The landmark Provisional Regulations on the Administration of Qualifications of Domestic and Foreign Securities Institutions Dealing in Foreign Investment Shares became effective on December 1 1996. The regulations aim to standardize the qualifications of domestic and foreign securities institutions, such as brokerages and underwriters, that deal in foreign investment shares listed on the Chinese market and domestic securities institutions that deal in foreign investment shares listed outside China.
The regulations state that if foreign securities institutions apply to trade in securities as a brokerage for foreign investment shares, they must meet a general set of conditions. Among other things, they must:
- be qualified to conduct brokerage business in accordance with the law of the home country or region where the institution is located;
- have net total assets equivalent to Rmb50 million (US$6.1 million) or more,or have the capacity to provide guarantees in accordance with the regulations of their home country and a corresponding guarantee is issued by an institution approved by the China Securities Regulatory Commission (CSRC);
- have a certain number of qualified personnel; and
- have at least two or more years experience in trading international stocks.
If a foreign securities institution acts as the sponsoring underwriter, co-sponsoring underwriter or international coordinator for foreign investment shares, then it must, apart from various other requirements, have net total assets equivalent to Rmb120 million or more.
The applicant must submit the necessary documents to the CSRC, and on approval a qualification certificate is issued and is valid for two years beginning from the date of issuance by the CSRC.
Securities institutions which have obtained the qualification certificate should submit a report to the CSRC on their underwriting and brokerage business for the period up to January 31 of every year. Foreign securities institutions engaged in underwriting should send the CSRC a business report at the end of every underwriting deal within 30 days. Securities institutions should also keep the original bills, vouchers, trading records and relevant business documents for at least seven years. Such documents should be made available for CSRC examination when the CSRC deems it necessary.
Penalties such as warnings, confiscation of illegal proceeds, fines, suspension of stock trading for foreign investment shares for six months or a year, and revocation of the qualification certificate may be imposed if the securities institution deals in shares without the qualification certificate, obtains the qualification certificate through fraud, or fails to made required reports to the CSRC or cooperate in their investigations.
Florence Li and Elaine Liu