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China – New QFII Rules Issued In July 2012.

8 September, 2012

  

On July 27, 2012, the China Securities Regulatory Commission ("CSRC") promulgated the Regulations on the Relevant Issues Relating to the Implementation of the Administrative Measures on Securities Investment by Qualified Foreign Institutional Investors ("QFII") within the People's Republic of China (the "New QFII Rules"), which took effect immediately and superseded the existing notice on the same subject issued by CSRC on August 24, 2006.
 
The New QFII Rules aim to allow more institutions to gain QFII status and to facilitate the execution of their investments.  In order to do so,  the following changes are made to the old QFII regime:
 
More Liberal Qualification Requirements
 
Foreign financial institutions will be subject to lower qualification requirements to obtain QFII status, as shown in the table below:
 
Type of Institution
Requirements under New 
QFII Rules
Previous 
Requirements
Asset management 
institutions, insurance 
companies and other 
institutional investors 
(such as pension 
funds, charitable 
funds, endowments 
or sovereign funds)
Minimum years of operation
("MYO"): 2 years
MYO: 5 years
AUM: USD 5 billion
Assets under management
("AUM"): USD 500 million
Securities companies MYO: 5 years MYO: 30 years
Net asset value: 
USD 500 million
Paid up capital: 
USD 1 billion
AUM: USD 5 billion AUM: USD 10 billion
 
Having operated banking 
business for over 10 yea
Ranked among the top
100 commercial banks 
by assets worldwide
Tier one capital:  
USD 300 million
AUM: USD 5 billion AUM: USD 10 billion

  

Better Operation of Accounts
 
QFIIs will be allowed to set up separate securities accounts for their own and each of their clients' funds, and will also be allowed to open trading accounts at multiple brokerages.

  

Expanded Investment Options
 
The New QFII Rules are part of a string of changes made to further open the domestic securities markets to qualified foreign investors.  In April this year, the State Council of the PRC increased the total QFII quota  from USD 30 billion to USD 80 billion. The New QFII Rules will expand market access for QFIIs by allowing them to invest through the interbank bond market, in addition to trading shares, bonds, investment certificates and stock index futures on exchanges or through investment funds.  Derivative instruments (other than stock index futures) and markets other than stock exchanges and the interbank bond market remain closed to QFII.
 
Another major amendment in the New QFII Rules is to raise the ceiling on the combined shareholding of QFIIs in any listed company in China's A-share market from 20% of the total issued share capital to 30%, which will permit QFIIs to exercise a significant degree of control over PRC listed companies.  The maximum stake any single QFII may hold remains unchanged at 10%.
 

 

 

For further information, please contact:

 
Hans-Günther Herrmann, Paul Weiss
hherrmann@paulweiss.com

 

Yuan Yuan Zhou, Paul Weiss
yzhou@paulweiss.com
 

 

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