Measures on Administration of Domestic Securities Investments by Qualified Foreign Institutional Investors
Chapter I General Provisions
Article 1 The Measures is formulated in accordance with relevant laws and administrative regulations in order to regulate investments in the Chinese securities market by qualified foreign institutional investors and to promote the development of the Chinese securities market.
Article 2 The term “qualified foreign institutional investor” (QFII) refers to any overseas fund management institution, insurance company, securities company or other assets management institution that invests in China's securities market upon approval by the China Securities Regulatory Commission (CSRC) with a quota granted by the State Administration of Foreign Exchange (SAFE) in accordance with the regulations of the Measures.
Article 3 A QFII shall entrust a domestic commercial bank as the custodian of its assets, and entrust a domestic securities company with its domestic securities trading.
Article 4 A QFII shall comply with the laws, regulations and other relevant rules of China.
Article 5 The CSRC shall regulate the domestic securities investments conducted by a QFII according to law; and the SAFE shall exercise foreign exchange administration over such issues as the investment quota as well as the outward and inward remittance related to the domestic securities investments by a QFII according to law.
Chapter II Qualification Requirements and Approval Procedures
Article 6 A QFII applicant shall meet the following requirements:
(1) The applicant shall be in sound financial and credit status, and shall meet the requirements set by the CSRC on assets size and other factors;
(2) Employees of the applicant shall meet the requirements on practitioner’s qualification of the country or region where the applicant is located;
(3) The applicant shall have sound governance structure and internal control system, and conduct business in accordance with the regulations without having been subject to any major penalty by regulatory authorities in the recent three years;
(4) The country or region where the applicant is located shall have a sound legal and regulatory system, and its securities regulatory authority has signed a memorandum of understanding on regulatory cooperation with the CSRC and has maintained an efficient regulatory and cooperative relationship;
(5) Other requirements as prescribed by the CSRC in the principle of prudent regulation.
Article 7 To apply for the QFII qualification and an investment quota, an applicant may submit the documents to the CSRC and the SAFE respectively through its custodian.
Article 8 The CSRC shall, within 20 workdays upon receipt of the complete set of application documents, decide whether to grant approval or not after examining and verifying the application documents as well as consulting with the SAFE. In the case of approval, the CSRC shall issue a license for securities investment business; in the case of rejection, it shall send a written notice to the applicant.
Article 9 An applicant shall, within 1 year from the day when it obtains a license for securities investment business, apply to the SAFE for investment quota through the custodian.
The SAFE shall, within 20 workdays since the receipt of the complete set of application documents, decide whether to grant approval or not after examining and verifying the application documents as well as consulting with the CSRC. In the case of approval, the SAFE shall give a written reply and issue a foreign exchange registration certificate; in the case of rejection, it shall send a written notice to the applicant.
Article 10 To encourage medium and long-term investments, preference will be given to the institutions managing long-term funds such as pension funds, insurance funds, mutual funds and charity funds in accordance with the requirements of the Measures.
Chapter III Custody, Registration and Settlement
Article 11 A custodian shall meet the following requirements:
(1) Having set up a special assets custody department;
(2) With the paid-up capital of not less than RMB8 billion;
(3) Equipped with sufficient full-time staff who are familiar with the custody business;
4) Having the conditions for safekeeping of the assets of the QFII;
5) Able to process fund settlement and delivery in a safe and efficient way;
(6) Having obtained the qualification of a designated foreign exchange bank and that of engaging in the RMB business; and
(7) With no record of serious violation of foreign exchange administration regulations in the recent three years.
Domestic branches of the foreign-funded commercial banks with more than three years of continuous operation in China are eligible to apply for the custodian qualification. The amount of their paid-up capital shall be calculated on the basis of that of their overseas headquarters.
Article 12 Application for the custodian qualification shall be subject to the review and approval by the CSRC and the SAFE. The CSRC shall, within 30 workdays since the receipt of the complete set of application documents, decide whether to grant the license or not after the countersigning by the SAFE.
Article 13 A custodian shall perform the following duties:
(1) Having the custody of all the assets entrusted by the QFII;
(2) Handling all QFII-related foreign exchange settlement, sales, receipt and payment and the RMB settlement businesses;
(3) Supervising the investment activities of the QFII, and reporting to the CSRC and the SAFE in time after finding any investment instruction that violates the laws or regulations;
(4) Reporting to the SAFE about the inward and outward remittance of capital and the settlement and sale of foreign exchange of the QFII within two workdays upon its inward remittance of the principal and outward remittance of the principal or proceeds;
(5) Within 8 workdays after the end of each month, reporting the revenues and expenditures of both the foreign exchange account and special RMB account, together with the assets allocation of the QFII to the SAFE, and reporting the investments and trading conducted under the securities account to the CSRC;
(6) Within 3 months after the end of each accounting year, compiling an annual financial report on the domestic securities investments by the QFII in the previous year, and submitting it to the CSRC and the SAFE;
(7) Keeping the records on the QFII’s inward and outward remittances, foreign exchange conversion, receipt and payment as well as fund transfer and other related materials for at least 20 years;
(8) Making statistical report on balance of international payments pursuant to the state regulations on foreign exchange administration; and
(9) Other duties prescribed by the CSRC and the SAFE in the principle of prudent supervision.
Article 14 A custodian shall strictly separate its own assets from those under its custody, and set up different accounts for the assets under its custody for separate management.
Article 15 Each QFII shall only entrust one custodian and may change the custodian.
Article 16 A QFII may apply to a securities depository and clearing institution for opening a securities account, which may be a real-name account or a nominal holder account.
The nominal holder shall, within 8 workdays after the end of each quarter, report the name, registered place, assets allocation and securities investment status of the actual investor or funds represented by it to the CSRC and stock exchanges.
Article 17 A QFII shall entrust an institution that has obtained the settlement participant qualification of the securities depository and clearing institution with the fund settlement. This institution shall, within five workdays after opening a RMB settlement account, report the opening to the SAFE for record.
Chapter IV Investment Operations
Article 18 A QFII may, within the approved investment quota, invest in the RMB financial instruments approved by the CSRC.
Article 19 A QFII may entrust the securities companies and other investment management institutions established within China with the management of its domestic securities investments.
Article 20 A QFII shall make the domestic stock investments in compliance with the limits on shareholding proportion stipulated by the CSRC and other relevant state regulations.
Article 21 In fulfilling its obligation of information disclosure, A QFII shall calculate the total amount of the domestically and overseas listed stocks of the same listed company, and shall abide by the relevant laws and regulations on information disclosure.
Article 22 Securities companies and other institutions shall keep the entrustment record, transaction record and other materials of the QFII for at least 20 years.
Article 23 A QFII shall abide by relevant regulations of the stock exchanges or securities depository and clearing institutions in conducting the domestic securities investments.
Chapter V Fund Management
Article 24 Upon approval by the SAFE, a QFII shall open a foreign exchange account and a special RMB account with its custodian.
Article 25 The revenue and expenditure scopes of a QFII’s foreign exchange account and special RMB account shall be in line with relevant regulations of the SAFE.
Article 26 A QFII shall remit the principal within the time limit prescribed by the SAFE. The currency of the principal remitted by the QFII shall be a convertible currency approved by the SAFE, and the amount of the principal shall not exceed the approved quota.
If a QFII fails to fully remit the principal within the time limit prescribed by the SAFE, it shall explain in writing to the CSRC and the SAFE, with the actual amount remitted as the approved quota. The spread between the originally approved quota and the actual amount remitted shall not be remitted inward without the approved by the SAFE.
Article 27 A QFII may apply to the SAFE for remitting fund outward from the expiration day of the time limit prescribed by the SAFE, unless it is otherwise prescribed by the SAFE.
Article 28 The SAFE may, in light of China’s economic and financial situation, supply-demand relationship in the foreign exchange market and the balance of international payments, adjust the time and amount of the inward and outward remittance of principal by a QFII as well as the time limit of the outward remittance in accordance with the arrangement of the People's Bank of China (PBC).
Chapter VI Supervision and Administration
Article 29 The CSRC and the SAFE may, according to law, require the QFIIs, custodians, securities companies and other institutions to provide relevant materials about the QFIIs, and may make necessary inquiries and examinations.
Article 30 In case of any of the following circumstances, a QFII shall, within 5 workdays after the occurrence, report to the CSRC and the SAFE for record:
(1) Change of custodian;
(2) Change of legal representative;
(3) Change of the controlling shareholder;
(4) Adjustment of the registered capital;
(5) Being involved in any significant litigation and other significant event;
(6) Under serious penalty overseas; or
(7) Other circumstances prescribed by the CSRC and the SAFE.
Article 31 In case of any of the following circumstances, a QFII shall re-apply for a license for securities investment business:
(1) Change of its name;
(2) Merged by other institution(s); or
(3) Other circumstances prescribed by the CSRC and the SAFE.
During the period of re-applying for the license for securities investment business, a QFII may continue its securities trading, unless the CSRC deems it necessary to suspend such trading in the principle of prudent supervision.
Article 32 In case of any of the following circumstances, a QFII shall respectively hand back its license for securities investment business and foreign exchange registration certificate to the CSRC and the SAFE:
(1) The applicant fails to apply to the SAFE for an investment quota within 1 year after obtaining a license for securities investment business;
(2) The institution is disincorporated, has entered the bankruptcy procedure or has been taken over by the receiver;
(3) The QFII re-applies for a license; or
(4) The QFII has committed any serious illegal activity, and other circumstances determined by the CSRC and the SAFE.
Article 33 In case of any serious violation of law or regulation with respect to the securities accounts managed by a QFII, the CSRC may restrict the transactions under relevant securities accounts or adopt other measures according to law; the SAFE may restrict the inward and outward remittance of funds or adopt other measures according to law.
Article 34 Where a custodian has seriously violated the law or regulation, the CSRC and the SAFE shall make a joint decision to cancel its custodian qualification.
Article 35 Where a QFII, custodian, or securities company violates the Measures, the CSRC and the SAFE shall implement corresponding administrative penalties according to law.
Chapter VII Supplementary Provisions
Article 36 The Measures is also applicable to the institutional investors established in the Hong Kong Special Administrative Region, the Macao Special Administrative Region and Taiwan, which conduct the securities investment businesses in China’s Mainland.
Article 37 The Measures shall come into force from September 1, 2006. The “Provisional Measures on Administration of Domestic Securities Investments of Qualified Foreign Institutional Investors” jointly issued by the CSRC and the PBC on November 5, 2002 shall be simultaneously abolished.