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Rules on Supervision over Securities Companies
  • (2013-06-20)

 

 

Order of the State Council of the People’s Republic of China

No.522

The “Rules on Supervision over Securities Companies” was approved by the 6th Executive Meeting of the State Council on April 23, 2008. The State Council hereby makes an announcement. The Rules will be implemented as of June 1, 2008.

Premier Wen Jiabao

April 23, 2008

 

Rules on Supervision over Securities Companies

Chapter I General Provisions

 

 

 

Article 1 The Rules are made on the basis of the “Corporation Law of the People’s Republic of China” (the “Corporation Law”) and the “Securities Law of the People’s Republic of China” (the “Securities Law”), with the aim to strengthen the supervision over securities companies, regulate the acts of securities companies, prevent the risks of securities companies, protect the legitimate rights and interests of clients and the common interests of the public, and promote the healthy development of the securities industry.

 

 

 

Article 2 Securities companies shall abide by laws, administrative regulations and the regulations of securities regulatory authorities of the State Council, prudently conduct operation and fulfill the good faith obligation to clients.

 

 

 

Article 3 Shareholders and actual controllers of securities companies shall not abuse their rights to occupy the assets of the securities companies or clients and to infringe the legitimate rights and interests of the securities companies or clients.

 

 

 

Article 4 The state encourages securities companies to, according to law, innovate operation modes, business, products, organization structure, and incentive and constraint mechanism under the precondition of effective control of risks.

 

Securities regulatory authorities of the State Council and relevant departments of the State Council shall take effective measures to promote the normative and orderly innovation of securities companies.

 

 

 

Article 5 Securities companies may issue, trade and sell the financial products of securities according to the state regulations.

 

 

 

Article 6 Securities regulatory authorities of the State Council shall perform the duty of supervising securities companies according to law. The agencies dispatched by the securities regulatory authorities of the State Council shall, under the authorization of the securities regulatory authorities of the State Council, perform the duty of supervising securities companies.

 

 

 

Article 7 Securities regulatory authorities of the State Council, the People’s Bank of China and other financial supervision authorities of the State Council shall establish an information sharing mechanism with respect to supervision over securities companies.

 

Securities regulatory authorities of the State Council and the local people’s governments shall establish a reporting mechanism with respect to information concerning securities companies.

 

 

 

Chapter II Establishment and Change

 

 

 

Article 8 Establishment of a securities company shall meet the conditions as provided by the “Corporation Law”, the “Securities Law” and this Rules, and be approved by securities regulatory authorities of the State Council.

 

 

 

Article 9 Shareholders of the securities companies shall make capital contribution in the forms of cash or necessary non-cash properties for the operation of such securities companies. The total capital contribution of such non-monetary properties by shareholders of such securities companies shall not exceed 30% of the registered capital of such securities companies.

 

The capital contribution herein shall be verified by accounting firms with the qualifications for handling securities and futures business, and such verification shall be evidenced with certificates issued by such accounting firms. Contribution in the form of non-monetary properties shall be appraised by assets appraisal institutions qualified for handling securities business.

 

During the operation of securities companies, the creditors of such securities companies shall not be subject to the first paragraph of this Article in case that such creditors convert creditors’ rights into equity of such securities companies.

 

 

 

Article 10 under any of the following circumstances, entities or individuals shall not become shareholders or actual controllers of securities companies through holding more than 5% equity:

 

(1) Within 3 years after the completion of criminal enforcement resulting from intentional crimes;

 

(2) Net assets are less than 50% of the paid-up capital or the contingent liabilities equal to 50% of the net assets;

 

(3) Failure to discharge liabilities due; or

 

(4) Other circumstances identified by the securities regulatory authorities of the State Council.

 

Other shareholders of the securities companies shall meet relevant requirements of the securities regulatory authorities of the State Council.

 

Article 11 Securities companies shall appoint more than three senior management officers who have hold positions of senior management officers in the securities industry for two years at least.

 

 

 

Article 12 Upon the formation of securities companies, their business scope shall be determined by their financial standing, internal control system, compliance system and human resources. During the operation of securities companies, they shall apply to securities regulatory authorities of the State Council for adjustment to their business scope, and the securities regulatory authorities of the State Council shall make decisions after considering such securities companies’ financial standing, internal control, compliance, business management capability of senior management and the number of professionals.

 

 

 

Article 13 Securities company shall be subject to approval of securities regulatory authorities of the State Council in case of any change in registered capital, business scope, company classification or important articles in the Articles of Association, or any merger or spin-off, or any acquisition or dissolution of any domestic branch, or any change in the business place of any domestic branch, or any formation of, acquisition of or stake-taking in any securities institution outside the territory of China.

 

The term “important articles in the Articles of Association” as mentioned in the preceding paragraph shall include the following items:

 

(1) Such securities company’s name and domicile;

 

(2) Such securities company’s organizational structure, and the formation method, authority and rules of order;

 

(3) Types and amount of such securities company’s outward investment and guarantee and the internal examination and approval procedures;

 

(4) Such securities company’s dissolution and liquidation; and

 

(5) Other issues as prescribed by the securities regulatory authorities of the State Council to be provided for in the securities company’s Articles of Association.

  

The term “securities companies’ branch” in the first paragraph of this Article means an unincorporated entity affiliated to such securities companies, including but not limited to, a branch engaging in business operation or a securities business department.

 

 

 

Article 14 In any of the following circumstances, an entity or individual shall notify the securities companies in advance, and then securities companies shall submit it to securities regulatory authorities of the State Council for approval:

 

(1) After subscribing for or receiving securities companies’ equity, the shareholding proportion reaches 5% of securities companies’ registered capital; or

 

(2) Actually controlling more than 5% equity of securities companies by holding equity of securities companies’ shareholders or other ways.

 

Without the approval by the securities regulatory authorities of the State Council, neither any entity nor individual shall entrust others with holding and managing securities companies’ equity or hold and manage securities companies’ equity upon others’ entrustment. Securities companies’ shareholders shall not stipulate to exercise voting rights not in proportion to contributions, and such stipulation violates the state regulations.

 

 

 

Article 15 In case of any merger or spin-off of a securities company, any significant assets transfer involving clients' rights or interests shall be appraised by assets appraisal institutions qualified for handling securities business.

 

In case of any shutout, dissolution or bankruptcy of a securities company, such securities company shall apply to the securities regulatory authorities of the State Council for approval, allocate clients and handle unsettled business in accordance with relevant regulations.

 

 

 

Article 16 Securities regulatory authorities of the State Council shall examine the following applications, and make written decisions of approval or disapproval within the following limited period:

 

(1) Within six months since the day of accepting any application with respect to the establishment of a domestic securities company, or the establishment, acquisition and stake-taking in a securities institution outside the territory of China;

 

(2) Within three months from the day of accepting any application with respect to any change in the registered capital, or any merger or spin-off, or any request for examining qualifications of shareholders and actual controllers;

 

(3) Within forty-five business days from the day of accepting any application with respect to any change in the business scope, corporate form and important articles in the Articles of Association, or any request for examining qualifications of senior management;

 

(4) Within thirty business days from the day of accepting any application with respect to any establishment, acquisition and cancellation of domestic branches, or any change in the business place, or shutout, dissolution and bankruptcy; and

 

(5) Within twenty business days since the day of accepting any application with respect to any request for examining the qualification of directors, supervisors and principals of a domestic branch.

    

The securities regulatory authorities of the State Council shall take the development of and fair competition on the securities market into consideration when examining the application for establishing a securities company and a branch.

 

 

 

Article 17 The company registration authorities shall, as provided for in laws and administrative regulations and subject to the approval document of securities regulatory authorities of the State Council, handle the registration for the establishment, change and cancellation of a securities company and domestic branch.

 

Upon acquisition of a business license, issued or renewed by a company registration authority, of a securities company or a domestic branch, the securities company shall apply for issuing or renewing the License for Securities Business to the securities regulatory authorities of the State Council. The License for Securities Business shall state the securities-related business scope of such securities company and domestic branch.

 

Without prior acquisition of the License for Securities Business, any securities company and domestic branches shall not engage in security business.

 

In case of closure of all securities business, dissolution, bankruptcy and cancellation of a domestic branch, a securities company shall publish an announcement on the newspaper designated by the securities regulatory authorities of the State Council, and return the License for Securities Business to the securities regulatory authorities of the State Council for registration cancellation as prescribed.

 

 

 

Chapter III Organizational Structure

 

 

 

Article 18 Securities companies shall, according to regulations in the "Corporation Law", the "Securities Law" and this Rules, establish a sound organizational structure with definite authorities of decision-making, execution and supervision institutions.

 

 

 

 

Article 19 Securities companies shall appoint independent directors, who shall not hold any positions in this securities company other than those in the board of directors and shall not be in any relationships with this securities company that may hamper them from making independent and objective judgment.

 

 

 

Article 20 In case that a securities company engages in two or more type of business, such as securities brokerage, securities assets management, margin trading and securities lending, securities underwriting and sponsorship, the board of directors of such a securities company shall set up a Compensation & Nomination Committee, an Audit Committee and a Risk Control Committee to exercise the authorities as provided for in the Articles of Association.

 

Provided that a securities company’s board of directors sets up a Compensation & Nomination Committee and an Audit Committee, the persons in charge of the two committees shall be independent directors in this securities company. 

 

 

 

Article 21 Securities companies shall appoint secretaries to directorate to be responsible for preparing shareholders' meetings and directorate meetings, keeping documents and managing shareholders’ records. The secretaries to directorate shall, according to law, provide relevant materials and handle reporting or disclosure of any information as prescribed or at the requests of securities regulatory authorities of the State Council, shareholders, other entities or individuals. The secretaries to directorate shall be deemed senior management officers of the securities companies.

 

 

 

Article 22 Securities companies shall set up institutions exercising the authorities of operation and management. Names, constituents, duties and responsibilities, and rules of order of such institutions shall be defined in the Articles of Association, and members of the institutions shall be deemed senior management officers of the securities companies.

 

 

 

Article 23 Securities companies shall appoint compliance  principals, who audit, supervise and examine legitimacy or compliance of such securities companies’ operation and management. The compliance  principals  shall, subject to approval of securities regulatory authorities of the State Council, be deemed senior management officers of the securities companies, and be appointed by the board of directors of the securities companies. The compliance principals  shall not hold any concurrent positions of operation and management in the securities companies.

 

Provided that the compliance principals  finds any violations, they shall report to the institutions as prescribed in the Articles of Association, and as required, also file with the securities regulatory authorities of the State Council or self-regulatory organizations.

 

Provided that securities companies dismiss the compliance principals , they shall provide good reasons for the dismissal and submit written reports on the dismissal and reasons to the securities regulatory authorities of the State Council within 3 working days since the dismissal day.  

 

 

 

Article 24 Directors, supervisors, senior management officers and persons in charge of domestic branches of securities companies shall acquire the approval of their qualification from securities regulatory authorities of the State Council before holding their positions.

 

Securities companies shall not appoint or elect any ineligible personnel to hold the positions as provided for in the preceding paragraph. Provided that the aforesaid personnel have been appointed or elected, relevant resolutions or decisions with respect to the appointment or election shall be invalid.

 

 

 

Article 25 In case that legal representatives or senior management officers of the securities companies leave offices, the securities companies shall audit them and submit audit reports to securities regulatory authorities of the State Council within two months from the day when they leave offices. Provided that legal representatives or major  principals in operation and management of the securities companies leave offices, accounting firms qualified for handling relevant securities or futures businesses shall be engaged to audit them.

 

Provided that the audit reports as provided in the preceding paragraph are not submitted to the securities regulatory authorities of the State Council, the personnel who leave offices shall not hold any positions in other securities companies.

 

 

 

Chapter IV Business Rules and Risk Control

 

 

 

Section I General Regulations

 

Article 26 Securities companies and domestic branches engaged in the securities businesses as enumerated in Article 125 of the "Securities Law" shall observe the "Securities Law" and this Rules.

 

Securities companies and domestic branches shall operate businesses approved by securities regulatory authorities of the State Council, and the businesses that are not approved shall not be operated.

 

In case of two or more securities companies controlling or controlled by each other, or two or more securities companies under common control by an entity or individual, such securities companies shall not operate identical business; except that the securities regulatory authorities of the State Council may otherwise provide by rules or regulations.

 

 

 

Article 27 Securities companies shall establish a sound mechanism of risk management and internal control to prevent and control risks in the principle of prudent operation.

 

Securities companies shall conduct centralized and unified management of branches; securities companies shall not operate and manage branches through joint venture and cooperation with other parties, and shall not contract, lease or entrust the operation and management of branches to other parties.

 

 

 

Article 28 In case that securities depository and clearing institutions entrust securities companies to open securities accounts for clients, the securities companies shall check the authenticity of names and identities declared by such clients as provided in the rules on securities account management. The name in the capital account shall be the same with that in the securities account opened by the same client.

 

Securities accounts opened by securities companies for clients under securities assets management shall be filed with the stock exchanges within three trading days since the day when the accounts are opened.

 

Securities companies shall not provide clients’ capital accounts and securities accounts for other persons for use.

 

 

 

Article 29 When engaging in securities assets management business, margin trading and securities lending business, and selling securities-related financial products, securities companies shall have a knowledge of the clients’ identities, standings of properties and income, securities investment sophistication and risk tolerance pursuant to required procedures, and shall record and preserve those materials in written and electronic forms. Based on the information of the clients, securities companies shall recommend proper products or services. The Securities Association of China shall formulate specific rules.

 

 

 

Article 30 Before signing services contracts with the clients with respect to securities transaction entrustment, securities assets management, and margin trading and securities lending, securities companies shall designate special personnel to explain relevant business rules and contract contents to the clients, and deliver the risk disclosure statement to clients for confirmation and signature. The prerequisite articles of the services contract and the standard format of the risk disclosure statement shall be formulated by the Securities Association of China and filed with securities regulatory authorities of the State Council.

 

 

 

Article 31 When engaging in securities assets management business, and margin trading and securities lending business, securities companies shall compile statements as prescribed and send them to the clients monthly. If the time and way for delivering the statements are otherwise stipulated by securities companies and the clients, they shall be in accordance with the stipulation.

 

 

 

Article 32 Securities companies shall establish information inquiry systems to ensure that the clients can inquire, at any time during the business hours of the securities companies, about their entrustment record, transaction record and the balance of securities and funds, as well as such information as names and practicing certificates of securities companies business personnel and securities brokers, and certificate numbers of securities brokers.

 

In case that clients believe relevant information record is not consistent with facts, the clients are entitled to complain to the securities companies or securities regulatory authorities of the State Council. Securities companies shall designate special departments to take care of the clients’ complaints, and the securities regulatory authorities of the State Council shall adopt corresponding measures according to the clients’ complaints.

 

 

 

Article 33 Securities companies shall not entrust other entities or individuals to soliciting, servicing and selling products to clients.

 

 

 

Article 34 When providing investment advices for the clients, securities companies shall not make deterministic judgment concerning securities price fluctuation or market trends.

 

Securities companies and the staff shall not seek unjustifiable interests by taking advantage of providing investment suggestions for the clients.

 

 

 

Article 35 Securities companies shall establish effective management systems to keep the staff from directly (or with aliases and in other persons’ names) holding, buying and selling shares and receiving shares presented by others.

 

 

 

Article 36 Securities companies shall retain general risk reserves according to regulations to make up operating losses.

 

 

 

Section II Securities Brokerage Business

 

Article 37 When engaging in securities brokerage business, securities companies shall check whether the clients’ funds and securities in the accounts are sufficient. If the clients’ funds in capital accounts are insufficient, securities companies shall not accept the clients’ order to purchase securities; if the clients’ securities in securities accounts are insufficient, securities companies shall not accept the clients’ order to sell securities.

 

 

 

Article 38 When engaging in securities brokerage business, securities companies may entrust external personnel as securities brokers with activities including client solicitation and service, but those securities brokers shall be qualified for handling securities business.

 

Securities companies shall sign entrustment contracts with the entrusted securities brokers, issue certificates of securities brokers, define the authorities of securities brokers and monitor practices of securities brokers.

 

Securities brokers shall conduct business within the limit authorized by the securities companies and show their certificates of securities brokers to the clients.

 

 

 

Article 39 Securities brokers shall abide by management rules for staff of securities companies. Corresponding legal responsibilities for securities brokers’ acts within securities companies’ authorization shall be assumed by securities companies according to law, while those exceeding the authorization limit shall be assumed by securities brokers’ themselves according to law.

 

A stockbroker can only accept the entrustment of one securities company to conduct activities including client solicitation and client service.

 

The stockbroker shall not handle issues including securities subscription and trading for the client.

 

 

 

Article 40 When charging for securities transaction from clients, the securities company shall abide by relevant state regulations, and make announcement on charge items and standards in obvious site of the business branches.

 

 

 

Section III Securities Proprietary Business

 

Article 41 Securities companies shall confine their proprietary business to purchase and sale of shares, bonds, warrants and securities investment funds that are publicly issued according to law or other securities recognized by securities regulatory authorities of the State Council.

 

 

 

Article 42 Securities companies as securities proprietor shall use real-name in their securities proprietary accounts.

 

Securities companies shall file their securities proprietary accounts with the stock exchange within three trading days from the opening day.

 

 

 

Article 43 Securities companies engaged in securities proprietary business shall not act as follows:

 

(1) Violating the regulations to purchase securities issued by controlling shareholders of securities companies or other issuer having significant interested relation with securities companies;

 

(2) Violating the regulations to entrust other persons to act as agents for purchasing and selling securities;

 

(3) Taking advantage of insider information to purchase and sell securities or manipulate the securities market; and

 

(4) Other acts forbidden by laws, administrative regulations or by securities regulatory authorities of the State Council.

 

 

 

Article 44 For securities companies engaged in securities proprietary business, their risk control indicators such as the ratio of total securities value of dealing business to net capital, the ratio of value of one particular security held in their own accounts to its net capital and the ratio of amount of one particular security held in their own accounts to the total issue volume of the very security shall comply with the regulations by securities regulatory authorities of the State Council.

 

 

 

Section IV Securities Assets Management

 

Article 45 As provided in the "Securities Law" and this Rule, the securities company may be engaged in the management business of securities assets by accepting the entrustment of the client and conducting investment with the client’s assets. The yields from the investment shall be enjoyed by the client and the loss shall also be assumed by the client. Securities companies shall charge administrative expenses according to the stipulations.

 

When engaged in management business of securities assets, the securities company shall sign the contract on management of securities assets with the client to stipulate issues including investment scope, investment proportion, management term and administrative expenses.

 

 

 

Article 46 Securities companies engaged in management business of securities assets shall not act as follows:

 

(1) Promising to the client that its assets principal is ensured free from loss or a minimum yield is ensured;

 

(2) The assets value of a single entrustment accepted from one client is lower than the minimum quota as provided by securities regulatory authorities of the State Council;

 

(3) Using the client’s assets to conduct unnecessary securities transaction;

 

(4) Conducting transactions between their proprietary accounts and management accounts of securities assets or between different management accounts of securities assets, with no adequate proof of valid isolation realized according to law; and

 

(5) Other behavior forbidden by laws, administrative regulations or by the securities regulatory authorities of the State Council.

 

 

 

Article 47 When conducting collective investment with the assets of several clients or conducting special investment in specific target products with the client’s assets, the securities company shall abide by relevant regulations of securities regulatory authorities of the State Council, and submit the investment to the securities regulatory authorities of the State Council for approval.

 

The securities regulatory authorities of the State Council shall make written decision of approval or disproval on the issue as set forth in the aforesaid paragraph within two months since the day when applications are accepted.

 

 

 

Section V Margin Trading and Securities Lending

 

Article 48 The term “margin trading and securities lending business”, for the purpose of this Rule, shall be defined as: in the securities transactions carried out on the stock exchange or other stock exchange sites approved by the Sate Council, the securities company lends funds to clients for their purchase of securities or lends securities to clients for sale by them on the basis of clients’ deposits.

 

 

 

Article 49 Securities companies who run the margin trading and securities lending business shall meet the following conditions:

 

(1) Its governance structure is sound, with an effective internal control;

 

(2) The risk control indicators comply with the regulations, with fine financial and compliance standings;

 

(3) Possessing professionals, technical conditions, capital and securities necessary for running the margin trading and securities lending business;

 

(4) Possessing mature management system and implementation scheme of the margin trading and securities lending business; and

 

(5) Other conditions as provided by the securities regulatory authorities of the State Council.

 

 

 

Article 50 Securities companies, which engage in the margin trading and securities lending business, shall sign the margin trading and securities lending business contract with clients and open securities guarantee accounts for clients at the securities depository and clearing institutions and open fund guarantee accounts for clients at the designated commercial banks in the names of securities companies according to the regulations provided by securities regulatory authorities of the State Council. The funds in clients’ fund guarantee accounts shall be under management as provided in Article 57 of this Rule.

 

In securities guarantee accounts and fund guarantee accounts opened for clients in the names of securities companies, the credit account shall be solely opened for each client.

 

 

 

Article 51 Concerning lending money to clients, securities companies shall use their own funds or funds raised according to law; concerning lending securities to clients, securities companies shall use their own securities inventory or the securities for which the disposition right have been obtained according to law.

 

 

 

Article 52 Concerning lending money or securities to clients by securities companies, clients shall pay a deposit in a certain proportion. The deposit can be in the form of securities.

 

The deposits paid by clients, all the securities bought by using the borrowed money, and all the proceeds from selling the securities bought on margin are collaterals for securities companies and shall be deposited into clients’ securities guarantee accounts or clients’ fund guarantee accounts of securities companies and shall be recorded into the clients’ credit account.

 

 

 

Article 53 Securities in clients’ securities guarantee accounts and funds in clients’ fund guarantee accounts are trust properties. Securities companies shall not violate the fiduciary duties by occupying the securities or funds in clients’ guarantee accounts. Except for the circumstances as provided in Article 54 in this Rule or other circumstances otherwise stipulated between securities companies and clients, securities companies shall not employ the securities or funds in clients’ guarantee accounts.

 

 

 

Article 54 Securities companies shall calculate the proportion between the value of clients’ guaranties and their debts day by day. When the proportion is lower than the stipulated lowest guarantee maintenance proportion, securities companies shall notify clients to supplement the spread within a certain time limit. If clients fail to supplement the spread on time or fail to repay the due debts of margin trading and securities lending, securities companies shall dispose of their guaranties according to stipulations.

 

 

 

Article 55 The proportion of the margin paid by clients according to Item 1 of Article 52 in this Rule shall be stipulated by the entities authorized by securities regulatory authorities of the State Council.

 

The stock exchange shall stipulate securities that securities companies can finance to clients, securities varieties that can be purchased by the financed capital, varieties and conversion rate of marketable securities that can offset the margin, the time limit for margin trading and securities lending, the lowest guarantee maintenance proportion and the time limit for supplementing the spread.

 

Item I and II of the Article herein stipulate that relevant stipulations made by the authorized entities or the stock exchanges shall be put on records by securities regulatory authorities of the State Council and shall not violate the state monetary policies. 

 

 

 

Article 56 If securities companies engaged in margin trading and securities lending lack of own funds or securities, they can borrow from securities finance companies. The State Council shall decide the establishment and dissolution of securities finance companies.

 

 

 

Chapter V Protection for Clients’ Assets

 

 

 

Article 57 Securities companies engaged in the securities brokerage business shall deposit their clients’ trading settlement capital in the designated commercial banks, open an account and manage it in the name of each individual client.

 

The designated commercial banks shall sign the custody contract on the clients’ trading settlement capital with securities companies and their clients, stipulating the issues including deposit and withdrawal, transfer and inquiry of the clients’ trading settlement capital, and shall open the summary account of the clients’ trading settlement capital for securities companies according to the requirements of netting settlement and delivery versus payment in securities trading.

 

The deposit and withdrawal of the clients’ trading settlement capital shall be handled through the designated commercial banks. The designated commercial banks shall ensure that clients can check the balance of and change in the clients’ trading settlement capital at any time.

 

The list of the designated commercial banks shall be confirmed and announced by securities regulatory authorities of the State Council together with the banking regulatory authorities under the State Council.

 

 

 

Article 58 Securities companies engaged in securities assets management business shall transfer the clients’ entrusted assets to the designated commercial banks stipulated in Item 4 of Article 57 in the Rules herein or other assets custody institutions recognized by securities regulatory authorities of the State Council for custody.

 

The assets custody institutions shall fulfill the obligations including the safe custody on the clients’ entrusted assets, the issue of handling receipts and payment of capital and supervision over the investment of securities companies according to the regulations of the securities regulatory authorities of the State Council and the stipulations in the contract on securities assets management.

 

 

 

Article 59 The customers’ trading settlement capital and securities assets management clients’ entrusted assets belong to the clients, and shall be separately managed and independent from the own assets of securities companies, designated commercial banks and assets custody institutions. Under circumstances other than the client’s own debt issues or other situations stipulated by law, any entity or individual shall not apply for attachment, freezing or enforcing execution of clients’ trading settlement capital and entrusted assets.

 

 

 

Article 60 Except the following circumstances, clients’ trading settlement capital and entrusted capital shall not be appropriated:

 

(1) clients’ securities subscription, securities trading settlement or withdrawal;

 

(2) clients’ payment of commissions, charges or taxes related to securities trading; or

 

(3) other circumstances stipulated by law.

 

 

 

Article 61 Securities companies shall not provide financing or guarantee for others with the assets of securities brokerage clients or securities asset management clients. Any entity or individual shall not enforce, incite, assist or accept financing or guarantee to be provided by securities companies with the assets of securities brokerage clients or securities asset management clients.

 

 

 

Article 62 Designated commercial banks, assets custody institutions and securities depositary and clearing institutions shall supervise the appropriation of clients’ trading settlement capital and entrusted capital as well as the capital and securities in the clients’ guaranteed accounts deposited in the institutions herein, and shall regularly submit the relevant data of deposit or appropriation of clients’ trading settlement capital and entrusted capital as well as the capital and securities in the clients’ guaranteed accounts to securities regulatory authorities of the State Council according to regulations.

 

Designated commercial banks, assets custody institutions and securities depositary and clearing institutions shall refuse the applications for and orders of using clients’ trading settlement capital and entrusted capital as well as the capital and securities in the clients’ guarantee accounts out of the range stipulated in Article 53, 54 and 60 of this Rules; If any illegal appropriation of the client’s trading settlement capital, entrusted capital and the capital and securities in the clients’ guarantee accounts or other abnormities are discovered, they shall immediately report to securities regulatory authorities of the State Council as well as relevant regulatory authorities.

 

 

 

Chapter VI Supervision Measures

 

 

 

Article 63 The securities company shall submit the annual report to securities regulatory authorities of the State Council within 4 months since the completion day of each fiscal year, and the monthly report within 7 working days since the last day of each month.

 

In case that any significant issue affects or may affect the securities company’s operation management, financial standing, risk control indicators or the clients’ assets safety, the securities company shall immediately submit temporary report to the securities regulatory authorities of the State Council, explaining the cause of the issue, current situation, possible consequence and measures to be adopted.

 

 

 

Article 64 In the annual report of the securities company, the financial report, risk control indicators report and other special reports stipulated by securities regulatory authorities of the State Council shall be audited by an accounting firm with securities and futures qualifications. The internal control evaluation report issued by the accounting firm herein shall be attached to the annual report of the securities company.

 

The directors and senior management of the securities company shall confirm in writing the annual report, while major officials of operation management and finance shall confirm in writing the monthly report. The persons signing on the annual and monthly reports shall ensure the authenticity, accuracy and completeness of the reports, and shall specify the opinions and reasons if they have any dissent against the content of the reports.

 

 

 

Article 65 Securities regulatory authorities of the State Council shall designate special personnel to examine and verify the annual and monthly reports submitted by securities company as well as work out and sign on the audit reports. In case of any problem found out during the audit, the securities regulatory authorities of the State Council shall timely take corresponding measures.

 

The securities regulatory authorities of the State Council shall compare and check the data regarding the clients’ trading settlement capital, entrusted capital, the capital and securities in clients’ guaranteed accounts submitted by relevant institutions, detecting timely any illegal misappropriation of the capital or securities.

 

 

 

Article 66 The securities company shall disclose publicly according to law its basic conditions, stake-taking and stock controlling conditions, liabilities and contingent liabilities, operation management, financial income and expense, income of senior management and other relevant information. Securities regulatory authorities of the State Council shall work out the specific measures.

 

 

 

Article 67 Securities regulatory authorities of the State Council may require the following entities or individuals to provide the relevant material and information related to the operation management and financial standing of the securities company within the prescribed time limit:

 

(1) the securities company and its directors, supervisors and staff;

 

(2) the shareholders and actual controllers of the securities company;

 

(3) the enterprises which the securities company controls the stocks of or actually controls;

 

(4) the securities company’s deposit bank, designated commercial bank, assets depository institution, stock exchange and securities depositary and clearing institution; and

 

(5) the securities service institutions that provide services to the securities company.

 

 

 

Article 68 Securities regulatory authorities of the State Council shall have the right to take the following measures to inspect the business activities, financial standing as well as operation and management of the securities company:

 

(1) inquire about the directors, supervisors and staff of the securities company to make explanation on the relevant inspection issue;

 

(2) inspect on the spot of offices or business places of the securities company;

 

(3) refer to and copy documents and material related to the inspection issue, and seal up the documents, materials and electronic devices that might be transferred, hidden or destroyed; and

 

(4) examine the computer information management system of the securities company and make copies of relevant data and materials.

 

To investigate the business and financial standing of the securities company, the securities regulatory authorities of the State Council can, upon approval by their heads, inquire about the bank accounts of the securities company and the companies with stock controlling or actual controlling relations with the securities company.

 

 

 

Article 69 The material and information disclosed, submitted or provided by the securities company and relevant entities and individuals shall be authentic, accurate and complete without false record, misleading statement or major omission.

 

 

 

Article 70 If the securities company has bad governance structure, imperfect internal control and operation and management disorder, open off-the-book accounts or conduct off-the-book business, refuse to enforce the regulatory decisions and violate laws and regulations, securities regulatory authorities of the State Council shall order it to rectify within the prescribed time limit and may take the following measures:

 

(1) order the securities company to carry out more internal compliance inspections and submit compliance inspection report;

 

(2) condemn the securities company and its relevant directors, supervisors, senior management and heads of domestic branches;

 

(3) order the securities company to punish relevant persons-in-charge and report the result;

 

(4) order the securities company to change directors, supervisors, senior management or restrict their rights;

 

(5) temporarily take over securities companies and investigate in an all round way; and

 

(6) order the securities company or its domestic branches to suspend part or all of the business, and revoke its domestic branches within the prescribed time limit.

 

If a securities company is ordered to suspend its business and revoke its domestic branches, it shall allocate the clients and deal with unfinished business according to relevant regulations.

 

Concerning the securities company’s violation of law and regulations, the compliance officer who has performed the deterring and reporting duties according to the law shall be exempted from liabilities.

 

 

 

Article 71 If any entity or individual holds or actually controls over 5% equity of the securities company without approval, securities regulatory authorities of the State Council shall order it to rectify within the prescribed time limit. The relevant equity has no voting right before rectification.

 

 

 

Article 72 If anyone without professional qualification performs the duty of directors, supervisors and senior management of securities companies or heads of domestic branches, securities regulatory authorities of the State Council shall order him to cease performing his duty and make announcement. Banning of securities market entry can be imposed according to regulations.

 

 

 

Article 73 If the directors, supervisors and senior management of securities companies or heads of domestic branches no longer have the professional qualification, securities companies shall dismiss them and report to securities regulatory authorities of the State Council; if securities companies fail to dismiss them, the securities regulatory authorities of the State Council shall order the securities companies to dismiss them.

 

 

 

Article 74 For appointing or dismissing accounting firms, securities companies shall file with securities regulatory authorities of the State Council within three working days since the decision day; securities companies shall give reasons for dismissing the accounting firms.

 

 

 

Article 75 As for auditing securities companies or relevant staff, accounting firms can refer to and copy clients’ information related to the auditing issue and other relevant documents and materials of securities companies, and can also obtain relevant data and materials in the securities companies’ computer information management system.

 

Accounting firms shall keep confidentiality of the information they know, except as otherwise provided by law and administrative rules.

 

 

 

Article 76 The stock exchange shall conduct real-time supervision over trading behaviors of securities proprietary accounts and securities assets management accounts of the securities companies; once finding out abnormal circumstances, the stock exchange shall dispose of them according to the trading rules and member management rules, and report to securities regulatory authorities of the State Council.

 

 

 

Chapter VII Legal Liabilities

 

 

 

Article 77 Securities companies under any one of the following circumstances shall be punished according to the regulation in Article 198 of the "Securities Law":

 

(1) appointing staff without professional qualifications as heads of domestic branches; or

 

(2) failing to dismiss the directors, supervisors and senior management of securities companies or heads of domestic branches without professional qualifications,  according to the legal decision made by securities regulatory authorities of the State Council.

 

 

 

Article 78 The securities companies engaging in securities brokerage business shall be punished according to the regulation of Article 205 in the "Securities Law" if they accept the buy order when the clients’ capital is insufficient or accept the sell order when the client’s securities are insufficient.

 

 

 

Article 79 The securities companies which provide clients’ capital accounts and securities accounts for others to use shall be punished according to the regulation of Article 208 in the "Securities Law".

 

 

 

Article 80 The securities companies which induce clients to conduct unnecessary securities trading or which use client’s capital to conduct unnecessary trading when engaging in securities assets management business shall be punished according to the regulation of Article 210 in the "Securities Law".

 

 

 

Article 81 Securities companies under any of the following circumstances shall be punished according to the regulation of Article 219 in the "Securities Law":

 

(1) securities companies or their domestic branches operate business out of the scope approved by securities regulatory authorities of the State Council; or

 

(2) without approval, using assets of more than one clients to conduct collective investment, or investing clients’ assets in products with specific goals.

 

 

 

Article 82 Securities companies, which trade between securities proprietary accounts and securities assets management accounts or among different securities assets management accounts, and have no adequate proof of valid isolation realized according to law, shall be punished according to the regulation of Article 220 in the "Securities Law".

 

 

 

Article 83 Securities companies, which break the regulations of the Rules under any one of the following circumstances, shall be ordered to rectify and be cautioned, with their illegal income confiscated and a penalty fine in the range of one to five times the amount of the illegal income; if no illegal income is involved or the illegal income is less than RMB100,000, a penalty fine of RMB100,000 to RMB300,000 shall be imposed; in case of serious offense, relevant securities business license shall be suspended or revoked. Persons in direct charge and other direct responsible personnel shall be cautioned, with a penalty fine of RMB30,000 to RMB100,000; in case of serious offense, the professional qualification or qualification of security practitioner shall be revoked:

 

(1) breaking the regulations to entrust other entities or individuals to conduct clients solicitation, customer service or product sales;

 

(2) providing investment suggestions for clients and making decisive judgment on ups and downs of securities prices or the market trend;

 

(3) breaking the regulations to entrust others to act as agents for purchasing or selling securities;

 

(4) the investment scope or proportion in securities proprietary business and securities assets management business break the regulations; or

 

(5) the value of a single entrusted assets is lower than the minimum limit when engaging in securities assets management business.

 

 

 

Article 84 Securities companies which break the regulations of the Rules under any of the following circumstances shall be ordered to rectify and be cautioned, with their illegal income confiscated and a penalty fine in the range of one to five times the amount of the illegal income; if no illegal income is involved or the illegal income is less than RMB30,000, a penalty fine of RMB30,000 to RMB300,000 shall be imposed on; Persons in direct charge and other direct responsible personnel shall also or only be cautioned, with a penalty fine of RMB30,000 to RMB100,000; in case of serious offense, their professional qualifications or qualifications as security practitioner shall be revoked:

 

(1) failing to audit the legal representative or senior management who have left their posts and failing to submit the audit report according to regulations;

 

(2) jointly investing or operating and managing branches with others, or contracting, leasing or entrusting others with operation and management;

 

(3) failing to file securities proprietary accounts or securities assets management accounts with the stock exchange according to regulations;

 

(4) failing to have a knowledge of the clients’ identities, standings of properties and income, securities investment sophistication and risk tolerance pursuant to required procedures;

 

(5) the products or service recommended by the securities companies is not adaptive to the clients’ circumstances;

 

(6) failing to designate special personnel to explain the business rules and contract contents and reveal investment risks in written form to clients according to regulations;

 

(7) failing to sign business contracts with clients according to regulations, or failing to put compulsory provisions into the contracts herein;

 

(8) failing to work out and deliver statement to clients according to regulations, or failing to establish and effectively implement information inquiry system according to regulations;

 

(9) failing to appoint a special department to deal with the clients’ complaints according to regulations;

 

(10) failing to withdraw general risk reserve according to regulations;

 

(11) failing to deposit and manage the clients’ trading settlement fund, entrusted capital, and other capitals and securities in the clients’ guarantee account according to regulations; or

 

(12) failing to file the engagement and dismissal of accounting firms with securities regulatory authorities of the State Council according to regulations, or failing to give reasons for dismissing the accounting firms.

 

 

 

Article 85 Securities companies who fail to open account for their clients shall be ordered to rectify. In case of serious offense, a penalty fine of RMB200,000 to RMB500,000 shall be imposed on. In addition, a penalty fine of RMB10,000 to RMB50,000 shall be imposed on the directors, senior management and other direct responsible personnel.

 

 

 

Article 86 Securities companies which break the Rules under any of the following circumstances shall be ordered to rectify and be cautioned, with their illegal income confiscated and a penalty fine in the range of one to five times the amount of the illegal income; if no illegal income is involved or the illegal income is less than RMB100,000, a penalty fine of RMB100,000 to RMB600,000 shall be imposed on; in case of serious offense, relevant securities business license shall be revoked. Persons in direct charge and other direct responsible personnel shall be cautioned, with a penalty fine of RMB30,000 to RMB300,000, and their professional qualifications or qualifications as security practitioners shall be revoked:

 

(1) without approval, entrusting others or accepting others’ entrustment to hold or manage equity of securities companies, or to subscribing for, receiving or actually controlling equity of the securities company;

 

(2) shareholders and actual controllers of the securities company enforce, incite, assist or accept financing or guarantee provided by the securities company with the assets of securities brokerage clients or securities assets management clients;

 

(3) securities companies, assets custody institutions, securities depository and clearing institutions violate the rules by misappropriating the clients’ trading settlement capital, entrusted capital, and the capital and securities in the clients’ guarantee account;

 

(4) assets custody institutions and securities depository and clearing institutions approve or execute the application for or order of misappropriating the entrusted capital, and the capital and securities in the clients’ guarantee account; or

 

(5) assets custody institutions and securities depository and clearing institutions fail to report to securities regulatory authorities of the State Council upon discovery of the entrusted capital, and the capital and securities in the clients’ guarantee account being misappropriated.

 

 

 

Article 87 For the designated commercial banks under any of the following circumstances, securities regulatory authorities of the State Council shall order to rectify, caution, confiscate the illegal income, and impose on a penalty fine in the range of one to five times the amount of the illegal income; if no illegal income is involved or the illegal income is less than RMB100,000, a penalty fine of RMB100,000 to RMB600,000 shall be imposed on. Persons in direct charge and other direct responsible personnel shall be cautioned, with a penalty fine of RMB30,000 to RMB300,000:

 

(1) violating the rules by misappropriating the clients’ trading settlement capital;

 

(2) approving or executing the applications for or orders of misappropriating the clients’ trading settlement Capital; or

 

(3) failing to report to securities regulatory authorities of the State Council upon discovery of the clients’ trading settlement fund being misappropriated.

 

In case of any serious offence stipulated in the preceding Article, the securities regulatory authorities of the State Council together with banking regulatory authorities of the State Council shall order the designated commercial banks to suspend or terminate their deposit business of clients’ trading settlement capital. The person-in-charge and other direct responsible personnel may be punished by the banking regulatory authorities of the State Council according to law as the securities regulatory authorities of the State Council suggests.

 

 

 

Article 88 Securities companies which break the Rules under any of the following circumstances shall be ordered to rectify, be cautioned, with a penalty fine in the range of RMB30,000 to RMB200,000; persons in direct charge and other direct responsible personnel shall be cautioned, with a penalty fine less than RMB30,000:

 

(1) securities companies fail to disclose information publicly according to Article 66 of the Rules herein, or there is false record, misleading statement or major omission in the publicly disclosed information; or

 

(2) enterprises which the securities companies control the stock of or actually control, assets custody institutions, securities service institutions fail to report and provide related information or materials to securities regulatory authorities of the State Council; or there is false record, misleading statement or major omission in the reported and provided information and materials.

 

 

 

Article 89 Securities companies which break the Rules under any of the following circumstances shall be ordered to rectify and be cautioned, with their illegal income confiscated and a penalty fine of the same amount of the illegal income; if no illegal income is involved or the illegal income is less than RMB30,000, a penalty fine of below RMB30,000 shall be imposed on; in case of serious offense, professional qualifications or qualifications as security practitioners shall be revoked:

 

(1) the compliance officer fails to report violations of laws and regulations to securities regulatory authorities of the State Council or relevant self-regulatory organizations;

 

(2) the securities broker fails to present his/her certificate;

 

(3) the securities broker accepts entrustments of several securities companies at the same time and conduct client solicitation and client services; or

 

(4) the securities broker accepts the clients’ entrustments to handle issues such as subscription for or trading of securities.

 

 

 

Article 90 The securities company shall be punished by competent authorities for illegal charging.

 

 

 

Chapter VIII Supplementary Provisions

 

 

 

Article 91 Securities business operated by securities companies that fail to conform to the stipulation in Item 3 of Article 26 in the Rules herein, shall meet the stipulated requirements within the time limit regulated by securities regulatory authorities of the State Council.

 

 

 

Article 92 Securities regulatory authorities of the State Council shall order securities companies to rectify within the prescribed time limit the depository method of the clients’ trading settlement capital which fails to conform to Article 57 of the Rules herein.

 

The depository method of clients’ trading settlement capital of the securities company shall meet the stipulated requirements within one year since the implementation day of the Rules herein.

 

 

 

Article 93 Upon approval by securities regulatory authorities of the State Council, the securities company may borrow debts that could be returned later than general debts from shareholders or other entities. The securities regulatory authorities of the State Council shall constitute specific management measures.

 

 

 

Article 94 the business scope of foreign-invested securities company, the qualifications and contribution proportions of foreign shareholders shall be regulated by securities regulatory authorities of the State Council and be submitted to the State Council for approval.

 

 

 

Article 95 It shall be approved by securities regulatory authorities of the State Council if those overseas securities business institutions operate securities business or establish agencies domestically. Specific measures shall be constituted by the securities regulatory authorities of the State Council and be submitted to the State Council for approval.

 

 

 

Article 96 The securities depository and clearing institutions mentioned in this Rules refer to those stipulated in Article 155 of the “Securities Law”.

 

 

 

Article 97 The Rules shall come into effect as of June 1, 2008.

 

 

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