: Such parties with the obligation to make information disclosure as the QDII and the custodian shall reveal the information in strict accordance with the related laws and regulations.

Chapter VI Quota and Capital Management

Article 33: A QDII shall set reasonable upper limits of the quota and the scale in the raising plan in light of the market conditions and the characteristics of the product, report them to the SAFE for archival purpose, and shall handle the related procedures at the SAFE in accordance with the related provisions. The administration on quota or scale within the extension of a fund or pool plan shall be performed in accordance with the related provisions.

Article 34: A QDII shall open a custody account at the custodian for the custody of all the assets of a fund or pool plan.

Article 35: A custodian shall open a settlement account and a securities custody account for a fund or pool plan, which shall be used for the capital settlement business and the securities custody business with the securities depository and clearing institution.

Article 36: As for the incomes and expenses of a custody account, settlement account or securities custody account, it shall be consistent with the related provisions, and the capital in such accounts shall not be lent to anyone else or be intended for security purposes.

Article 37: A QDII shall report to the SAFE the use of its quota as well as the outward and inward remittance of capital in a regular manner.

Chapter VII Supervision and Administration

Article 38: The CSRC and the SAFE may request the QDII and the custodian to submit the related materials relating to the overseas investment activities of QDIIs, and may perform spot inspections if necessary.

Article 39: In case of any of the following circumstances occurs to a QDII, it shall give a report to the CSRC for archival purpose and make an announcement within 5 workdays as of the occurrence of such a circumstance: (1) Alteration of the custodian or overseas custodian;

(2) Alteration of the investment consultant;

(3) Involving in a lawsuit or any other major event abroad;

(4) any other circumstance as prescribed by the CSRC. If there is any alteration in the custodian or custodian outside the territory of China, a QDII shall also make a report to the SAFE for archival purpose.

Article 40: In case any of the following circumstances happens to a QDII, it shall apply for the qualification of overseas securities investment business again within 60 workdays as of the occurrence of such a circumstance, and apply to the SAFE for the foreign exchange business qualification again and handle the procedure for archival purpose of the investment quota:

(1) Alteration of its name;

(2) Takeover or merger by any other institution;

(3) Any other circumstance as prescribed by the CSRC or the SAFE.

Article 41: Where a QDII makes the securities investment by using the property of a fund or pool plan, if any major illegal or irregular act is committed, the CSRC may adopt the measure of restricting its trading, and the SAFE may adopt the measure of restricting its outward remittance and inward remittance of capital in accordance with the related laws.

Article 42: In the case of any serious illegal or irregular act committed by a custodian, the CSRC may render a decision of restricting its custody business.

Article 43: In the case of any violation of the Measures by a QDII or custodian, it may be imposed on administrative sanction accordingly by the CSRC or the SAFE.

Chapter VIII Supplementary Provisions

Article 44: The investment in financial products or instruments of the Hong Kong Special Administrative Region or Macao Special Administrative Region by QDIIs shall be governed with reference to the Measures.

Article 45: The targeted raising of capital or the acceptance of targeted objects' asset authorization for the investment in the overseas securities market by a fund management company that has obtained the QDII qualification shall be governed with reference to the Measures.

Article 46: The directional asset management, specialized asset management business or the capital investment in the overseas securities market by a securities company that has obtained the QDII qualification shall be governed with reference to the Measures.

Article 47: The Measures shall come into force as of July 5, 2007.

Guidance on Internal Control for Securities Companies



Chapter 1 General Provisions
1. The Guidance on Internal Control for Securities Companies (the Guidance) is formulated to guide the standardized operations, improve the internal control mechanism, enhance the self-control capability, push forward the building up of modern enterprise system, and prevent and minimize the financial risks in accordance with the Securities Law of the People’s Republic of China, Administrative Measures for Securities Companies and the requirements for prudent supervision by the China Securities Regulatory Commission (hereinafter referred to as CSRC).

2. The internal control for securities companies defined in the Guidance refers to the systematic arrangement, organizational framework and control measures taken by securities companies for the identification, evaluation and management of risks brought about during the process of operation and management based on the changes of operational environment in order to achieve their business objectives.

3 As far as the internal control is concerned, the following factors shall be taken into account, such as the control environment, identification and evaluation of risks, control activities and measures, communication and feedback, and monitoring and assessment.

(1)    Control environment: the securities companies’ ownership structure and actual controllers, corporate governance structure, organizational framework, decision-making procedures, mode of distribution of powers and responsibilities among the management personnel, the management personnel’s management philosophy and risk awareness, the business strategies and style of securities companies, employees’ good faith, ethics and values, and human resources policies.

(2)  Identification and evaluation of risks: duly identify and recognize the risks during the process of achieving business objectives, and make appropriate evaluation on the risks brought about by the constant changes of operation environment and on the risk bearing capacity of securities companies through making rational systematic arrangements and taking risk measurement methods.

(3)  Control activities and measures: the policies, procedures to achieve the strategic goals and business objectives and the measures to prevent and mitigate risks, including the authorization, approval, review, verification, operation flow and procedures, post authority and division of labor, mutual independence and balance, and emergency and prevention measures, which shall be taken in the operation and management of securities companies.

(4)  Communications and feedback: duly record, summarize, analyze and process various kinds of information and conduct effective inside and outside communication and feedback.

(5)  Supervision and evaluation: conduct inspection and evaluation on the control environment, identification and evaluation of risks, control activities and measures, and the validity of communications and feedback, and make rectifications on any weakness found in the internal control design and operation.

4. The effective internal control shall ensure that securities companies achieve the following goals:

(1) To ensure the legality and regularity of operations as well as the full implementation of the internal rules and regulations of securities companies.

(2)    To prevent the business risks and ethics risks.

(3)    To protect the properties of clients and securities companies with respect to security and integrity.

(4)    To ensure the reliability, completeness and timeliness of the business records, financial information and other information of securities companies.

(5)    To improve the business efficiency and effects of securities companies.

5. A securities company shall establish effective internal control mechanism and system in accordance with the requirements of the Guidance as well as the specific business objectives, operation status and environmental conditions of its own.

6. Securities companies shall regularly evaluate the validity of internal control and make adjustment and improvements based on the changes of market, technological and legal environments.

Chapter 2 Basic Requirements
7. Securities companies shall conduct internal control in the principle of soundness, rationality, balance and independence in order to ensure the effective internal control.

(1)  Soundness: The principle of consistency shall be adhered to before, during and after the internal control. The internal control must be carried out throughout the whole company, including all businesses, departments and personnel, from decision-making to implementation, from supervision to feedback, so as to ensure there is no blank or flaw in the internal control.

(2)  Rationality: The internal control shall be implemented in accordance with relevant state laws and regulations and the CSRC rules on the basis of business scale, business scope, risk status and environment of specific securities companies so as to achieve the internal control goal at a reasonable cost.

(3)  Balance: The departments and posts inside securities companies shall be set up with clear division of responsibilities and powers that shall be checked and balanced mutually. The foreground operation should be separated from the background management in an appropriate way.

(4)  Independence: The department that undertakes the functions of internal control and supervision shall be independent of other departments inside the securities companies.

8. Securities companies shall build up the philosophy of lawful operation and awareness that stresses the priority of risk control, improve the companies’ code of conducts and employees’ ethical standards, and create a systematic and cultural environment for compliable operation.

9. Securities companies shall take effective measures to ensure the security and integrity of clients’ properties by precluding the misappropriation of clients’ settlement fund for transactions, clients’ assets and securities deposited in the companies.

10. Securities companies shall establish dynamic monitoring mechanism for net capital in line with the changes of operational environment to ensure that the net capital complies with the requirements for related monitoring index.

11. Securities companies shall establish sound corporate governance structure which encompasses the scientific decision-making procedures and rules of procedure, highly efficient and strict business operation system, sound and effective internal supervision and feedback system, and effective incentive and regulating mechanism. The board of supervisors and independent directors of securities companies shall perform their duties to prevent the major shareholders and insiders from controlling and manipulating the companies.

12. Securities companies shall maintain independence of their shareholders, actual controllers and affiliated parties with respect to assets, finance, personnel, business and institutions in order to ensure the independent operation.

13. Securities companies shall establish a clear-cut and rational organizational structure and set up close and effective monitoring system by taking the following three steps according to the environment and specific operation characteristics of their own:

(1)  To monitor the frontline posts based on two-person, dual-position and double-responsibility, while enhancing the monitoring on the businesses conducted by single person at single post.

The system of two-person responsibility shall be implemented on the posts that are directly associated with capital, securities, important blank vouchers, business contracts and stamps and the posts involving information system security.

(2)  To mutually monitor and balance among related departments and posts. A clear division of labor and responsibilities among different departments shall be made and the irrelevant posts shall be properly set apart.

(3)  To conduct overall monitoring, inspection and feedback throughout all businesses, departments, branches and posts by setting up an independent supervision department.

14. Securities companies shall strengthen the corporate governance and establish specific systems for authorization, inspection and hierarchical accountability while clarifying the goals, responsibilities and authorities of different departments and branches so as to ensure that the functions of operation and management are performed within the authorized range.

Any authorization concerning business of securities companies shall be made in written form.

15. Securities companies shall assign appropriate responsibilities and authorities to different posts by virtue of their nature, and each post shall be defined with specific job description and clear reporting relationship.

16. A complete information-retaking wall shall be set up among major business departments inside securities companies to ensure the independence of such businesses as brokering, self-management, entrusted investment management, investment banking, research and consultancy service. The personnel in the computer department, department of finance, supervision department and business department are forbidden to hold positions concurrently among these departments. And the clearing personnel shall not be the personnel who hold positions in the computer department and trading department.

17. Securities companies shall continually improve their integrated information management systems such as business, finance and human resources, enhance the background management for business operation in line with their actual situations, upgrade centralized systems for clearing, accounting and management for clients’ information, and strengthen the ability to pre-warn, monitor and prevent risks in real time.

18. Securities companies shall establish a complete system for identifying, evaluating and controlling the business risks, and conduct constant monitoring on the credit risk, market risk, liquidity risk, operation risk, technology risk, risk of policy and regulations and ethics risk by taking multiple means including sensitivity analysis.

19. Securities companies shall establish various internal management systems, including authorization management, post responsibility, supervision and inspection, assessment and rewards and punishment, formulate a uniform business process and operating standards for brokering, self-management, investment banking, entrusted investment management, research and consultancy service and creative business, and map out definite control measures for major risks by virtue of their nature.

20. Securities companies shall make vigorous efforts to strengthen the control over the risks of self-owned and clients’ funds, establish a self-owned capital management system in which the decision-making, approval, ratification and monitoring are conducted separately, enhance the control over the line of funds and daily supervision of the capital utilization, and set major target for monitoring on such actions as abnormal capital flow and deposit and withdrawal of large amount of funds.

21. Securities companies shall establish a smooth and highly efficient channel for information exchange, a reporting system for major events, and an information feedback system for internal employees and clients to ensure a sound transmission of information, make sure that the board of directors, supervisory committee, management personnel and supervision department are to be informed of the operation and risks status of securities companies in time, and guarantee that various complaints, suspected matters and weakness in internal control shall be handled in an appropriate way.

22. Securities companies shall record all businesses truly, comprehensively and duly, playing the role of supervision on accounting, while guaranteeing the authenticity and integrity of the information supplied, establish a complete customs duty deposit system and conduct cross verification through the customs duty deposit system and accounting system to prevent the problems such as off-the-balance-sheet business and ambiguous accounts.

23. Securities companies shall strengthen the management over the contracts, negotiable instruments, stamps and test keys by assigning special persons for such purpose who are mutually checked and balanced while performing appropriate approval and strict registration.

Special control measures, such as consecutive number, nullification, blank vouchers and collection registration, should be taken for the important contracts and negotiable instruments.

The safekeeping, approval and use of securities companies’ official seals, special seal for contracts, special seal for finance and electronic broad seals shall be separated and checked mutually in a proper way.

24. Securities companies shall strengthen the safekeeping and management of various files including meeting minutes and resolutions, business agreements, clients’ information, trading records, vouchers sheets, records of handling complaints and conflicts, and files of laws, regulations and systems.

25. Securities companies shall establish crisis management mechanism and procedures, and formulate effective emergency and contingency measures and schemes.

Chapter 3 Main Control
Section 1 Internal Control over Brokering Business

26. The key points of internal control for brokering business department shall be focused on the misappropriation of clients’ settlement funds for transaction and other assets, illegal capital inflow and outflow by financing and settlement risks.

27. Securities companies shall strengthen the overall planning of brokering business and enhance the general control and centralized management over the layout, scale and site selection of business offices as well as the software and hardware technical standards (including upgrade), and formulate uniform and complete service procedures, operation flow and relevant management system to ensure that the standard brokering businesses are rendered.

28. Securities companies shall set out standardized text format and uniform procedure for opening accounts, demand their affiliated business offices to conscientiously examine the clients’ information in regard to its authenticity and completeness by relevant procedures while paying attention to the legality of the source of clients’ funds.

29. Securities companies shall establish a review and confidential system for the clients’ information recorded in the securities trading system, well keep clients’ information concerning opening accounts, trading and other aspects while precluding any unauthorized modification of clients’ information, improve the systems related to query, consultancy service and complaint handling, make sure that the clients are to be fully informed with respect to their accounts, funds, trading and clearing.

30. A securities company shall require their affiliated business offices to sign agency trading agreements with their clients, which, in addition to clarifying both parties’ rights and obligations and risks indications, shall explicitly list the statutory business scope and businesses authorized as well as prohibited by the securities company.

31. Securities companies shall formulate relevant operating procedures and specific measures for controlling the risks in such business links as account management, deposit, withdrawal and transfer of funds, entrustment and cancellation, clearing and settlement, designated transactions and custodian transfer, query and consulting.

32. Securities companies shall make appropriate segregation among the posts for account opening, deposit, withdrawal and transfer of funds, entrustment, and clearing and settlement. The operation and management of clients’ funds should be strictly independent of that of the funds owned by securities companies.

33. Securities companies shall adopt a uniform over-the-counter system in their business offices, strengthen the risk evaluation for such over-the-counter system and prevent any illegal activities by modifying the functions and data of the over-the-counter system. Securities companies shall take rigorous system security measures and strict authorized entry and recording system, and enable the audit marking function of the system.

34. Securities companies shall carry out the centralized system for legal persons clearing and centralized management system for clients’ settlement funds to ensure the security of the clients’ settlement funds and prevent the settlement risks.

35. Securities companies shall establish the registration procedures and independent monitoring mechanism for securities in trust, strictly preventing any misappropriations of clients-entrusted securities for mortgage, buyback or short sale and other acts that infringe the clients’ rights and interests.

36. Securities companies shall enhance the management of trading and clearing system by taking the measures such as ID certification, certificates review, password management and command recording so as to ensure the security of the system.

37. Securities companies shall establish a sound real-time monitoring system for brokering business, in which the supervision department or other independent departments shall be responsible for the real time monitoring on the transfer of funds, securities transfer and trading activities, and shall conduct real time pre-warning for any abnormal transfer of funds, securities, irregular transactions and incompliances.

38. Securities companies shall enhance the verification of the information concerning trading, finance and clearing by making inspection on the trading system, financial system and clearing system of the business offices at regular or irregular intervals, and make sure that the relevant information is consistent with that provided by the stock exchange, registration and settlement securities companies and commercial banks.

39. Securities companies shall set up a backup system for trading data, in which the data are backed up in multiple media and in different places so as to ensure the security and integrity of such trading data.

40. Securities companies shall adopt effective ID certification and access control measures for the online trading system that shall record in detail the processes in which clients make online transactions and queries, and shall enhance the ID recognition of trading parties and perform control over the access authority to ensure the secure and reliable transactions.

41. Securities companies shall protect the network security by setting up firewalls and taking intrusion detection measures, and use the effective technical means like robust encryption to prevent the clients’ data from being stolen or distorted.

42. Securities companies shall formulate and regularly amend the disaster recovery and emergency plans for the network interrupt, entrustment suspension, loss of clients’ data, failure of transfer of funds between banks and securities companies, trading server failure as well as the emergencies like power cut, fire and robbery, and shall establish a mechanism of emergency exercise to ensure an immediate and effective handling of different failures and crises.

43. Securities companies shall establish an investor education and communication mechanism, through which the investors will be fully informed of various investment risks and the communication with investors will be enhanced.

44. Securities companies shall establish handling procedures and approval system for the errors occurring in the transaction clearing, set up a reporting system for major transaction errors, clarify the disputes handling for transaction clearing errors, prevent the hiding or handling such errors without authorization. The handling of errors shall be marked in audit.

45. Securities companies shall establish a system in which the relatively independent personnel shall make a regular return visit to the major clients.

Section 2 Internal Control for Self-support Business

46. Securities companies shall enhance the management over the investment decision-making, funds, accounts, clearing, transactions and confidentiality with respect to self-support business, and put important efforts on preventing such risks as the loss of scale control, decision fault, authorization overriding, self-support business in disguise, off-the-balance-sheet self-support business, market manipulation and insider trading.

47. Securities companies shall establish a sound decision-making agency and complete decision-making procedures with regard to self-support business, and tighten the decision-making management over the self-support business in terms of the investment strategies, scale, categories, structure and term.

48. Securities companies shall exercise strict control over the operation risks of self-support business through practical pre-warning system, rigorous account management, funds approval and scheduling, standardized transaction operations and a complete transaction records storage system.

49. Securities companies shall establish a sound authorization system for self-support business and ensure that the self-support business departments and their staff are performing their duties under appropriate authorization.

50. Securities companies shall make proper division of functions among the research and planning, investment decisions, transaction execution, transaction records, capital clearing and risk monitoring with respect to the self-support business, and shall make detailed research report, risk evaluation and decision-making records for the important investment.

51. Securities companies shall tighten the centralized management and access authority control over the self-support accounts that shall be subject to the unified management of the department independent of the self-support business, set up approval and audit system for self-support accounts, take measures to prevent such risks as self-support business in disguise, off-the-balance-sheet self-support business and account lending, and prevent the hybrid operation of self-support business and entrusted investment management.

52. Securities companies shall establish a complete transaction recording system to enhance the storage and backup management of the electronic trading data, ensure the security, authenticity and integrity of the data relating to the transaction and clearing of self-support businesses, and make sure that the self-support department and accounting department shall make appropriate records and reports for the fluctuation and profit and loss of the self-support business.

53. Securities companies shall establish an independent real time monitoring system, in which the supervision department or other independent monitoring department shall be responsible for the effective monitoring on the securities position, profit and loss, risks and trading activities, and shall regularly conduct pressure test on the self-support business so as to ensure the compliance of various risk indexes of self-support business with the requirements for supervision and within the reasonable scope of the securities companies with respect to risk bearing capacity.

54. Securities companies shall strengthen the supervision over the personnel participating in the investment decision-making and trading activities, improve such personnel’s awareness of self-discipline through periodical duty report and signing letter of commitment, and prevent such personnel from obtaining improper benefits for themselves and others by taking advantage of inside information.

55. Securities companies shall ensure the legality of the source of funds for self-support business.

Section 3 Internal Control for Investment Banking
56. Securities companies shall put major efforts on preventing the risks in the legal, financial and ethics aspects brought about by such reasons as the poor management, ambiguous division of powers and responsibilities, undue diligence and conscientiousness.

57. Securities companies shall establish a project management system for investment banking, improve the business process, operation standards and risk control measures on various investment banking projects, enhance the management over the links such as contracting and determination of projects, due diligence investigation, restructuring instruction, documentation, internal audit, public offering and return visits to sponsors, strengthen the project auditing and internal assessment, and upgrade the project working paper and file management systems.

58. Securities companies shall establish a scientific, standardized and unified quality evaluation system for issuers, conduct project determination evaluation, process evaluation and comprehensive evaluation in the different phases of projects based on the due diligence investigation, and improve the overall quality of the investment banking projects.

59. Securities companies shall set out the operation flow for due diligence investigation, enhance the management of due diligence investigation of investment banking personnel in line with due diligence and bona fides, clarify the responsibility the sales persons undertake for due diligence investigation report, and conduct inspection on the due diligence investigation made by salespeople in accordance with relevant business and ethics standards.

60. Securities companies shall tighten the internal audit and quality control for investment banking projects. The investment banking risks (quality) control shall be properly separated from the investment banking operation. And the return visits to clients shall be made by the investment banking risk (quality) control department.

61. Securities companies shall intensify the decision-making management over the key links like pricing and allotment in the issuance of securities, establish a complete evaluation and handling mechanism for underwriting risks, and effectively control the underwriting risks through the risk plans that are evaluated and formulated in advance and mapping out rewards and punishments measures.

Securities companies shall set up an evaluation and monitoring system on the distributors in regard to distributing capacity.

62. Securities companies shall tighten the management over the investment banking project agreement, clarifying the signing authority on different categories of agreements. When contracting investment banking projects, securities companies shall sign relevant business agreement with clients in which the stipulations on the both parties’ rights, obligations and other matters shall be made.

63 Securities companies shall enhance the centralized management and control over the investment banking projects, and implement practical progress follow-up, input-output accounting and profit distribution on the investment banking projects.

64. Securities companies shall establish an evaluation mechanism on the intermediaries relating to the investment banking projects and enhance the coordination and cooperation with such intermediaries as lawyers’ firms, accountants’ firms and evaluation institutions.

65. Securities companies shall preclude the fraudulent underwriting.

Section 4 Internal Control over Entrusted Investment Management
66. Securities companies shall put important efforts on preventing the loss of scale control, decision fault, overstepping operation, off-the-balance-sheet operation, misappropriation of clients’ properties and other behaviors infringing clients’ rights and interests as well as the risks incurred owing to the attempts for breakeven and preserving floor benefits.

67. The entrusted investment management department in the securities companies shall be responsible for the management of entrusted investment business. The entrusted investment management business shall be strictly divided from the self-support business and shall be implemented under the independent decision-making and operation.

68. Securities companies shall formulate standardized business process, operation standards and control measures for service registration, investment operation, capital clearing and financial accounting so as to prevent various kinds of risks.

69. Securities companies shall obtain a good knowledge of clients’ credit standing, profit expectation, risk bearing capacity and investment preference and ensure the legality of the source of clients’ funds.

70. Securities companies shall formulate standardized contracts for entrusted investment management and fairly treat clients in accordance with the relevant laws, regulations and the CSRC stipulations.

The provision of commitment for profits shall not be stipulated in the entrusted investment management contract.

71. Securities companies shall sign entrusted investment management contracts with clients and strictly carry out the contract approval procedures. And securities companies shall manage the entrusted assets and control risks within the authority specified in the contract.

72. Securities companies shall manage the entrusted assets by closed operation and special accounts, and ensure the independent management and operation between the clients’ funds and self-owned funds, as well as the security and integrity of the entrusted assets.

Securities companies shall create conditions to introduce qualified banks as the trustees for the entrusted assets.

73. Securities companies shall establish a standardized risk pre-warning mechanism, in which the independent supervision department or risk control department shall supervise the operation status of the entrusted investment management business and shall conduct inspection and evaluation at regular or irregular intervals.

74. Securities companies shall enhance the central management over the files and information of the contracts, transactions, complaints handling with respect to the entrusted investment management business, ensure that appropriate records shall be made on the fluctuation, profit and loss of such business, and duly provide the information concerning the valuation and risk status of the entrusted assets for the clients.

Securities companies shall set out clear and detailed information disclosure system for entrusted investment management business and ensure the clients’ right to know. The settlement report prepared shall be confirmed by the clients after the expiration of contract, and, if necessary, shall be reviewed by the intermediaries or trustees.

75. Securities companies shall control the scale of entrusted investment management business in a reasonable manner according to their own management capacity and risk control level.

Section 5 Internal Control over Research and Consultancy service
76. Securities companies shall prevent such material risks as disseminating false information, misleading investors, practicing without qualification or practicing against laws and regulations, and conflicts of interest.

77. Securities companies shall tighten the unified management over the research and consultancy service, improve the business standards and personnel management system, formulate proper systems for withdrawal from practice, information disclosure and information retaking wall to prevent conflicts of interest.

78. Securities companies shall gain a better understanding of clients, duly provide clients with relevant consultancy service on securities investment, and handle inquiries and complaints from clients in an appropriate way by keeping a smooth communication channel with clients.

79. Securities companies shall establish a sound mechanism of information retaking wall to set up segregation among the research and consultancy, investment banking and self-support departments with respect to department, personnel and information management. Any persons or business crossing information-retaking wall shall be recorded completely and the silent period shall be applied. And such persons and businesses shall be monitored as key targets.

80. Securities companies shall strengthen the centralized management and risk control over the business premises (including online studio) in various kinds and assemblies of investment consultation, and make sure that the personnel who provide consultancy on securities investment to the public have relevant qualifications, that the relevant activities have been reported to competent authorities, and that there are not any illegal investment consultancies at the business premises of securities companies.

81. Securities companies shall enhance the administration on the practitioners of securities investment consultancy and such practitioners’ practice qualifications (certificates) and make sure that there are no persons working part time or in affiliation. In case of any change (including leaving the consultancy office) of practitioners, the relevant procedures shall be handled in due time.

82. Securities companies shall set up complete files for research and consultancy service and for client service, including client service records, records of stock recommendations, research reports and published articles on research and consultancy, and fulfill the relevant filing obligation.

Section 6 Internal Control over Business Innovation

83. Securities companies shall prevent such risks as violation and incompliance with laws and regulations, loss of scale control and decision faults with respect to business innovation.

84. Securities companies shall conduct business innovation in accordance with laws and regulations and prudent management, enhancing centralized management and risk control.

85. Securities companies shall set out complete working procedures for business innovation and strict internal approval procedures, and make clear and specific the requirements for feasibility research, product or service design, risk management, operation and implementation plan, which shall be approved by board of directors.

86. Securities companies shall communicate with the CSRC in due time on the basis of feasibility research, and fulfill the report (for filing or approval) procedures for innovation business.

87. Securities companies shall design scientific and rational flow of innovation business, and formulate risk control measures and related accounting and funds management methods.

88. Securities companies shall focus on the process control of business innovation and redress any deviations.

Section 7 Internal Control over Branches

89. Securities companies shall prevent branches from management overstepping authorities, loss of budget control and ethics risks.

90. Securities companies shall set up practical branch administration system to tighten the management over the seals, certificates, contracts and funds and be duly informed of the operations of various branches.

91. Securities companies shall reasonable and definite authorization to the branches, ensuring that the branches conduct management within the authorized scope, and formulate measures to prevent the management overstepping authorities.

92. Securities companies shall define the development and management objectives for branches, and enhance the budget management and assessment on the funds, expenses and profits. The assessment on the performance of branches shall be comprehensive.

93. Securities companies shall enhance the supervision on the branches through on-site and non on-site inspections.

94. A securities company shall require its branches to disclose to the clients the complaint hotline, fax number, email address and other relevant information of their own and the securities company so as to ensure an immediate handling of any complaints.

95. A securities company shall require its branches to set up major events reporting system and emergency response system.

Section 8 Internal Control over Financial Management

96. Securities companies shall set up complete financial management system and fund planning and control system, clarify the responsibilities of budget preparation and execution, and establish appropriate assessment standards and evaluation system on fund management performance.

97. Securities companies shall strictly divide the clients’ funds and self-owned funds, and strengthen the centralized management over the funds.

Securities companies shall assign a special department to be responsible for the planning, raising, distribution and utilization of self-owned funds, and enhance the monitoring and assessment of the risks and efficiency of the utilization of self-owned funds.

Securities companies shall centralize the liability management authorities and enhance the control over the liability risks, costs and scales.

98. Securities companies shall manage the clients’ bonds and self-owned bonds separately, and enhance the centralized management of self-owned bonds buyback and planning management of buyback funds by strictly controlling the scale of buyback business for self-owned bonds and preventing any misappropriation of client’s bonds for buyback business.

99. Securities companies shall formulate clear financial system and fund management procedures, strictly execute the approval procedures for funds transfer and utilization, tighten the planning management over the fund raising with respect to size, structure and forms, prohibit any branch from conducting funds borrowing, lending, guarantee and self-support bonds buyback.

100. Securities companies shall set out and strictly execute the expense management measures, enhance the budgetary control on expenses, clarify the expenses standards, and strictly implement the provision borrowing management and expenses reimbursement approval procedures.

101. Securities companies shall have special department to be responsible for the settlement and funds position management on the clients’ settlement funds for transactions, and prevent any misappropriation of clients’ settlement funds.

102. Securities companies shall enhance the bank accounts management. The branches shall transfer all the funds to the headquarters of securities companies in due time except for those reserved in the local bank accounts as ratified through authorization.

Securities companies shall strictly control the direct and transversal funds transfer among business departments or branches.

103. Securities companies shall enhance the monitoring on the funds risks, strictly control the liquidity risks, and especially prevent the risks incurred by the business offices that are commissioned for wealth management, securities buyback and financing against the rules.

104. Securities companies shall establish a beforehand risk and benefit evaluation system on the large-value fund raising and utilization, through which a collective decision-making shall be made on such aspects as the raising, allocation and utilization of important funds, external guaranty, assets mortgage, external investment and vital assets acquisition.

105. Securities companies shall make regular follow-up inspection or random inspection on the business departments and branches with regard to cash inventory management, funds settlement, bank deposits, internal funds transfer, large value funds and funds utilization efficiency.

106. Securities companies shall conduct real time monitoring on the funds balance and its variation, and establish a pre-warning and abnormalities handling mechanism.

107. Securities companies shall appropriately distribute profits to ensure a full withdrawal of capital reserve and provisions of risk, and enhance the sustainable development capacity.



Section 9 Internal Control over Accounting System

108. A securities company shall establish a complete set of accounting methods to enhance the basic accounting work and improve the accounting information quality in accordance with the relevant accounting standards and regulations of accounting system and in light of its actual circumstances.

Securities companies shall ensure the consistency of the accounting of branches.

109. Securities companies shall conduct accounting in a timely, accurate and complete manner without any incompliances. Any change of accounting policies shall be approved by the board of directors so as to ensure the consistency of the accounting policies.

110. Securities companies shall intensify the accounting monitoring functions, enhance the monitoring before, during and after the accounting work, and strengthen the management of liabilities, follow-up assessment of large-value expenditure, risk management of major OBS (off-balance-sheet) items (e.g. guaranty, hypothecation, entrusted securities, unsettled lawsuits and compensations) and monitoring on asset quality.

111. Securities companies shall enhance the registration and safekeeping of assets, and adopt physical inventory, physical account verification, property insurance to ensure the security and integrity of the assets of the securities companies and their clients’ as well.

112. Securities companies shall improve the accounting information reporting system to provide timely and reliable financial information.

113. Securities companies shall formulate sound accounting file management and handover system.

Section 10 Internal Control over Information System

114. Securities companies shall establish the management system, operation procedures, post manual and risk control system in regard to information system, and tighten the management over the information technological personnel, equipment, software, data, equipment room security, virus prevention, anti hacker attacks, technical information, operation security, accidents prevention and handling and system network.

115. Securities companies shall set up an information technology department that shall be responsible for the information technology management, strengthening the management over the project determination, design, development, test, operation and maintenance, and conducting regular inspection on the reliability and security of the information system.

Securities companies shall make appropriate division among the project approval, development, operation and maintenance, development test and daily operation of the information system.

116. Securities companies shall implement rigorous control over the system access, authorities of information system, and password management. The approval, setup and alteration of authorities and the use and modification of password shall be strictly controlled and recorded in details.

The setup of user’s authorities shall follow the principal of minimized authority.

117. Securities companies shall ensure the completeness of the information system log, and guarantee that all the major modifications are recorded completely, and that the audit marking function is enabled.

The information system logs of securities companies shall be kept for at least 15 years.

118. Securities companies establish a reliable and complete disaster backup plan and emergency handling mechanism. Data and important information shall be backed up remotely. If permitted, the remote computer disaster backup center shall be set up. A detailed information security emergency plan shall be set out and amended and put into exercise regularly.

119. Securities companies shall establish system security and virus prevention system to monitor the information system in real time while preventing hacker or virus from attacking the system.

120. Securities companies’ technological system relating to transaction settlement shall be in compliance with the relevant technological specifications required by the CSRC, stock exchange and registration and settlement companies.

Section 11 Internal Control over Human Resources Management

121. Securities companies should pay key attention to employees’ credit records to ensure that such employees have competent professional qualifications and ethics standards in line with the requirements of the posts they hold.

Securities companies shall require the employees to make credit commitment in a proper manner.

122. Securities companies shall establish a work liaison mechanism between the functional management departments and dispatched personnel, and intensify the vertical management on the branches persons-in-charge and the personnel at key posts such as computer and finance.

123. The regular or irregular rotation and mandatory leave system shall be implemented on the personnel at key posts in securities companies.

124. The tenurial economic accountability audit and special audit shall be conducted on the personnel at key posts at the expiration of term of office, or due to job transfer or dimission. The related audit report on the senior management personnel or branches persons-in-charge shall be filed with the CSRC and its dispatched office.

125. Securities companies shall cultivate a good internal control culture, establish sound continued education system for all employees, enhance the personnel training in regulations and services to ensure that all practitioners are to be fully informed of the latest files and information concerning laws, regulations, internal control and code of conducts in due time, and that employees receive relevant information and understand its meaning through written acknowledgement.

126. Securities companies shall tighten the management over the practitioners’ qualifications for practice. Such practitioners shall meet the relevant regulations of qualification administration.

127. Securities companies shall establish rational and effective incentive and controlling mechanism and set up a rigid responsibility investigation system.

Securities companies shall implement performance assessment and adopt evaluation system for their employees with a purpose to encourage their employees to conduct operation and management in a lawful way.

128. Securities companies shall formulate a prudent personnel selection system in an open and reasonable way. Whose jurisdiction under which the power of decision on appointment and removal falls into shall be clearly defined in the appointment and removal procedures. The appointment and removal of personnel shall be recorded with complete decision-making details.

129. Securities companies shall establish an annual duty report system and hold regular talks with regard to the senior management personnel, branches persons-in-charge and other personnel at key posts.

130. Securities companies shall enhance the administration of files (including foreign affair files) of the senior management personnel, branches persons-in-charge and other personnel at key posts.

131. In case any senior management personnel in a securities company resigns, the securities company shall duly report to the CSRC and its dispatched office of the local district where the company’s domicile and principal place of business are located, indicating the reasons of resignation.

In case the branch person-in-charge and other personnel at key posts resign, the securities company shall duly report to the dispatched office of the CSRC of the local district where the company’s domicile and principal place of business are located, indicating the reasons of resignation.

Chapter 4 Supervision, Inspection and Evaluation

132. The persons-in-charge of the business departments and branches of securities companies shall be responsible for performing self-examination and self-valuation on the specific operation procedures and risk control measures within their responsibility scope, and shall be subject to the business inspection and instruction conducted by the higher level administration and supervision department of securities companies.

The business departments and relevant persons in branches that are directly engaged in business management shall have the obligation to report the weakness in internal control to the securities companies and redress it in due time. The relevant personnel shall bear the prime responsibility for the risk and loss incurred by the violations of the internal control provisions within their specific responsibility.

133. Securities companies shall set up supervision department or posts to independently fulfill the supervision functions like compliance check, financial audit, business audit and risk control, and to be responsible for submitting improvement suggestions for internal control weakness and urging relevant parties to make such improvement in due time.

The supervision department shall be responsible to the board of directors of securities companies, and shall report to the managers and supervisory committee the setup and execution of internal control of securities companies.

134. Securities companies shall have senior management personnel who shall be responsible for the supervision, inspection and evaluation of internal control of securities companies. The senior management personnel and supervision department person-in-charge may attend any meetings of securities companies.

The senior management personnel of supervision department shall not concurrently engage in the management of the business department.

135. Securities companies shall provide the supervision department with adequate professionals who have related skills and experience in law, finance and computer, make sure that the personnel of supervision department have competent qualifications required by specific posts, and provide necessary conditions for the supervision department and its personnel to perform duties.

The name list of personnel of supervision department shall be filed with the dispatched office of the CSRC of the local district where the securities company’s domicile is located.

136. The supervision department of securities companies shall enhance the on-site inspection, non on-site inspection and conventional audit, unconventional audit on the execution of internal control, and shall report the inspection results to the dispatched office of the CSRC of the local district where the securities company’s domicile is located.

The supervision department shall undertake related liabilities for the poor supervision or hiding the problems found.

137. All departments and personnel of securities companies shall render active cooperation to the work of supervision department. Any rejection or obstruction to the supervision department for performing duties and any acts of retaliations and framing against the supervision personnel shall be treated with due seriousness.

138. Securities companies shall actively cooperate with the CSRC and external audit institutions in the inspection and evaluation of internal control. Intervention or obstruction in any forms shall be prohibited.

139. Securities companies shall clarify the internal control responsibilities among the board of directors, supervisory committee and management personnel.

(1)  The board of directors shall be responsible for supervising, inspecting and evaluating the setup and execution of various internal control systems, bear the final responsibility for the effectiveness of internal control, conduct an overall inspection and evaluation on the internal control once a year and make relevant reports.

The board of directors shall conscientiously study the problems and suggestions put forward by the CSRC, external audit institutions and supervision department of securities companies with respect to the internal control and shall supervise the implementation of such suggestions.

(2)  The supervisory committee shall supervise the performance of duties by the board of directors and management personnel, conduct necessary inspection on the financial status and the setup and execution of internal control, supervise and urge the board of directors and management personnel to correct the defects of internal control in due time, and bear relevant responsibility on the circumstances like poor supervision.

(3)  The management personnel of securities companies shall be responsible for establishing a clear-cut organizational structure, organizing the identification and evaluation of various risks, setting up sound and effective internal control mechanism and system, duly correcting the defects and problems found in internal control, and shall undertake relevant responsibilities for poor internal control and untimely correction of internal control defects.

140. Securities companies shall establish a sound correction and handling mechanism for internal control defects, put forward rectification suggestions and measures according to the inspection and evaluation results of internal control, supervise and urge the business department and branches to implement such suggestions and measures, and conduct follow-up check on the implementation.

Chapter 5 Supplementary Provisions

141. The Guidance is applicable to the securities companies that are legally incorporated within the territory of the People’s Republic of China.

142. The CSRC shall be responsible for the interpretation of the Guidance.

The China Securities Regulatory Commission

Regulations on Pilot Program of Margin Financing and


Chapter 1 General Provisions



Article 1 The Regulations on Pilot Program of Margin Financing and Stock Borrowing/Lending by Securities Companies (hereinafter referred to as “the Regulations”) is formulated to regulate the margin financing and stock borrowing/lending services (hereinafter referred to as “Securities Financing”) of a securities company, ward off the securities company’ s risks, protect securities investors’ legal rights and interests as well as social benefits, and promote the improvement of the securities trading mechanism as well as the stable, sound development of the securities market.



Article 2 The securities company shall provide Securities Financing services in accordance with applicable provisions of laws and regulations as well as the Regulations, and shall strengthen the internal control, strictly prevent and control risks, effectively safekeep investors’ assets.

Securities Financing services stipulated in the Regulations refer to the business activities where the securities company provides the investor the fund to buy the listed securities or lend the investor the listed securities to sell, at the same time collects the collateral.



Article 3 The securities company must provide Securities Financing services upon approval from the China Securities Regulatory Commission (the CSRC). Without approval of the CSRC, any securities company shall not supply the investor with Securities Financing service, and shall not facilitate the Securities Financing between investors, or between the investors and other parties.



Article 4 Under the principle of prudential supervision, the CSRC approves eligible securities companies to develop Securities Financing services; and will gradually approve other qualified securities companies to be engaged in Securities Financing services, based on the progress of such services and development of securities market.



Article 5 The CSRC and its regional offices shall supervise the pilot program of the securities company’s Securities Financing services in accordance with applicable laws and regulations as well as the Regulations.

In line with the respective articles of association and rules, the pilot program shall also be self-disciplined by the Securities Association of China (the SAC), Shanghai Stock Exchange, Shenzhen Stock Exchange and the China Securities Depository and Clearing Corporation Limited (CSDCC).



Chapter 2 Licensing of Securities Financing Business



Article 6 The securities company applying for the license of Securities Financing services shall satisfy the following conditions:

6.1 the securities company has been engaged in securities brokerage for at least 3 years, and has been selected by the SAC as Pilot Innovative Type securities company;

6.2 the securities company has sound corporate governance and effective internal control, and can effectively identify, control and prevent business risks and internal management risks;

6.3 the securities company and its directors, supervisors and senior managers haven't been subjected to administrative or criminal punishment due to illegal or improper activities in most recent 2 years, and are not being under the investigation of the CSRC or under rectification because of the suspected violation of laws and regulations;

6.4 the securities company has sound financial status, with every risk control indicator in accordance with the applicable provisions consistently during recent two years, and net capital for recent 6 months above RMB 1.2 billion;

6.5 investor assets are safe and intact, and the tri-party custody project of investor settlement fund has been approved by the CSRC and the implementation schedule has been outlined clearly;

6.6 the trading, clearing, investor accounts and risks monitoring have been administered collectively, and abnormal historic accounts have been bookmarked and monitored collectively;

6.7 feasible implementation plans of Securities Financing services and internal management systems have been established, and professional personnel, technical systems, fund and securities have been in place for the development of Securities Financing service.



Article 7 The securities company applying for the license of Securities Financing services shall submit to the CSRC and at the same time to the CSRC regional offices at the domicile, the following materials:

7.1 the application for the license of Securities Financing pilot services;

7.2 the resolutions of shareholders’ general meeting on matters concerning Securities Financing services;

7.3 the implementation plans of Securities Financing services, the copy of internal management systems and the criteria for evaluating the investor specified in Article 12 of the Regulations;

7.4 the statement about the tri-party custody of investor trading settlement fund;

7.5 the list and qualification certification documents of senior managers and business personnel in charge of Securities Financing services;

7.6 other documents required by the CSRC.

The securities company’s legal representative and key executives shall sign the application for the license of Securities Financing services, confirming that the content of the application materials is real, accurate and complete, and jointly bearing the corresponding legal responsibilities for any false record, misleading statement or major omission in the application materials.



Article 8 The CSRC regional offices shall submit to the CSRC the written comments on whether the applicants shall be approved to develop Securities Financing services, within 10 working days from the date when they receive application materials specified by the aforesaid article.

The CSRC shall send the final decision in written form to the applicants, after it has examined the application materials according to the procedures and the conditions stipulated in the Regulations, and has organized experts to evaluate the implementation plans of the applicants’ Securities Financing services.

Priority shall go to the securities companies ranking among the top list of net capital level.



Article 9 Before developing the Securities Financing services, the approved securities company shall apply for the registration of business scope change to the local Company Registration Administration Bureau, and apply to the CSRC for the recertification of the Securities Business Licensing.



Chapter 3 Operating Rules



Article 10 The securities company providing Securities Financing services shall open in its name a special securities borrowing/lending securities account (SBL securities account), margin trading investor securities collateral account, margin trading securities settlement account and margin trading cash settlement account respectively in the CSDCC.

SBL securities account is used for recording the securities that the securities company is intended to provide to the investor and the securities that the investor returns, and can not be used for securities trading; margin trading investor securities collateral account is used for recording the securities that the investor entrusts to the securities company so as to guaranty the creditor’s rights arising from Securities Financing between securities companies and investors; margin trading securities settlement account is used for securities settlement of the investor’s Securities Financing; margin trading cash settlement account is used for cash settlement of the investor’s Securities Financing.



Article 11 The securities company providing Securities Financing services shall open in its name special margin financing cash account and margin trading investor cash collateral account respectively in a commercial bank.

Special margin financing cash account is used for depositing the cash that the securities company is intended to lend to the investor and the cash that the investor returns; margin trading investor cash collateral account is used for depositing the cash that the investor submits to commercial banks so as to guaranty creditor’s rights arising from Securities Financing between securities companies and the investor.



Article 12 Before providing Securities Financing services, the securities company shall conduct the investor’s credit investigation, finding out the investor’s identity, assets and income status, securities investment experience and risks preference, recording and retaining them in written and electronic forms.

The securities company shall not provide Securities Financing services to the investor if he does not provide relevant circumstances according to the specified requirements; is engaged in securities trading for less than half a year; doesn’t put trading settlement cash into the tri-party custody; has no enough securities investment experience; is short of the abilities to shoulder risks; or has records of major breach of faith.

The securities company shall set up the material criteria of investor selecting in compliance with the aforesaid section.



Article 13 Before providing Securities Financing services, the securities company shall sign with the investor the stock borrowing/lending and margin financing contract (the SBL/MF contract) which contain the statutory articles stipulated by the SAC. The contracts shall explicitly specify the following items:

13.1 quota, term, interest rates (fee rates) and interest (fee) calculation methods of Securities Financing;

13.2 the initial margin ratio, the maintenance margin requirement, the description of securities that may be deposited in the margin account to meet margin requirement and the associated conversion rate, scope of secured creditor’s rights;

13.3 the ways of margin call and the deadline of depository of the additional margin;

13.4 the ways that the investor settles debts and securities companies’ rights to dispose of the collateral.

13.5 rights and interests disposition of securities bought on margin or sold short;

13.6 other relevant items.

The investor can only sign the SBL/MF contract with one securities company to borrow money and securities from it.



Article 14 The SBL/MF contract shall specify that, securities in the securities company’s’ margin trading investor securities collateral account and cash in margin trading investor cash collateral account are trust assets that guaranty the creditor’s rights that securities company has owned on the investor due to Securities Financing services.

The term of Securities Financing services stipulated by the securities company and the investor shall not exceed the maximum term, without any rollover; margin financing rate shall not be below the benchmark lending rate over the same period specified by the People's Bank of China.



Article 15 Before signing the SBL/MF contract with the investor, the securities company shall designated the professional personnel to explain the business rules and contract content, and submit risk disclosure statement of Securities Financing to the investor for signature validation.



Article 16 After signing the stock borrowing/lending and margin financing contract with the investor, the securities company shall open a secondary securities collateral account in the name of the investor at the CSDCC under the securities company’s account.  An investor can only open one securities collateral account for Shanghai Stock Exchange and Shenzhen Stock Exchange respectively.  The name of the investor’s securities collateral account shall be identical with that of the normal securities account.



The purpose of the securities collateral account (which is under the margin trading investor securities collateral account of the securities company) is to record the details of securities collateral placed with the securities company. 



The securities company shall via the CSDCC update the securities collateral account status according to the settlement and clearing results.



Article 17 The securities company shall sign a tri-party custody agreement with the investor and a commercial bank for the safekeeping of investor’s cash collateral.  After signing the SBL/MF contract with the investor, the securities company shall also open a secondary cash collateral account in the name of the investor at the commercial bank under the securities company’s margin trading investor cash collateral account.  An investor can only open one cash collateral account. 



The purpose of this cash collateral account is to record the details of cash collateral placed to the securities company.



The commercial bank shall update the cash collateral account status according to the settlement and clearing results by the securities company.



Article 18 The securities company is limited to the cash in the special margin financing cash account when conducting margin financing, while to securities deposited in the special SBL securities account when lending stock to its investors.



The investor shall be aware of the eligible securities that can be used for SBL/margin trading on the stock exchanges. The investor shall report to the securities company all the securities accounts held by himself and his related parties. The investor shall also report to the securities company within three trading days after occurrence if the investor or his related parties sell the securities borrowed during the SBL period.  Such activity shall comply with relevant rules stipulated by the stock exchanges.



The securities company needs to report the daily activities of SBL/margin trading to the stock exchanges on a monthly basis.



Article 19 The securities company with Securities Financing services shall confirm that the trading and transfer instructions by the investor are true and accurate. In case the investor suffers from any loss incurred by the error of the securities company, he may claim against the securities company for compensation by law, but this shall not terminate the operation conducted or in process by the stock exchanges and the CSDCC.



Article 20 The amount of the net equity of the securities company in proportion to the amount of funds or securities committed to SBL/MF services provided to all investors, a specific investor group or a description of securities shall be in compliance with the regulations of the CSRC.



Article 21 The investor shall return the borrowed fund to the securities company through sales proceeds or direct payment. 



On the other hand, the investor shall return the borrowed securities to the securities company through buy back from the market or return the securities directly.



Article 22 For securities on loan that are being suspended from trading, and the trading resumption date falls after the maturity date of the SBL/margin trading activity, the maturity date shall be postponed accordingly, unless otherwise specified in the SBL/MF contract.



Article 23 For securities on loan that are scheduled to be terminated from trading, and the last trading date falls before the maturity date of the SBL/margin trading activity, the maturity date shall be shortened to the previous trading date of the last trading date, unless otherwise specified in the SBL/ MF contract.



Chapter 4 Collateral Placement



Article 24 The securities company shall collect the initial margin in the form of either cash or securities from the investor who intends to engage in SBL/margin trading.



Article 25 The securities company shall deposit the margin together with the securities purchased via margin financing and the fund obtained from sale of the shares borrowed into the margin trading investor securities collateral account and the margin trading investor cash collateral account as the collateral.



Article 26 The securities company shall mark-to-market the total collateral on a daily basis and notify the investor to top up margin requirement if the maintenance margin ratio falls below the minimum margin requirement. The securities company is entitled to dispose of the collateral based on the SBL/MF contract in case the investor fails to meet the requirement.



Article 27 The stock exchanges can set the limitation on margin ratio, the type and conversion rate of securities as margin, the maintenance margin requirement and the deadline as stipulated in Article 24 and Article 26.



The securities company can specify the items in 24 and Article 26 in compliance with the stipulations of the stock exchanges.



Article 28 In no circumstances shall the securities in margin trading investor securities collateral account or cash in the margin trading investor cash collateral account be withdrawn except the situations as follows:

1)    settlement conducted for the SBL/margin trading;

2)    cash or securities to be returned by the investor;

3)    interest, fees, taxation to be paid by the investor;

4)    collateral to be disposed of as stipulated in the Measures or in compliance with the Securities Lending contract;

5)    penalty from the investor;

6)    the remaining securities or cash after payment of interest, taxation or penalty;

7)    other specified situations as stipulated in relevant regulations



Article 29 When margin ratio is over the level stipulated by the stock exchanges, the investor can withdraw the collateral based on the SBL/MF contract.



Article 30 Where the financial claims connected to the securities collateral account or the cash collateral account are subject to property preservation or compulsory execution, the securities company shall provide assistance to the relevant judicial authorities and dispose of the investor collateral to settle the liabilities arising from the SBL/MF services.



Chapter 5 Entitlement Disposal



Article 31 The CSDCC shall validate the securities held by the securities company via the records in the margin trading investor securities collateral account, and enroll the securities by the name of the securities company.



Article 32 In its name, the securities company shall execute the rights on the securities recorded in the margin trading investor securities collateral account to the securities issuer under the request of the investor.



The rights to the securities issuer include the request for the general meetings of securities holders, attendance of the meetings, raising proposals, making resolutions, subscription for rights issue, profit distribution, etc.



Article 33 If there are any bonus issue and cash dividend, the securities company should update the record in margin trading investor securities collateral account and the secondary cash collateral account accordingly.



In case there is any cash dividend, the CSDCC shall transfer the cash dividend to the margin trading cash settlement account of the securities company. The commercial bank should update the record in the secondary investor’s securities collateral account and secondary cash collateral account accordingly.



Article 34 When the investor returns the securities borrowed, he should pay the benefit of the securities borrowed to the securities company derived from such corporate actions as proceeds distribution, placement or preemptive rights. The investor shall pay to the securities company in the form of cash or securities as stipulated in the SBL/MF contract.



Article 35 The securities maintained in margin trading investor securities collateral account will not be counted into total securities held by securities company and no disclosure requirement is needed.  The collateral securities should be calculated into the investor’s total holding and the investor will take the responsibility to make substantial shareholder disclosure for the holding maintained in the secondary securities collateral account together with holding in their normal securities account.



Chapter 6 Supervision


Article 36 The Stock Exchange may impose restrictions on the volume of margin trading (i.e. securities bought on margin or sold short) in proportion to the aggregate trading volume for each securities, and ceiling on short selling price.



Article 37 The Stock Exchange shall conduct advance examination on margin trading instructions in accordance with the Operating Rules. Any instructions inconsistent with the regulations on eligible securities for margin trading or short selling prices will be rejected.



When the margin trading volume for a specific securities has reached the stipulated ceiling ratio vs its aggregated trading volume, the Stock Exchange is entitled to suspend the margin trading in such securities.



Articles 38 When abnormality occurs in margin trading which has disturbed or may disturb market stability, the Stock Exchange shall, in accordance with the Operating Rules, suspend margin trading in whole or in part and make information disclosure accordingly.



Article 39 The CSDCC shall monitor securities transfer in relation to margin trading and fund transfer in cash collateral accounts in line with the Operating Rules. Any illegal instructions for securities and fund transfer shall be rejected. In the event of abnormal conditions, the CSDCC shall ask for explanation from the securities company and report to the CSRC and its regional offices.



Articles 40 The commercial bank designated for depository of the investor’s margin shall, in line with the margin depository agreement with the investor, reject any improper fund transfer instructions of the securities company. In case of abnormal conditions, the commercial bank shall ask for explanation from the securities company and report to the CSRC and its regional offices.



Article 41 The securities company shall send account statements to the investor in line with the SBL/MF contract, and provide the investor inquiry services for his securities collateral account and cash collateral account.



The CSDCC shall provide the investor inquiry services for his securities collateral account. The commercial bank designated for depository of the investor’s margin shall provide the investor inquiry services for his cash collateral account in line with the margin depository agreement.



Article 42 The securities company shall send daily report on margin trading to the Stock Exchange in line with the stipulation.



The Stock Exchange shall compile filings from the securities company and make disclosure before market opening of the next trading day.



Article 43 The securities company shall make monthly filing of the following information with the CSRC and its regional offices, as well as the Stock Exchange within 10 days following each month:

(1)        The quantity of accounts on Securities Financing business opened each month;

(2)        The balance of margin financing & stock borrowing/lending of all investors and top 10 investors;

(3)        The type and the quantity of collaterals by investors;

(4)        The number of investors and the turnover in relation to forced liquidation;

(5)        Risk control indicators;

(6)        Financial performance of margin financing& SBL services



Article 44 The CSRC and its regional offices, the SAC, the Stock Exchange and the CSDCC shall discharge their duties of self-discipline and supervision on Securities Financing services of the securities company in line with applicable regulations, and may ask for information and materials in relation to Securities Financing services from the securities company.



Article 45 Regional offices of the CSRC shall, in line with responsibility system of jurisdiction supervision, conduct spot inspection or other forms of inspection on Securities Financing services of the securities company and its branches, in the aspects of investor selecting, signing of SBL\MF contracts, determination of credit limit, collection, management and disposal of collateral, as well as margin call for collateral.



Article 46 Regional offices of the CSRC shall cease improper activities of the securities company and its branches when carrying out Securities Financing pilot services, and ask them to take corrective actions within a prescribed time limit. Where the circumstances are serious or no corrective measures are being taken, the CSRC will take appropriate regulatory measures including private or public reprimand, request actions against the wrongdoer, sanction on the Securities Financing activities, revocation of Securities Financing business license, etc.



The securities company and its branches carrying out margin financing& securities borrowing/lending services without permission from the regulator will be punished according to Article 205 of the Securities Law.



Chapter 7 Supplementary Provisions



Article 47 The Stock Exchange, the CSDCC and the SAC shall formulate operating rules and self-discipline rules for margin financing& SBL services in line with the Regulations, which shall be implemented upon approval from the CSRC.



Article 48 The Regulations will take effect as of August 1st, 2006



The China Securities Regulatory Commission

Securities Depository and Clearing Rules


Chapter 1 General Provisions



Article 1 The Securities Depository and Clearing Rules (hereinafter referred to as “ the Rules”) are formulated with a view to regulating securities depository and clearing activities, protecting the rights and interests of investors, maintaining the order of the depository and clearing activities, mitigating securities depository and clearing risks and promoting an efficient securities market in accordance with the Securities Law of the People's Republic of China, Company Law of the People's Republic of China and other applicable laws and regulations.



Article 2 The Rules are applicable to the depository and clearing of stocks, bonds, securities investment funds and securities derivatives (hereinafter referred to collectively as “Securities”) listed on the Stock Exchange.



The rules also apply to the depository and clearing of unlisted securities.



Apart from the Rules, matters concerning the depository and clearing of domestic listed foreign shares are also subject to applicable laws, regulations and requirements of the China Securities Regulatory Commission (hereinafter referred to as the “ CSRC”).

     

Article 3 The securities depository and clearing activities shall be carried out in an open, fair, just, safe and efficient manner.



Article 4 The China Securities Depository and Clearing Co., Ltd. (hereinafter referred to as “the CSDCC”) is established as a not-for-profit legal entity for the purpose of providing securities registration, depository and clearing services.



The CSDCC adopts a nationwide centralized securities depository and clearing system on a self-discipline basis.



Article 5 The securities depository and clearing services shall be conducted in accordance with applicable laws, rules and regulations, requirements of the CSRC and the CSDCC’s operating rules.



Article 6 The CSRC shall supervise over the CSDCC’s securities depository and clearing activities in accordance applicable laws.



Chapter 2 Securities Depository and Clearing Institution



Article 7 The establishment and dissolution of the CSDCC shall be approved by the CSRC.



Article 8 The main services of the CSDCC are:

(1)  The establishment and maintenance of securities accounts and clearing accounts;

(2)  Securities depository and transfer;

(3)  Registration of securities holders and their entitlement;

(4)  Clearing and settlement of securities transactions as well as relevant management;

(5)  Investment income distribution on behalf of securities issuers;

(6)  Inquiry, information, consultation and training services in relation to securities depository and clearing services;

(7)  Other services permitted by the CSRC.



Article 9 The CSDCC shall not engage in the following conduct:

(1)  Investments irrelevant to the securities depositary and clearing service;

(2)  Investment in real estate for commercial or speculative purposes;

(3)  Securities trading beyond the scope prescribed in Article 65 and Article 66 of the Rules;

(4)  Conduct prohibited by laws, regulations and the CSRC.



Article 10: CSDCC shall report to the CSRC for approval on the following matters:

(1)  The formulation of or amendment to the articles of association or the operating rules;

(2)  Significant international cooperation and exchange activities as well as those involving Hong Kong Macao and Taiwan affairs;

(3)  The determination or adjustment of major charging items and rate schedule in relation to the securities depository and clearing service；

(4)  The appointment or dismissal of the chairman of the board, the vice chairman, the general manager or the deputy general manager;

(5)  Other issues which shall be approved by the CSRC under applicable laws and regulations.



The operating rules stated in (1) refer to the CSDCC’s operating procedures for the securities depository and clearing service, including securities account management, securities registration, depository, custody and clearing, as well as clearing participant administration.



Article 11 The CSDCC shall file the following issues and documents with the CSRC:

(1)  The operational procedures;

(2)  The formulation of or amendment to the management system, recovery plan and contingency procedures for the securities depository and clearing service;

(3)  Provision of depository and clearing service for a new type of securities and the changes in the depository and clearing process;

(4)  The admission or revocation of clearing participantship or status of clearing banks;

(5)  Substantial business and technical risks, serious breach of laws and regulations or major lawsuits;

(6)  The appointment or dismissal of general managers of the CSDCC branches, the CSDCC’s assistance general managers or divisional supervisors;

(7)  The annual working report on business operations and the CSDCC’s compliance with relevant regulations;

(8)  The CSDCC’s audited annual financial reports, financial budget and material expenditure; auditor appointment and replacement;

(9)  Major cooperative agreements with the Stock Exchange and the forms for service agreements with securities issuers, clearing participants and clearing banks;

(10) Other issues and documents which shall be filed with the CSRC under applicable laws and regulations.



Article 12 The CSDCC shall keep properly the original records and relevant materials of securities registration, depository and clearing services for at least 20 years.



Article 13 The CSDCC retains the patent on data and information it compiles in relation to the securities depository and clearing service, which shall not be commercially exploited without approval from the CSDCC.



Article 14 The CSDSS and its staff are obligated to preserve the confidentiality of the data and information in relation to the securities depository and clearing service.



The CSDCC does not provide inquiry service for data and information in relation to the securities depository and clearing service, except in the following circumstances, where:

(1)  The securities holder inquires about his securities information;

(2)  The securities issuer inquires about the shareholder register and relevant information;

(3)  The stock exchange asks for relevant data and materials in accordance with applicable laws and regulations;

(4)  The people’s court, the procuratorate, the police or the CSRC conduct investigation and evidence collection under statutory conditions and procedures.



The CSDCC shall cater convenient account inquiry service for securities holders.



Article 15 The CSDCC shall make available for the public its operating rules, major charging items and the rate schedule in relation to the securities depository and clearing service.



The CSDCC shall consult with relevant market participants on the formulation or revision of the operating rules as well as the adjustment to major charging items and the rate schedule in relation to the securities depository and clearing service.



Article 16 The CSDCC’s staff shall act with dedication, diligence and compliance with laws and regulation, and shall not take undue advantages of his position for personal benefits or leak confidential information.



The CSRC will take administrative actions against the CSDCC, the supervisor in charge and staff involved for the breach of the Securities Law and the Rules.



Chapter 3 Securities Account Management



Article 17 To be eligible for securities investment, the investor shall open a securities account for recording the balance and changes of securities held by the investor.



Article 18 Securities shall be credited to the beneficiary’s account, unless otherwise provided by applicable laws, regulations and requirements of the CSRC that securities will be credited to the nominal holder’s account.



The CSDCC may ask the securities nominal holder to provide relevant information of the beneficiary in line with applicable laws and regulations.



Article 19 The investor shall apply to the CSDCC for establishing the securities account with reliable, accurate and complete account opening information.



Article 20 The CSDCC may establish the securities account directly or designate the qualified securities company as the account-opening agent.



The securities account shall be established in such a manner that reconciles the investor’s needs and optimization of resource allocation.



Article 21 The securities company shall apply to the CSDCC for the status as the securities account-opening agent. 



The securities company shall, in line with the CSDCC’s operating rules, establish the true, accurate and full identity of the investor and other account-opening materials, and retain the records for at least 20 years.



Article 22 The beneficiary of the securities account is prohibited from lending the account to a third party.



Article 23 The CSDCC shall supervise the account opening activities by its agents in accordance with the operating rules, and may take administrative actions against the agent for the breach of the operating rules (e.g. license suspension or revocation), as well as refer the matter to the CSRC for instigating disciplinary actions against the defaulter including suspension or revocation of the securities business license; disciplinary proceedings may be exercised against the supervisor in charge and staff involved for the breach (including issuance of a reprimand jointly or severally, imposition of a fine and revocation of the business qualification or the securities industry license).



Article 24 The securities company shall know detailed client information and their credit standings, and monitor the use of securities accounts. Any improper use of the securities account will be handled in line with the CSDCC’s operating rules, and be reported to the CSDCC and the Stock Exchange. Where a legal entity establishes the securities account or trades securities in the name of the other person, the securities company shall refer the matter to the CSRC for instigating administrative actions against the defaulter. 



Article 25 The CSDCC will take administrative actions including restricted access to or cancellation of the securities account against the investor’s improper operations in establishment and use of the securities account.



Chapter 4 Securities Registration



Article 26 The securities registration may be entrusted to the CSDCC by the issuer, where the two parties shall enter into a securities registration & service agreement with clarified rights and obligations for each party. 



The CSDCC shall formulate and disseminate the form for the securities registration & service agreement.



The CSDCC may cater for registration of listed government bonds at the request of the government bond authority.



Article 27 The CSDCC shall maintain the shareholder register with the verification of investors’ shareholding status according to their account information.



Article 28 The securities issuer shall make the IPO shareholder register and other relevant materials available for the CSDCC to establish the original shareholder register of such securities.



The issuer shall guarantee the legality, authenticity, accuracy and integrity of materials it provides to the CSDCC. The CSDCC will not take any liability for any losses or damages arising from the misleading shareholder register and other incorrect materials attributable to the issuer.



Article 29 The CSDCC shall maintain the shareholder register of a listed securities according to the settlement records of securities transactions.



In case of securities transfer in the nature of negotiated or forced transfer, heritage, donation and government transfer, etc, the CSDCC shall process changes in the balance in securities accounts and the shareholder register in line with the operating rules.



The CSDCC shall earmark in the shareholder register the restricted securities holders in respect of securities pledge, lock-up and freeze.



Article 30 The CSDCC shall ensure the reliability, accuracy and integrity of the shareholder register and the securities transfer records, and shall be liable for any omission, counterfeit and destruction.



Article 31 The CSDCC shall deliver the shareholder register and relevant information to the securities issuer on a regular basis in line with the operating rules and the agreement.



Article 32 To apply for nominee services such as the investment income distribution, the securities issuer shall file required materials with the CSDCC and pay service fees in line with the operating rules and the agreement.



The securities issuer shall make announcement accordingly in case the CSDCC suspend nominee services due to the issuer’s failure in meeting its obligations.



Article 33 In case of termination of securities registration & service agreement by the securities issuer or its liquidation group, the CSDCC shall return the shareholder register and other registration materials to them in line with applicable laws.



Chapter 5 Securities Custody and Depository



Article 34 Unless otherwise provided by applicable laws, regulations and requirements of the CSRC, the CSDCC shall provide centralized depository of securities registered in the name of either the securities company or its clients, and the investor’s securities shall be held in the custody of the securities company.



Article 35 the CSDCC shall establish respective general legers for the securities company’s proprietary trading and brokerage trading for recording the deposit and withdrawal of securities registered in the name of the securities company and its clients.


Unless otherwise provided by applicable laws, regulations and requirements of the CSRC, the CSDCC shall be commissioned to maintain the securities company’s proprietary account and its clients’ securities accounts.



Article 36 To participate in securities investment, the investor shall enter into the securities brokerage, custody and clearing agreement with the securities company.



The CSDCC shall prescribe and disseminate the mandatory provisions in relation to the securities depositary and clearing service in the securities brokerage, custody and clearing agreement, which shall include, but not limited to:

(1)  The Securities Company shall place the trading instructions upon client’s entrustment, execute settlement of each valid transaction and take corresponding settlement responsibility in line with the securities trading rules; the securities transfer between the securities company’s securities settlement account and its client’s account shall be executed by the CSDCC commissioned by the securities company after the market close.

(2)  The investor and the securities company that involved in a collateralized repurchase agreement shall provide the required pledged securities to the CSDCC in accordance with the operating rules; the liabilities between the investor and the securities company will not prejudice the CSDCC’s pledge rights on the pledged securities.

(3)  In case of a client’s default in meeting his payment obligations, the CSDCC may, on behalf of the securities company, transfer the client’s net-buy securities into the securities company’s Securities Disposition Account, and require the client to make the payment within a specified time limit. In case of a client’s default in meeting his securities delivery obligation, the securities company is entitled to detain equivalent amount of cash from the client.



Article 37 The securities company shall file with the CSDCC the establishment, change and termination of securities custody services for clients for the purpose of record retention.



Article 38 Unless otherwise provided by applicable laws, regulations and requirements of the CSRC, the securities company shall process the transfer of securities custody to another securities company upon the client’s request, in line with relevant operating rules of the stock exchange and the CSDCC.



Article 39 The securities company shall take effective measures to protect the securities under its custody from misappropriation and unauthorized sale.



The CSDCC shall take effective measures to protect the securities under its depository from misappropriation and unauthorized sale.



Article 40 The pledge, lock-up, freeze and fortfeit of securities shall be executed by the securities company and the CSDCC in accordance with applicable regulations.



Chapter 6 Securities Clearing & Settlement



Article 41 The securities company shall apply to the CSDCC for admission as the CSDCC clearing participant in order to participate in the central securities clearing and settlement system. The CSDCC and its participant shall enter into a Clearing & Settlement Agreement which serves to clearly define obligations and rights for each party.



The securities company that is not a clearing participant may enter into an Agency Clearing & Settlement Agreement with a clearing participant under which the clearing participant will act as the clearing & settlement agency on behalf of the securities company.



The CSDCC shall prescribe and publicize the standard samples for the Clearing & Settlement Agreement as well as the Agency Clearing & Settlement Agreement.



Article 42 The CSDCC shall designate a qualified commercial bank for settlement of money obligations in respect of the securities clearing and settlement services. The eligibility criteria and conditions applicable to the Designated Clearing Bank shall be set out by the CSDCC.



Article 43 The central securities clearing & settlement is structured as a stratified system wherein the CSDCC acts as the central counterparty to each clearing participant who in turn acts as the counterpart to each of its clients.



Article 44 The CSDCC shall set up a Central Stock Clearing Account and Central Cash Clearing Account for settlement of delivery or payment obligations due to or from the clearing participants on each settlement day.



Each clearing participant shall have a Stock Clearing Account and a Cash Clearing Account in the CSDCC for settlement of delivery or payment obligations in line with the provisions set out by the CSDCC. In relation to a clearing participant involved in proprietary trading, brokerage, and asset management activities simultaneously, a Brokerage Stock Clearing Account and a Brokerage Cash Clearing Account for settlement of brokerage trading shall be established as well and be separated from the Proprietary Stock Clearing Account and the Proprietary Cash Clearing Account which are used for settlement of proprietary trading.



Article 45 The CSDCC may adopt a Multilateral Net Settlement System (the MNS System), wherein the CSDCC becomes substituted as the common settlement counterparty to each clearing participant and settlement will be effected between each clearing participant and the CSDCC on a delivery versus payment basis (DVP basis). 



Article 46 Under the MNS System, the Clearing & Settlement Agreement entered between the CSDCC and its participant shall address the following aspects:



(1) The payment or delivery obligations/ between the participants under a particular transaction will be transferred to the CSDCC, which becomes substituted as the sole settlement counterparty for the buyer and seller;

(2) Upon effective transfer of entitlements or obligations under a particular transaction, the CSDCC shall be obligated to satisfy the settlement obligations whilst be entitled to any benefit entitlement under that transaction.



Article 47 Under the MNS System, the obligation to deliver securities or the amounts to be paid between the CSDCC and each clearing participant in respect of the same issue of securities and having the same settlement date shall be set-off against each other to arrive at a net money position or net obligation of securities to be delivered. The clearing participants will be kept informed of its net money or securities position as calculated in the netting process.



Other securities settlement procedures are set out separately.



Article 48 Prior to the central settlement of transactions in the CSDCC, the clearing participant shall ensure that there are sufficient securities in its Stock Clearing Account as well as sufficient funds in its Cash Clearing Account available to effect the settlement by collecting the securities and funds due from its clients.



The transfer of securities ownership between the clearing participant and its client shall be executed by the CSDCC.



Article 49 The CSDCC will settle the net outstanding money/stock position at the stated settlement period by taking the money or securities due from the clearing participant, whilst making the payment or delivery of securities it owes to the clearing participant on an irrevocable basis.



The clearing participant who fails to make full payment of any sum payable or fails to deliver the securities due on a timely basis may not receive the money or securities due from its counterparty.



With regard to a clearing participant involved in proprietary trading, brokerage, and asset management activities simultaneously, the CSDCC may select to apply the funds in its Proprietary Cash Clearing Account to meet the liabilities owed by its client, provided that the funds in the Brokerage Cash Clearing Account are insufficient to meet the liabilities.



Article 50 When the central settlement closes, the clearing participant shall settle the payment or transfer of securities due to the clients.



The transfer of securities ownership between the clearing participant and its client shall be executed by the CSDCC.



Article 51 The CSDCC shall specify in its operating rules the settlement period for the central settlement of delivery of securities or money obligation between the CSDCC and its clearing participants, and the settlement of payment or transfer of securities between the participants and its clients respectively.



The clearing participants shall guarantee the satisfaction of the settlement obligations owed to both the CSDCC and the client within the stated settlement period as prescribed by the CSDCC.



Article 52 The clearing participant may request the CSDCC to take remedial actions towards the error in calculation of net money position or stock settlement positions for which the CSDCC assumes direct responsibilities, and to indemnify the clearing participant against any direct losses incurred as a result of the error, provided that the participant has satisfied any of the delivery or payment obligations.



Chapter 7 Risk Management and Default Rules



Section 1 Risk Management Measures



Article 53 To reduce the risk exposures associated with the securities depository & clearing operations, the CSDCC shall have in place effective risk management measures as follows:



(1) establishing effective risk management mechanism and internal control systems;

(2)  constructing advanced technical systems with a set of technical standards and specifications adopted and followed by both the CSDCC and the clearing participants;

(3) developing sound admission criteria and risk assessment procedures applicable to the clearing participant applicant and the Designated Clearing Bank respectively; and

(4) making backup copies for clearing data and technical systems; formulating contingency plan and procedures in case of emergency



Article 54 The CSDCC shall work with the stock exchange to institute a risk control and management system with respect to the systematic risk of the securities market.



The CSDCC shall enter into a cooperation agreement with the stock exchange to define the respective obligations and rights of each party.



Article 55 The CSDCC shall coordinate the establishment of a Securities Clearing and Settlement Joint Guarantee Fund by the clearing participants on a risk sharing basis, which shall be used to provide guarantee of settlement in the event of defaults by clearing participant.



Rules concerning the fund establishment, application, administration and contribution in regard to the Joint Guarantee Fund shall be set out by the CSDCC in its operating rules.



Article 56 The CSDCC may require a clearing participant to provide collateral as security in respect of its obligations and liabilities to the CSDCC (the Settlement Collateral) or impose other risk control measures from time to time against a participant with regard to the participant’s particular risk exposure.



The specific amount of the collateral to be provided by the clearing participant shall be prescribed and adjusted by the CSDCC from time to time in proportion to the risk exposure of the participant.



The Settlement Collateral shall be strictly segregated from the assets of the CSDCC and be protected from unauthorized application. The CSDCC shall maintain a separate record of the Settlement Collateral provided by each clearing participant.



Article 57 The clearing participant is encouraged to deposit additional fund into the Cash Clearing Account as a reserve (the Reserve Fund) to meet the clearing and settlement liabilities.



The Reserve Fund shall be strictly segregated from the funds owned by the CSDCC and be protected from unauthorized application. The CSDCC shall maintain a separate record of the Reserve Fund deposited by each clearing participant. 



Article 58 The CSDCC shall establish and maintain a Pledged Securities Safe Deposit Account used to keep the pledged securities handed over by a participant in connection with collateralized repurchase agreement.



Article 59 The following funds and securities that are collected or received by the CSDCC must be restricted to the use of securities clearing & settlement purposes under applicable CSDCC operating rules and procedures and shall be immune to any legal enforcement measures:



(1) funds or securities used as guarantee of settlement, such as the Securities Settlement Reserve Fund, the Securities Clearing & Settlement Joint Guarantee Fund, the Settlement Collateral, the Pledged Securities in connection with collectivized repurchase agreement, etc.;

(2) securities or funds held in the Central Securities Clearing Account, Central Cash Clearing Account, the Designated Escrow Account, or other designated accounts for settlement purposes;

(3) securities held in the Stock Clearing Account or the Securities Disposition Account for the participant; the funds held in the participant’s Cash Clearing Account in the amount that is payable under the transactions concluded;

(4) securities and funds held by investors that are subject to the settlement process under securities transactions concluded; and

(5) the bank deposit of the CSDCC, including the reserve funds provided by the participant for settlement purposes held in a special bank saving account, the special bank settlement account for subscription of new issues, and the bank deposit reserved for distribution of interest, dividend or other benefit entitlement. 



Article 60 the CSDCC may establish line of credit with the bank, or pledge the securities kept in the Designated Escrow Account as security against bank loans as it thinks necessary for the purpose of financing its obligations and liabilities in relation with the central securities depository and clearing services.



Section 2 Default rules



Article 61 The CSDCC shall establish a Designated Escrow Account to detain the securities to be delivered to a receiving participant or the funds payable to a delivering participant in the event of defaults on settlement.



Article 62 In the event that a participant defaults in payment of any sum payable to the CSDCC, the following procedures shall be implemented:



(1) The defaulting participant shall forward to the CSDCC a Securities Transfer Instruction within a stated time period, detailing, (a) the descriptions and quantities of the securities for which the payment has been made in full and the designated account to be accredited with such securities; and (b) the descriptions and quantities of the securities for which the payment has not yet been made. Title and property in such unpaid securities (securities-on-hold) shall not pass to such participant as the case may be.

(2) Upon reception of the Securities Transfer Instruction within the stated time period, the CSDCC shall make delivery of the securities for which payment has been made in full whereas transfer the securities for which payment has not yet been made in full in the Designated Escrow Account in line with applicable clearing and settlement operating rules. In addition, The CSDCC must request the defaulting participant to put up additional fund or provide additional settlement collateral to meet the outstanding payment obligation.



Failure by the clearing participant to forward the valid Securities Transfer Instruction within a prescribed time limit constitutes a material settlement default. In that case, the CSDCC is entitled to put on hold all of the securities to be delivered to the defaulter, regardless of whether paid or not, in the Designated Escrow Account, and request the defaulting participant to put up additional funds or provide equivalent collateral to satisfy the outstanding payment.



Should the default continue to remain unsatisfied given the application of the proceeds of realization of the securities put on hold, the additional deposit of funds or the collateral provided by the defaulter, the CSDCC has the right to make a debit entry to the proprietary securities account of the defaulting participant and a corresponding credit entry to the Designated Escrow Account for the amount equivalent to the shortfall. The CSDCC will notify the participant affected of such transfer of securities afterwards.



Article 63 In the event that a participant defaults in payment of any sum payable to the CSDCC, the CSDCC has the power to apply the funds available towards the satisfaction of any amount due to the CSDCC In the following order of priority:



(1) cash collateral provided by the defaulting participant;

(2) cash held in the Joint Guarantee Fund that is contributed by the defaulting participant;

(3) cash held in the Joint Guarantee Fund that is contributed by clearing participants other than the defaulter;

(4) cash in the Securities Settlement Reserve Fund; or

(5) other funds available



Article 64 In the event that a participant defaults in delivery of securities, the CSDCC is entitled to delay the payment due to the delivering participant until the outstanding obligation is satisfied.



The CSDCC shall hold the amount to be paid to the delivering participant in the Designated Escrow Account and notify the participant affected of the amount put on hold. The defaulter shall put up additional valid securities or provide equivalent collateral acceptable to the CSDCC to satisfy the outstanding delivery obligation.



Article 65 In the event of a default on the part of a participant to fulfill its delivery obligations, the CSDCC may apply all or any of the equivalent securities in lieu of the securities that are the subject of the delivery obligations from the following sources towards the satisfaction of the obligations and liabilities of such participant to the CSDCC:



(1) securities furnished by the defaulter;

(2) securities purchased using the funds in the Designated Escrow Account;

(3) securities available to the CSDCC from other alternative sources



Article 66 Should the default on payment or delivery obligations continue unremedied within the stated time limit, the CSDCC may select to sell the securities collateral furnished by the defaulter, the pledged securities in connection with collateralized repurchase agreement, or the Securities-on-hold in the Designated Escrow Account.



The CSDCC may apply the proceeds from the sale of the above said securities towards the satisfaction of the payment or delivery obligations or the reimbursement of any expense or costs incurred; the balance of such sale proceeds remaining after satisfaction of all obligations and liabilities may be returned to the defaulting participant. If the outstanding obligations remain unsatisfied after application of the proceeds, the CSDCC may exercise recourse against the defaulting participant on the outstanding obligations or any cost or expense incurred.



Should the recourse against the defaulting participant fail, the CSDCC has the right to apply the funds in the Securities Clearing & Settlement Joint Guarantee Fund or the Securities Settlement Reserve Fund towards the satisfaction of the outstanding obligations or any cost or expense incurred from the default without prejudice to the right of the recourse in respect of the default.



Article 67 the CSDCC may require a participant that fails to discharge its payment or delivery obligations on due date to pay to it default fees under applicable provisions. The defaults fees will be credited to the Securities Settlement Reserve Fund.



Article 68 The CSDCC is entitled to take any of the following actions or such other action against a clearing participant upon the occurrence of an event of material default in any of the delivery or payment obligations: 



(1) to restrict or prohibit the defaulting participant from having access to and/or using any or all of the clearing house’s facilities, suspend or revoke the clearing house participantship, and refer the matter to the stock exchange for imposition of sanctions on the trading activities of the defaulting participant;

(2) to refer the matter to the CSRC for instigating disciplinary actions against the defaulter including withdrawal or revocation of securities business license, as well as disciplinary actions against the chief in charge or other individuals involved severally or jointly, such as issuance of a warning, imposition of a fine, revocation of the qualifications for holding a senior office or securities practitioner qualifications, etc.



The CSDCC shall work with the stock exchange concerned to establish separate rules and procedures with respect to imposition of market trading activities sanctions against a defaulting clearing participant, and submit the procedures to the CSRC for approval.



Article 69 The CSDCC shall make full and itemized disclosure in its annual report with regard to its application of the resources of the Securities Clearing & Settlement Joint Guarantee Fund and the Securities Settlement Reserve Fund, as well as disclosures about any disciplinary actions or sanctions activated against defaulting participants as set out in Article 67.



Section 3 Participant-versus-Investor Default Rules



Article 70 The clearing participant may hold the securities to be delivered to its client in a Securities Disposition Account opened with the CSDCC under applicable provisions set out by the CSDCC until it has received payment in full in respect of the Securities-on-hold.



Article 71 The Clearing Participant may require a client to provide certain amount of collateral in certain form or impose other risk control measures as it thinks fit given the level of the client’s risk exposure.



The specific level of the collateral required of the investor is to be determined on an ex-ante basis in the agreement on securities brokerage, custody, and clearing services entered into by the participant and the individual client.



Article 72 In the event of a client default in any of the payment obligations due to the clearing participant, the clearing participant may instruct the CSDCC to transfer the net securities to be delivered to the defaulting client to its Securities Disposition Account instead, while inform the defaulting client to top up the outstanding payment obligations owed to the participant within the predefined time limit.



Article 73 In the event of a client default in delivery obligations owed to the clearing participant, the clearing participant may suspend the corresponding payment against such securities.



Article 74 Should the default by a client in any of its payment or delivery obligations continue unremedied within the predefined period, the participant may sell or utilize the securities or funds held in the Securities Disposition Account towards the satisfaction of any outstanding obligations.



The participant may apply the sale proceeds or the funds as said before towards the satisfaction of the payment or delivery obligations or the reimbursement of any expense or costs incurred; the balance of such sale proceeds or funds remaining after satisfaction of all obligations and liabilities shall be returned to the defaulting client. Conversely, if the outstanding obligations remain unsatisfied after application of the proceeds or the funds, the participant may exercise recourse against the defaulting client on the outstanding obligations or any cost or expense incurred



Article 75 The clearing participant shall be liable for the breach of its obligations to make timely payment due to the client and/or instruct the CSDCC in a timely manner to debit certain quantity and type of securities owing to the client from its Stock Clearing Account and simultaneously make a corresponding credit entry to the securities account of the receiving client. The participant must indemnify the client for any loss suffered by the client in respect of such default.



Article 76 A client default does not constitute a justifiable ground for a clearing participant to be exempted from its settlement obligations owed to the CSDCC, or to prejudice the operation of central clearing & settlement (whether concluded or ongoing) as well as the CSDCC’s execution of transfer of securities.



Article 77 The rules can be applied to the securities clearing and settlement procedures with regard to non-clearing-participant securities company versus investors.



Chapter 8 Supplementary Provisions



Article 78 The following expressions contained in these Rules shall, unless the context otherwise requires, bear the following meanings:



“Securities Registration” means the securities registration services provided by the CSDCC, where the CSDCC is entrusted by the issuer to establish and maintain a shareholder register as a form of share certificate evidencing title to securities.



“Stock Custody” means share custodial services offered by the securities company to retail investors including safekeeping of shares and management of corporate actions (e.g. collection of dividend, coupons, share entitlements, etc.) on behalf of the client.



“Stock Depository” means central depository and custodian of securities with the CSDCC, whereby the CSDCC provides safekeeping facilities for securities registered in the name of either a securities company or its clients, as well as caters for distribution of dividend, interest and other share entitlements, etc. on behalf of the beneficiary owner. 



“Securities Clearing & Settlement” means clearing and settlement of securities transactions, i.e. netting of the total number of and settlement of financial obligations either delivery or payment obligations.



“Clearing” means a prescribed process under which the various obligations owed to or by a participant, as between that participant and all the other participants will be netted and converted into one net obligation owed to or by the participant.



“Settlement” involves the delivery of securities to perform contractual delivery obligations, as well as the corresponding payment of the purchase price on a netted basis.



“Nominal Holder” refers to the entity that is appointed to hold the securities as the nominee on behalf of the beneficiary owner. 



“Clearing Participant” means a registered securities company or other institution admitted by the CSDCC to participant in the central clearing and settlement system.



“Central Counterparty” refers to the entity acting as a buyer to every seller and as the seller to every buyer of every trade registered with and cleared through it. The Central Counterparty serves to provide settlement guarantee.



“Delivery versus Payment” refers to a mechanism in an exchange-for-value settlement system which ensures that the final transfer of securities occurs if, and only if, the final payment for the purchase price occurs (i.e. delivery contingent on payment and vice-versa).



“Multilateral Netting” means a clearing and settlement arrangement whereby the CSDCC sets off the obligations to deliver securities or the amounts to be paid between each clearing participant to arrive at a net money position or net delivery obligation for each participant due to or from the CSDCC, and make the final settlement accordingly. 



“Central Stock Clearing Account” means an account at the CSDCC used to settle the obligation for transfer of securities between the CSDCC and clearing participants under the multilateral netting arrangements.



“Central Cash Clearing Account” means an account at the CSDCC used to settle money obligations between the CSDCC and clearing participants under the multilateral netting arrangements.



“Stock Clearing Account of the Participant” means an account established in the CSDCC for each clearing participant used to make or take delivery of securities. In relation to a clearing participant involved in proprietary trading, brokerage, and asset management activities simultaneously, the Stock Clearing Account consists of two separate accounts- the Brokerage Stock Clearing Account for settlement of brokerage trading, and the Proprietary Stock Clearing Account for settlement of proprietary trading.



“Cash Clearing Account of the Participant” means an account established in the CSDCC for each clearing participant used to settle the payment obligations. In relation to a clearing participant involved in proprietary trading, brokerage, and asset management activities simultaneously, the Cash Clearing Account consists of two separate accounts- the Brokerage Cash Clearing Account for settlement of brokerage trading, and the Proprietary Cash Clearing Account for settlement of proprietary trading.



“Designated Escrow Account” means an account at the CSDCC used to hold the securities or funds until the corresponding delivery or payment is confirmed.



“Securities Disposition Account” means an account established in the CSDCC for a clearing participant used to hold the securities for which a client fails to make timely payment.



“Pledged Securities Safe Deposit Account” means the account at the CSDCC for the purpose of safekeeping of the securities or other collateral provided by clearing participants with respect to repurchase agreement.



“Securities Clearing Excess Reserve” refers to the fund deposited by a clearing participant in its Cash Clearing Account in the amount that there is sufficient to meet the liabilities of the participant to the CSDCC. 



“Securities Clearing & Settlement Joint Guarantee Fund” refers to the fund contributed by all the clearing participant used to replenish the level of liquidity or to indemnify the CSDCC against losses incurred due to default by a clearing participant.



Article 79 Financial institutions other than the securities company may apply to the CSDCC for approval to engage in securities services ranging from opening of securities account at the CSDCC, securities custodial services, to securities clearing and settlement agency services in accordance with the Rules.



Article 80 All questions concerning the interpretation or application of or any other matter and revisions in connection with these Rules, shall be determined by the CSRC whose decision shall be final and binding on all parties.



Article 81 The Rules shall take effect on July 1, 2006.



The China Securities Regulatory Commission

Brief Introduction to SSE

The Shanghai Stock Exchange (SSE) was founded on Nov. 26th,1990 and in operation on Dec.19th the same year. It is a non-profit-making membership institution directly governed by the China Securities Regulatory Commission(CSRC). The SSE bases its development on the principle of "legislation, supervision, self-regulation and standardization" to create a transparent, open, safe and efficient marketplace. The SSE endeavors to realize a variety of functions: providing marketplace and facilities for the securities trading; formulating business rules; accepting and arranging listings; organizing and monitoring securities trading; regulating members and listed companies; managing and disseminating market information.

After several years' operation, the SSE has become the most preeminent stock market in Mainland China in terms of number of listed companies, number of shares listed, total market value, tradable market value, securities turnover in value, stock turnover in value and the T-bond turnover in value. December 2007 ended with over 71.30 million investors and 860 listed companies. The total market capitalization of SSE hit RMB 26.98 trillion. In 2007, Capital raised from SSE market surpassed RMB 661.6 billion. A large number of companies from key industries, infrastructure and high-tech sectors have not only raised capital, but also improved their operation mechanism through listing on Shanghai stock market.

Entering the new century，SSE is faced with great opportunities as well as challenges to further boost the market construction and regulation. Combining the cutting-edge hardware facilities，favorable policy conditions in Pudong, exemplary role of Shanghai economy, SSE is fully committed to the goal of State-owned industrial enterprises reform and developing Shanghai into an international financial center with great confidence.