Our Ref: No.121 [2005] CSRC

November 21, 2005

T fund management companies, fund custodian banks

Pursuant to the Securities Investment Fund Law of the PRC, Administrative Measures on Operation of Securities Investment Funds, Provisional Regulations on Administration of Money Market Funds and other laws and regulations, the issues concerning bank deposit investment by money market funds are hereby promulgated, with a view of accomplishing standardized operation and healthy development of money market funds.

1.      Money market funds may invest in cash, call deposits and deposits within 1 year (including 1 year).

2.      The deposit banks of money market funds shall be such commercial banks as qualified for custodians of securities investment funds, agents of securities investment funds or the custodians of Qualified Foreign Institutional Investors (QFIIs).

3.      The proportion a money market fund invests in time deposits shall not exceed 30% of its net assets value.

4.      A money market fund to invest in bank deposits shall enter into a comprehensive cooperation agreement with the head office or the authorized branch of its deposit bank, and deposit its capital in the said head office or the representative office designated by the authorized branch.

5.      A money market fund to invest in bank deposits shall sign a specific agreement with its deposit bank to clarify the deposit category, term, interest rate, amount, account number, reconciliation method, withdrawal of funds, account management and so on. As to a time deposit agreement, the terms and conditions for advance withdrawal shall be specified in such agreement to ward off liquidity risks under exceptional circumstances.

6.      A regular reconciliation mechanism shall be established between fund managers, fund custodians and deposit banks to ensure truthfulness and accuracy of the accounts and calculation of money market funds for bank deposit business.

7.      To ensure the safety of fund assets and to protect the legitimate interests of fund unit holders, fund managers and custodians shall, in accordance with the circular and relevant rules, enter into a written agreement on bank deposit business, specifying the rights, obligations and responsibilities of each party in terms of signing of relevant agreements, opening and management of accounts, delivery and execution of investment instructions, fund transfer, account reconciliation, payment at maturity, safekeeping of documents, and issue, delivery and  safekeeping of the letter of confirmation and so on.

8.      Fund managers shall duly prevent relevant risks by strengthening work related to evaluation and research on the deposit banks, establishing and improving the process of bank deposit business, work responsibilities, risk control measures and the supervision and audit system.

9.      Fund custodians shall duly perform their responsibilities, enhance supervision and audit of bank deposit business and ensure documents such as pertinent agreements, account materials, investment instructions, the letter of confirmation are examined and reviewed.

10. Fund managers and custodians engaged in bank deposit business of money market funds, shall comply with the Securities Investment Funds Law of the PRC, Administrative Measures on Operation of Securities Investment Funds, Provisional Regulations on Administration of Money Market Funds, etc. and the state regulations on account management, interest rate management, payment and settlement and so on.

11. The circular shall come into effect as of the date of promulgation.

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.)