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| 2002110520021201The China Securities Regulatory Commission, the People's Bank of ChinaDecree of the China Securities Regulatory Commission (CSRC) and the People's Bank of China (PBC)No.12The Interim Measures on the Administration of Domestic Securities Investment by Qualified Foreign Institutional Investors is hereby promulgated and will enter into force as of December 1, 2002.CSRC Chairman Zhou XiaochuanPBC Governor Dai XianglongNovember 5, 2002epdf/e02916.pdfI, Hforeign institution, investor, securities investment, qualification, custody, registration, clearance, settlement, capital, funde02916Interim Measures on the Administration of Domestic Securities Investment by Qualified Foreign Institutional InvestorsChapter I General ProvisionsArticle 1 Pursuant to relevant laws and administrative regulations, the Measures is enacted in order to regulate the investment activities of qualified foreign institutional investors in the securities market within the PRC customs territory, and to promote the development of China's securities market.Article 2 Qualified foreign institutional investors (hereinafter referred to as QFIIs) stated in the Measures refer to fund management institutions, insurance companies, securities companies and other assets management institutions outside the PRC customs territory which meet the qualifications stipulated in the Measures, and have been approved by the China Securities Regulatory Commission (hereinafter referred to as the CSRC) to invest in China's securities market and granted investment quotas by the State Administration of Foreign Exchange (hereinafter referred to as the SAFE).Article 3 QFIIs shall mandate domestic commercial banks as custodians to manage assets, and shall entrust domestic securities companies to handle securities trading activities within the PRC customs territory.Article 4 QFIIs shall comply with laws, regulations and other relevant rules of the PRC.Article 5 The CSRC and the SAFE shall, in accordance with laws, supervise and govern the securities investment activities by the QFIIs within the PRC customs territory.Chapter II Qualifications and Approval ProceduresArticle 6 In order to qualify as a QFII, an applicant shall meet the following requirements:1.The applicant is financially stable and of good credit, meet the asset size and other requirements set by the CSRC; and has a risk control index that complies with the law of, and the requirements of the securities regulatory institutions in the country or region of its domicile;2.Employees of the applicant shall meet relevant professional qualification requirements of the country or region of its domicile;3.The applicant has a solid corporate governance structure and well defined internal control system, conducts business in accordance with relevant regulations, and has not been subject to any serious penalties by regulators in the country or region of its domicile during the most recent three years;4.The country/region where the applicant domiciles shall have a sound legal and regulatory system, and the securities regulator of such country or region has signed a Memorandum of Cooperation and Understanding and maintains an effective co-operative relationship in supervision with the CSRC; and5.Any other requirements prescribed by the CSRC based on prudential regulatory principles.Article 7 The asset size requirements and other requirements in the preceding article are: Fund management institutions: minimum five years experience in funds business and no less than US$10 billion assets under management in the most recent fiscal year; Insurance companies: minimum 30 years experience in insurance business, no less than US$1 billion in paid-up capital, and no less than US$10 billion securities assets under management in the most recent fiscal year; Securities companies: minimum 30 years experience in securities business, no less than US$1 billion in paid-up capital, and no less than US$10 billion securities assets under management in the most recent fiscal year; Commercial banks: ranking in the top 100 globally in terms of total assets, no less than US$10 billion securities assets under management in the most recent fiscal year. The CSRC may adjust the aforementioned asset size and other requirements according to the development of securities market.Article 8 In order to apply for qualification as a QFII and for approval of investment quota, the applicant shall , through its custodian, submit the following documents to the CSRC and the SAFE respectively:1.A written application (including the applicant's basic information, investment quota applied for and investment plan, etc.);2.Documents certifying compliance with the requirements prescribed in Article 6 of the Measures;3.A draft of custodianship agreement signed with the custodian;4.Audited financial statements for the most recent three years;5.A statement on the source of funds and a commitment letter of no repatriation of investment during the approval period;6.A letter of authorization from the applicant; and7.Other documents required by the CSRC and the SAFE. If the above documents are prepared in a foreign language, a Chinese translation or a Chinese summary shall be attached.Article 9 The CSRC shall decide whether to approve or not to approve the application within fifteen working days after receipt of the complete set of application documents. A securities investment license shall be granted to the applicant that is approved; a written notification shall be sent to the applicant that is not approved.Article 10 Upon receipt of the securities investment license, the applicant shall apply through its custodian to the SAFE for the investment quota. The SAFE shall decide whether to approve or not to approve the application within fifteen working days after receipt of the complete set of application documents. If approved, the SAFE will send the applicant a written notice of the approved investment quota and issue to the applicant a foreign exchange registration certificate; if not, the applicant will be sent a written notification. The securities investment license shall automatically become invalid if the applicant fails to obtain the foreign exchange registration certificate within one year after it has obtained the securities investment license.Article 11 To encourage long- and medium-term investment, priority shall be given to China's closed-end funds that meet the requirements set forth in Article 6 of the Measures, or pension funds, insurance funds, and mutual funds that have solid track records of investment in other markets.Chapter III Custody, Registration and ClearanceArticle 12 A custodian shall meet the following requirements:1.Having a dedicated custody department;2.Having no less than RMB 8 billion in paid-up capital;3.Having sufficient professionals who are familiar with custodial business;4.Having facilities for safekeeping all fund assets;5.Having secure and efficient delivery and trading capabilities;6.Being qualified as a designated foreign exchange bank and for conducting RMB business;7.Having no record of severe violation of foreign exchange administrative rules in the most recent three years. Local branches of foreign-funded commercial banks that have continuously operated for more than three years may apply for acting as a custodian, with its paid-in capital calculated with reference to its offshore head office.Article 13 Qualification as a custodian must be examined and approved by the CSRC, the People's Bank of China (hereinafter referred to as the PBC) and the SAFE.Article 14 A domestic commercial bank shall submit the following documents to the CSRC, the PBC and the SAFE for custodian license approval:1.A letter of application;2.A copy of its financial business license;3.The management system for its custody business;4.Documents certifying that it has an efficient and high-speed information technology system; and5.Other documents required by the CSRC, the PBC and the SAFE. The CSRC, in consultation with the PBC and the SAFE, shall review the application and decide whether to approve it or not.Article 15 A custodian shall perform the following responsibilities:1.Safekeeping all assets entrusted by a QFII;2.Handling foreign exchange sale, purchase, receipt and payment, and Renminbi clearance business for the QFII;3.Monitoring the investment activities of the QFII, and reporting in time to the CSRC and the SAFE in case its investment instructions are found to have violated laws or regulations;4.Reporting to the SAFE the QFII's inward/outward remittance of investment principal or proceeds and foreign exchange sale and purchase within two working days after the remittance is made;5.Reporting to the CSRC and the SAFE on the receipt and payment to and from the QFII's special Renminbi account within five working days following the end of each month;6.Preparing an annual financial report on the domestic securities investment of the QFII for the previous year and submitting the same to the CSRC and the SAFE within three months following the end of each fiscal year;7.Preserving materials related to the QFII's inward/outward remittance, foreign exchange conversion, foreign exchange receipt and payment, and fund movement records for no less than fifteen years;8.Other responsibilities stipulated by the CSRC, the PBC and the SAFE according to the principles of prudential supervision.Article 16 A custodian shall strictly segregate its self-owned assets from the assets that is entrusted to manage. A custodian shall keep separate accounts for each QFII and manage those accounts separately. Each QFII shall entrust only one custodian.Article 17 A QFII shall entrust the custodian to apply on its behalf for the opening of a securities account at a securities registration and settlement institution. The custodian shall submit the letter of authorization from the QFII and its securities investment business license for account opening and shall file relevant information with the CSRC for record within five working days after the opening of such securities account. The QFII shall entrust the custodian to open an RMB funds settlement account at the securities registration and settlement institution to settle funds with this institution. The custodian shall be responsible for funds settlement of the QFII's domestic securities investment, and file relevant information with the CSRC and the SAFE for record within five working days after the opening of such RMB account.Chapter IV Investment OperationArticle 18 A QFII may invest in the following RMB denominated financial instruments within its approved investment quota:1.Stocks listed and traded on stock exchanges, except for Domestically Listed Foreign Currency Shares (B shares);2.Government bonds listed and traded on stock exchanges;3.Convertible bonds and corporate bonds listed and traded on stock exchanges;4.Other financial instruments approved by the CSRC.Article 19 A QFII may entrust a domestically registered securities company to manage its domestic securities investment. Each QFII shall entrust only one securities company.Article 20 A QFII shall comply with the following rules for its domestic securities investment :1.An individual QFII shall invest no more than 10 percent of the total amount of shares of a single listed company;2.The total shares held by all QFIIs in a single listed company shall be no more than 20 percent of the total amount of shares of the company. The CSRC may adjust the above percentages according to the development of securities market.Article 21 A QFII's domestic securities investment shall be in compliance with the Foreign Investment Industry Guideline.Article 22 The securities company shall keep such materials as the records of consummated transactions and transaction activities of a QFII for no less than fifteen years.Chapter V Funds ManagementArticle 23 With the approval of the SAFE, a QFII shall open a special Renminbi account at the custodian's place of business. The custodian shall report relevant information to the CSRC and the SAFE for record within five business days after the opening of the special Renminbi account.Article 24 The receipts of the special Renminbi account shall include: funds from sale of foreign exchange (foreign exchange coming from overseas with the accumulative amount of such sale not exceeding the approved investment quota), proceeds from sale of securities, cash dividends, interest on current deposits, and interest on bonds. Payments of the special Renminbi account shall include: funds to purchase securities (including stamp duty, processing fees, etc.), domestic custodian and management fees, and funds to purchase foreign exchange (for outward remittance of investment principal and returns). Funds in the special Renminbi account shall not be used as loans or as collateral.Article 25 A QFII shall make inward remittance of principal within three months after obtaining from the CSRC the securities investment license, and the principal shall be directly deposited in the special Renminbi account after conversion. The remitted principal by a QFII shall be in any freely convertible currency approved by the SAFE; and the amount of such principal shall be limited to the investment quota approved by the SAFE. If a QFII fails to remit in the full amount of its investment quota approved by the SAFE within three months after obtaining the foreign exchange registration certificate, the actually remitted amount shall be regarded as the approved investment quota. The gap between the originally approved investment quota and the actually remitted amount shall not be filled by any new remittance until approval has been obtained for a new investment quota.Article 26 If a QFII is a China's closed-end fund management institution, such QFII may, three years after the inward remittance of principal, entrust its custodian to apply to the SAFE with required documentation for purchase of foreign exchange to remit principal abroad by installments. Each installment shall not exceed twenty percent of the total investment principal, and the interval between two successive installments shall not be less than one month. Other QFIIs may, one year after the inward remittance of principal, entrust their custodians to apply to the SAFE with the required documentation for the purchase of foreign exchange to remit principal abroad by installments. Each installment shall not exceed twenty percent of the total investment principal, and the interval between two successive installments shall not be less than three months. The said QFII shall be the overseas recipient of the above-mentioned outward remittance.Article 27 A QFII that has remitted in principal for more than three months but less than one year may, after submitting a transfer application and a transfer agreement to the CSRC and the SAFE and obtaining their approval, transfer its investment quota to other QFIIs or other applicants that qualify under Article 6 of the Measures. After obtaining the approval of investment quota from the SAFE and the securities investment business license, the transferee may remit in the amount of principal to fill the gap between the approved quota and the actually transferred assets if the transferred assets are less than the investment quota approved by the SAFE.Article 28 If a QFII needs to remit in new principal after it has remitted abroad a part or ?all of the principal, it shall apply for a new investment quota.Article 29 If a QFII needs to purchase foreign exchange to remit abroad the realized aftertax profits for the previous fiscal year that have been audited by a Chinese certified public accountant, it shall entrust its custodian to file an application with the SAFE fifteen days prior to the proposed purchase by submitting the following documents:1.A written application for outward remittance;2.Annual financial statement for the year when the profits have been realized;3.An audit report issued by a Chinese certified public accountant;4.Resolution or other valid legal document on profit distribution;5.Tax payment certificate; and6.Other documents required by the SAFE. The said QFII shall be the overseas recipient of the above-mentioned outward remittance.Article 30 The SAFE may adjust the period for remittance of principal and realized profits by a QFII to meet the need of the State to balance the receipt and payment of foreign exchange.Chapter VI Supervision and ManagementArticle 31 The CSRC and the SAFE shall conduct annual review of the securities investment license and foreign exchange registration certificate held by a QFII.Article 32 The CSRC, the PEC and the SAFE may request QFIIs, custodians, securities companies, stock exchanges, and securities registration and settlement institutions to provide materials and information related to the investment activities of QFIIs in China; and conduct on-site inspection, if necessary.Article 33 Stock exchanges and the securities registration and settlement institutions may as required by circumstances formulate new operational rules or modify existing operational rules with respect to the securities investment of QFIIs in China. Such rules shall be implemented after obtaining approval from the CSRC.Article 34 A QFII shall report to the CSRC, the PBC and the SAFE for record within five working days in any of the following circumstances:1.Change of custodians;2.Change of legal representatives;3.Change of controlling shareholders;4.Adjustment of registered capital;5.Involvement in litigation or other major events;6.Severe penalty being subjected to outside PRC customs territory; and7.Other circumstances defined by the CSRC and the SAFE.Article 35 A QFII shall apply for a new securities investment license in any of the following cases:1.Change of its institutional name;2.Acquisition by or merger with other institution(s);3.Other circumstances defined by the CSRC and the SAFE.Article 36 A QFII shall surrender its securities investment license and foreign exchange registration certificate to the CSRC and the SAFE respectively in any of the following cases:1.All principal has been remitted out;2.Investment quota has been transferred;3.The legal entity is proposed to be dissolved, has entered into bankruptcy procedures, or its assets have been taken over by a trustee;4.Other circumstances defined by the CSRC and the SAFE. The securities investment business license and the foreign exchange registration certificate shall become invalid automatically if they fail to pass the annual review conducted in accordance with Article 31 of the Measures. The QFII shall return the securities investment business license and the foreign exchange registration certificate respectively as is stipulated in the aforesaid paragraph.Article 37 In accordance with their respective jurisdiction, the CSRC, the PBC and the SAFE shall give warning to or impose fine on any QFII, custodian, securities company that has violated the Measures. The same violation, however, shall not be subject to two or more administrative punishments.Chapter VII Supplementary ProvisionsArticle 38 The Measures shall also apply to institutional investors established in the Hong Kong Special Administrative Region, the Macao Special Administrative Region and the Taiwan Region that engage in securities investment on the mainland.Article 39 The Measures shall enter into force as of December 1, 2002. |
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