The China Securities Regulatory Commission, People’s Bank of China and State Administration of Foreign Exchange published on 16 December 2011 the RMB Qualified Foreign Institutional Investors [RQFII] Fund Management Companies and Securities Companies’ Investment in Securities inside China Tentative Measures (CSRC Order No. 76). On the same day, the CSRC also promulgated the Implementing Provisions for the Tentative Measures (CSRC Announcement [2011] No. 37). Both the Tentative Measures and the Implementing Provisions came into force on publication.
The Tentative Measures govern the use of RMB funds raised in Hong Kong by the Hong Kong subsidiaries of Chinese domestic fund-management companies and securities companies for investment in the Chinese domestic securities market. These Hong Kong subsidiaries are first required to obtain consent from the CSRC and an approved investment quota from the State Administration of Foreign Exchange.
Article 6 of the Tentative Measures provides that, to become a qualified institution under the pilot scheme, a Hong Kong subsidiary must meet the following requirements: (1) be certified as an asset management business by the Hong Kong regulators and have experience as an asset manager. They must also be financially sound and have a good credit standing; (2) have effective corporate governance and internal controls. Staff must meet the standards required for practice by Hong Kong regulators; (3) applicants and their Chinese domestic parent companies must carry out business in accordance with relevant regulatory standards, and not have been subject to major punishment by the local regulators for the previous three years; (4) applicants Chinese domestic parent companies must be qualified to conduct securities and asset management business.
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Under Article 4 of the Implementing Provisions, an institution operating under the tentative scheme is allowed to deploy RMB-denominated funds raised in Hong Kong to invest in financial instruments approved by the CSRC and the People’s Bank of China, such as stocks, bonds and warrants listed and traded on a stock exchange, as well as securities investment funds. It is also permitted to buy initial public offerings and issues of convertible bonds, and to subscribe to rights issues.
Pursuant to Article 5 of the Implementing Provisions, an RQFII should also comply with the following requirements for asset allocation: (1) funds used to invest in stocks and stock-based funds must not exceed 20% of total funds raised; (2) funds used to invest in fixed-income securities, including various types of bonds and fixed-income based funds, must not be less than 80% of total funds raised.
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