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Decree No. 21 of the China Securities Regulatory Commission
Signed by: Chairman Shang Fulin
June 29, 2004
The Administrative Measures on the Operation of Securities Investment Funds duly reviewed and approved by China Securities Regulatory Commission at the 93rd Chairman Office’s Meeting on June 4, 2004 are now promulgated and shall be fully implemented as of July 1, 2004.
Administrative Measures on the Operation of Securities Investment Funds
Chapter 1 General Provisions
1. With a view to standardizing the operations of securities investment fund, safeguarding the legitimate interests of investors, promoting the healthy development of securities investment fund markets, Administrative Measures on the Operation of Securities Investment Funds (the Measures) are formulated in accordance with Securities Investment Fund Law and other relevant laws, administrative rules and regulations
2. The Measures are applicable for the collection of the securities investment fund (hereinafter referred to as the Fund), subscription and redemption of fund share, investment of fund assets, allocation of fund proceeds, the convening of meetings of fund unit holders and other operations of the Fund.
3. Operations of the Fund shall be strictly implemented in accordance with laws, administrative rules, regulations stipulated by the China Securities Regulatory Commission (hereinafter referred to as the CSRC), adhering to the principle of voluntariness, fairness, sincerity and trust, and at any rate, they shall not harm or impair the national interests and the public interests.
4. The operation of Fund shall be regulated and supervised by the CSRC and its dispatched offices in accordance with laws, administrative rules, and regulations herein prescribed as well as the principle of prudential supervision.
5. Associates to the Fund industries shall exercise self-disciplinary administration over the operations of the Fund in accordance with laws, administrative rules, regulations specified by the CSRC as well as the self-discipline principle.
Chapter 2 Collection of the Fund
6. The following circumstances shall be met when applying for the collection of the fund, appointing the fund manager(s) and custodian(s):
(1) The fund manager to be appointed according to the law shall be a fund management company and the fund custodian to be appointed shall be a commercial bank qualified for the fund custody.
(2) The Fund shall have the practitioners who are qualified as per the regulations of the CSRC and have relevant expertise in line of the management and custody of funds to be collected (including the fund managers).
(3) The procedures and systems involved with the investment management, sales, registration, value evaluation of funds are highly regularized and standardized, and no circumstances exist which would influence the normal operations of the fund, harm or perhaps harm the legitimate interests of fund unit holders.
(4) No administrative penalties or criminal punishments are incurred by transgression of laws and regulations within the recent one year.
(5) The unit is not subject to the investigation by the supervision authorities or in rectification period because of transgression of laws and regulations.
(6) There exist no major changes which may potentially produce or have produced any adverse or negative effects to the operations of funds.
(7) There exist no material operation risks, such as the unsound internal governance mechanism, disorder of operation and management, ineffectual implementation of internal control and risk management system, and degradation of financial status.
(8) Prior to the appointment of fund manager, the fund contract for the fund approved to collect has come into effect, or 6 months has passed since the date of refunding the total contributions rendered by investors and related interests once the conditions specified in article 12 herein cannot be satisfied at the expiry of the collection period.
(9) Other conditions stipulated by the CSRC in accordance with the principle of prudential supervision.
7. Application to collect the funds and the funds to be collected shall be subject to the following requirements:
(1) Definite and legal investment direction;
(2) Definite fund operation mode;
(3) Conformity with the provisions on fund categories stipulated by the CSRC;
(4) Not being the same with or similar to the fund managed by the fund manager to be appointed.
(5) Drafts of legal instruments including the fund contract, prospectus, shall conform to the laws, administrative rules and the CSRC regulations.
(6) The name of fund shall indicate the categories and investment characteristics of the fund. There exist no such contents that may harm the national interests and public interests, cheat or mislead the investors, or infringe the legitimate interests of other parties.
(7) Other conditions stipulated by the CSRC in accordance with the principle of prudential supervision.
8. The fund manager shall submit the application documents in accordance with provisions of Securities Investment Fund Law and the CSRC regulations when applying to collect the funds.
During the application period, if the contents of application documents undergo some crucial changes and alternations, the fund manager shall submit the latest updated documents to the CSRC within five working days as of the date of such changes and alternations.
9. The CSRC shall accept and review the application of fund collection and then make the final decision in accordance with provisions of Administrative Licensing Law and article 39 of Securities Investment Fund Law.
10. The CSRC has the right to sponsor an expert review meeting to review the application of fund collection in light of the principle of prudential supervision.
11. The term of fund collection shall be valid for three months from the date of sales of fund shares.
12. Upon the expiry date of fund collection, if the total amount of fund shares collected is in conformity with article 44 of Securities Investment Fund Law and meet the following conditions, the fund manager shall go through the capital verification procedures and fund filing procedures according to the stipulations.
(1) The total fund shares collected are not less than two hundred million shares, while the total amount collected are not less than CNY two hundred million.
(2) The number of the people who hold the fund shares is not less than two hundred.
13. Upon the receipt of the capital verification report and fund filing documents submitted by the fund manager, the CSRC shall issue the written confirmation within three working days from the date of receipt. The fund filing procedures will come to the end as of the date of the written confirmation by the CSRC, and the fund contract shall come into effect.
The fund manager shall announce to the public on the following day after receiving the written confirmation from the CSRC.
14. Expenses and charges, including the attorney fees, accounting fees and other fees, shall not be disbursed from the account of fund assets. Nevertheless, if the subscription fee is charged by the fund, such expenses shall be paid out of the subscription fee.
Chapter 3 Subscription and Redemption of Fund Shares
15. The date and time for the fund manager to process the subscription and redemption of fund shares (hereinafter referred to as the Open Day) shall be clearly stipulated in the fund contract of the open-end and recorded in the prospectus.
16. The fund contract of open-end fund may stipulate that the fund manager can hold the processing of the redemption within a certain period from the date of effectiveness of the contract; however, the contracted term shall be no longer than three months and shall be clearly set out in the prospectus.
17. The prices of subscription and redemption of the open-end fund shares shall be calculated on the basis of the net value of fund shares on the subscription or redemption day plus or minus the related expenses. The specific calculation methods for the prices of subscription and redemption of open-end fund shares shall be clearly stipulated and set out in the fund contract and prospectus.
Net value of the open-end fund shares shall be calculated by dividing the net value of fund assets with the fund shares of that day after the close of each Open Day. The specific calculation method shall be clearly set out in the fund contract and prospectus.
18. The fund manager shall not be allowed to subscribe, redeem or transfer the fund shares beyond the date or time stipulated in the fund contract.
If the fund manager submits the application of subscription, redemption or transfer beyond the date and time stipulated in the fund contract, the prices of subscription and redemption of fund shares shall be the prices on the Open Day of the next round of subscription and redemption of fund shares.
19. When subscribing the fund shares, the investors shall effect the full-payout of subscriptions, except those special fund categories specified by the CSRC; upon the payout of such subscriptions, the application of subscription shall come into effect.
20. The fund manager shall confirm the effectiveness of the subscription and redemption within three working days from the date of receipt of the application of subscription and redemption submitted by the investor(s).
The fund manager shall effect the payout of redemption money within seven working days from the date of accepting the investors’ redemption application, except for the special fund categories specified by the CSRC.
21. The open-end fund contract could stipulate that if the funds have developed to some extent in the scale, the fund manager could reject the further application of subscription, but it shall be clearly stipulated and set out in the prospectus.
During the period of collecting the funds, the fund manager shall not adjust the fund scale stipulated in the fund contract. However, after the fund contract comes into effect, the fund manager could adjust the fund scale according to the real circumstances and in accordance with the provisions of the fund contract, but it shall be announced to the public three days in advance and the prospectus shall also be updated.
22. The open-end fund contract could set out the limitations on percentage or quantities of fund shares held by individual fund unit holders, while such limitations shall be clearly set out and stated in the prospectus.
23. If the net redemption applied in a single Open Day of the open-end fund exceeds 10% of total fund shares, it shall be deemed as substantive redemption.
In case the substantive redemption occurs to the open-end fund, the redemption shares handled at that day shall be not less than 10% of the total fund shares, and then the fund manager could postpone the schedule and handle other redemption applications later.
24. In case the substantive redemption occurs to the open-end fund, as far as the redemption application submitted by individual fund unit holder is concerned, the fund manager shall determine the redemption shares of individual fund unit holder processed on that day in light of the percentage of applied redemption shares to the total applied redemption shares on that day.
The fund unit holder could choose to withdraw the unprocessed transactions when applying for the redemption. If the fund unit holder chooses not to withdraw, then the fund manager could postpone such unprocessed transactions to the next Open Day, while the price of redemption will be the price on that day.
25. As for the open-end fund subject to substantive redemption and processed in a postponed time, the fund manager shall inform the fund unit holder within three trading days of the way of how to handle it by the way of mail, facsimile or other ways specified in the prospectus, and at the same time, release the announcements on the specified publications and other related media.
26. As for the open-end fund subject to continual substantive redemptions, the fund manager could choose to suspend the acceptance of redemption application according to the stipulations of fund contract and provisions of prospectus; as for the redemption application accepted, the fund manager could postpone the payout of redemption money, but the postponement duration shall not be longer than twenty working days and shall release the announcements on the specified publications and other related media.
27. The open-end fund contract could also cover the following stipulations that when the fund shares of redemption applied by the individual fund unit holder in a single Open Day exceed certain percentage of total fund shares, the fund manager could choose to suspend the acceptance of such redemption or postpone the payouts in accordance with provisions of article 26 of the Measures.
28. The open-end fund shall keep and hold some amount of cash not less than 5% of the net value of fund assets or the treasury bonds mature within 1 year so as to effect the payout of redemption to the fund unit holders, except for the special fund categories specified by the CSRC.
Chapter 4 Investment and Proceeds Allocation of Funds
39. The categories of funds shall be set out in the fund contract and prospectus in accordance with the following stipulations:
(1) Funds invested in the stocks taking up more than 60% of total fund assets shall be classified as stock fund.
(2) Funds invested in the bond taking up more than 80% of total fund assets shall be classified as bond fund.
(3) Funds invested only in money market instruments shall be classified as money market fund;
(4) Funds invested in stock, bond and money market instruments, and the respective percentage of stock investment and bond investment in unconformity with the stipulations (1) and (2), shall be classified as hybrid fund;
(5) Other fund categories stipulated by the CSRC.
30. If the name of fund indicates the investment direction, there shall be at least 80% non-cash fund assets falling into the scope of such investment.
31. The following conditions shall not exist when the fund manager invests the fund assets in securities markets.
(1) One fund holds the stocks of one listed company and the market value exceeds 10% of the net value of the fund assets;
(2) All the funds managed by the same fund manager hold the securities issued by one company, and the securities held by the funds exceed 10% of the securities of the company;
(3) The fund assets participate in the subscription of new issue and the amount declared by one fund exceeds the total assets of such fund; the stock quantities declared by one fund exceed the total stock quantities to be issued by the stock company this time.
(4) Violating the stipulations concerning the investment scope, investment strategies and investment percentage stipulated in the fund contract;
(5) Other conditions prohibited by the CSRC.
The fund categories going through the securities investments completely according to the percentage of related indexes may be exempt from the percentage restrictions stipulated in the previous item (1) and (2).
32. The fund manager shall ensure the conformity of the investment-portfolio ratio with the stipulations of fund contract within six months from the date of effectiveness of the fund contract.
33. If the fund investment is not in conformity of the percentage specified in subparagraphs (1) and (2) of paragraph 1 of article 31 or the investment percentage specified in the fund contract, the fund manager shall enforce adjustments within ten trading days, whereas such unconformities shall result from the elements beyond the control of fund manager including the fluctuation of securities markets, merge of listed companies and change of fund scale.
34. The following expenses with the fund concerned could be disbursed from the fund assets:
(1) Management fees for fund manager;
(2) Custodian fees for fund custodian;
(3) Fee of information disclosure after the execution of fund contract;
(4) Accounting fees and attorney fees after the execution of fund contract;
(5) Fees for the meeting of fund unit holders;
(6) Securities trading fees of the fund;
(7) Other fees and charges that could be disbursed from the fund assets in accordance with the relevant national regulations and stipulations of the fund contract.
35. The allocation of proceeds of the closed-end fund shall be carried out at least one time per year and its percentage shall not be lower than 90% of realized proceeds of fund year.
The open-end fund contract shall stipulate the maximum times of allocation of fund proceeds each year as well as the minimum percentage of allocation of fund proceeds.
36. The fund proceeds shall be allocated with cash.
The fund unit holder of open-end fund could choose in advance to convert the cash proceeds to be the fund shares in accordance with stipulations regarding the subscription of fund shares in the fund contract; the fund unit holder failing to make a choice shall be paid by cash by fund manager.
Chapter 5 Meeting of Fund Unit Holders
37. In addition to the events specified in the paragraphs (1) through (5), article 71 of Securities Investment Fund Law, the fund contract shall also stipulate other events for the alternation or modification of the fund contract in accordance with provisions specified by the CSRC, including the events with great impact on the responsibilities and obligations of the parties to the fund contract and calling for the convening of the meeting of fund unit holders.
38. The fund custodian who deems the convening of the meeting of fund unit holders necessary shall submit a written proposal to the fund manager. The fund manager shall confirm whether to convene the meeting within ten days from the date of such written proposal and inform the fund manager of the decision in writing.
The meeting which the fund manager decides to convene shall be convened within sixty days from the date of issuance of the written decision; if the fund manager decides not to convene such meeting while the fund custodian deems it necessary, the meeting shall be convened at the option of the custodian.
39. When the fund unit holders taking up more than 10% of the fund shares deem the convening of the meeting necessary, a written proposal shall be submitted to the fund manager. The fund manager shall confirm whether to convene the meeting within ten days from the date of such written proposal and inform the fund unit holder’s representative raising the proposal and the fund custodian of the decision in writing.
The meeting which the fund manager decides to convene shall be convened within sixty days from the date of issuance of the written decision; if the fund manager decides not to convene such meeting while the fund unit holders taking up more than 10% of fund shares deem it necessary, then the written proposal shall be rendered to the fund custodian.
The fund custodian shall decide whether to convene the meeting within ten days from the date of the receipt of the written proposal and then inform the fund unit holder’s representative and fund manager of the decision in writing. In case the fund custodian decides to convene the meeting, the meeting shall be convened within sixty days from the date of the issuance of such written decision.
40. Where neither fund manager nor fund custodian chooses to convene the meeting of fund unit holders, the holders could convene the meeting at their own option in accordance with the provisions specified in paragraph 2, article 72 of Securities Investment Fund Law.
The meeting convened by the fund unit holders at their own option shall be filed with the CSRC at least thirty days in advance.
41. Where the meeting of fund unit holders is convened by such holders at their own option according to the laws, the fund manager and the fund custodian shall provide positive cooperation instead of impedance or interference.
42. As for the events which are voted through at the meeting of fund unit holders in accordance with the provisions of article 75 of Securities Investment Fund Law, the convener shall report such events to the CSRC for approval or filing within five days from the date of pass.
The events determined by the meeting of the fund unit holders shall come into effect as of the date of issuance of the approval or no comment letter by the CSRC according to the law.
43. The fund manager, fund custodian and the fund unit holder shall enforce the decisions effected by the meeting of fund unit holders.
Chapter 6 Supervision and Legal Responsibilities
44. After the fund contract comes into effect, if the figure of fund unit holders is less than two hundred or the net value of fund assets is blow CNY fifty million, the fund manager shall report such issues to the CSRC in time; if the above-mentioned circumstances lasts for the consecutive 20 working days, then the fund manager shall provide the relevant reasons and solutions to the CSRC.
45. The CSRC and its dispatched offices could review periodically or non-periodically the fund operations carried through by the fund manager and fund custodian, while the fund manager and fund custodian shall positively cooperate with them in the process.
46. When the fund manager, fund custodian are breaking the laws, administrative rule and regulations and the provisions of the Measures, the CSRC and its dispatched offices shall order the relevant parties for rectification and suspend to process the related businesses; and further, administrative supervision measures shall be enforced to the persons-in-charge directly responsible or other persons with direct responsibilities. The measures available include supervision talks, issuance of warning letters, filing with integrity documents, suspension of duties and the recognition of unsuitable assumption of relevant duties.
47. If the fund manger, fund custodian and other persons-in-charge directly responsible or other persons with direct responsibilities carry through the fund operations in breach of the Measures, the administrative penalties would be enforced to them by the CSRC in accordance with the stipulations of laws and administrative rules; as for those not specified in the laws and administrative rules, the administrative penalties could be enforced in accordance with the provisions specified in Measures; as for those suspected of criminal, they shall be transferred to the competent judicial authorities to investigate the criminal liabilities.
48. If the fund manager processes the subscription, redemption or transfer of the fund shares beyond the date or time specified in the fund contract against the stipulations of article 18 of the Measures, the relevant fund manager shall be subject to the punishments in accordance with the stipulations of article 89 of the Securities Investment Fund Law.
49. If the fund manager uses the fund assets in the securities investment against the stipulations of article 31 of the Measures, the relevant fund manager shall be subject to the punishments in accordance with the stipulations of article 90 of the Securities Investment Fund Law.
50. If the fund manager and fund custodian fail to abide by the stipulations specified in article 38 and 39 of the Measures to convene the meeting of fund unit holders, the relevant fund manager and fund custodian shall be subject to the punishments in accordance with the stipulations of article 95 of the Securities Investment Fund Law.
50. If the fund manager conceals or disguises relevant information or submits the false or fraudulent documents in its application for fund collection, the CSRC shall reject such application; the accepted application shall not be approved and the fund manager shall be subject to warnings.
52. If any of the following circumstances has happened to the fund operations, the fund manager shall be ordered for rectification and subject to warning and/or penalty. The persons-in-charge directly responsible or other persons with direct responsibilities shall be subject to warning and/or penalty.
(1) Fail to calculate of prices of subscription and redemption in accordance with stipulations of article 17 of the Measures.
(2) Fail to confirm the effectiveness of subscription and redemption as well as the payout of the redemption money in accordance with the stipulations of article 20 of the Measures.
(3) Fail to process the redemption application in accordance with the stipulations of paragraph 2, article 23 of the Measures.
(4) Fail to hold cash or treasury bonds in accordance with the stipulations of article 28 of the Measures.
(5) Fail to adjust investment ratio in accordance with the stipulations of article 33 of the Measures;
(6) Fail to allocate the proceeds in accordance with the stipulations of articles 35 and 36 of the Measures;
(7) Fail to report or explain the relevant issues or provide solutions in accordance with the stipulations of article 44 of the Measures.
53. If any of the following circumstances has happened to the fund operations, the fund manager and fund custodian shall be ordered for rectification and subject to warning and/or penalty. The persons-in-charge directly responsible or other persons with direct responsibilities shall be subject to warning and/or penalty.
(1) Fail to cooperate with fund unit holders to convene the meeting of fund unit holders in accordance with the stipulations of article 41 of the Measures;
(2) Fail to apply for approval of or file the decisions formed at the meeting of fund unit holders in accordance with the stipulations of article 42 of the Measures;
(3) Fail to implement the decisions effected by meeting of fund unit holders in accordance with the stipulations of article 43 of the Measures;
(4) Fail to cooperate with the CSRC or its dispatched offices to carry though the review in accordance with the stipulations of article 45 of the Measures.
Chapter 7 Supplementary Provisions
54. The Measures will be put in force as of the date July 1, 2004.
The China Securities Regulatory Commission
(This English version by Shenzhen Securities Information Co., Ltd. is for your reference only. In case any discrepancy exists between the Chinese and English context, the Chinese version shall prevail.) | 
