Circular on Issues Concerning Further Improving the Review Procedures for Capital-raising Application for Establishment of Securities Investment Funds

Our Ref: No.101 [2005] CSRC

June 16, 2005

To: 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 Administrative Measures on the Advisory Committee of Securities Investment Funds (No.13 [2003] CSRC) and Provisional Regulations on the Implementation Procedures for Administrative Permit of the China Securities Regulatory Commission (hereinafter referred to as the “Procedure Regulations), the issues concerning further improving the review procedures for capital-raising application for establishment of securities investment funds (hereinafter referred to as “fund” which can be a single or a plural, as the case may be) are hereby promulgated, with a view of further improving the review procedures, enhancing the review efficiency and quality, and boosting the healthy and standardized development of the fund market.

1. Upon accepting a capital-raising application for fund establishment (hereinafter referred to as “capital-raising application”), the China Securities Regulatory Commission (CSRC) will determine, according to the situation, whether or not to organize an expert committee to review the application.

As to the capital-raising application submitted to the expert committee, experts shall focus on such factors of the proposed fund as investment management, risk control and so on and independently issue the review opinions, which shall serve as reference for the CSRC.

2. In case the capital-raising application is filed by a fund management company which operates in compliance with the laws and regulations, possesses strong research capability and enjoys a good market reputation, such application will not be submitted to the expert committee, unless

(1)   the fund management company has not been incorporated or operating for one year;

(2)   design of the fund product is relatively innovative;

(3)   design of the fund product has yet to be further improved and requires consultation with the expert committee;

(4)   other circumstances as stipulated by the CSRC pursuant to the prudent regulatory principles.

3. Design of a relatively innovative fund product will be given priority by the CSRC in terms of review by the expert committee and examination of the application documents. For a fund product with significant innovation, if approved by the CSRC for raising capital, may not be replicated or imitated by other fund management companies within the period as stipulated by the CSRC.

4. In case a capital-raising application is found with problems such as unrefined design, ill-defined operational conceptions and non-complete risk control system, the CSRC may order the filing fund management to make substantial revisions in accordance with the Article 24 and Article 25 of the Procedure Regulations. If such application has been reviewed by the expert committee, a second review might be required based on the particulars of the foregoing revisions.

5. In the event that the capital-raising application revised is submitted to the expert committee for a second review but found with the same problems as stated above, the CSRC will not grant approval for such application and adopt corresponding regulatory measures according to the situation.

6. The solicitor and law firm appointed to issue the legal advice and provide legal services for a capital-raising plan shall duly perform their obligations in compliance with relevant rules, examine and verify the documents and facts involved, and guarantee the truthfulness, accuracy and completeness of the documents they issue.

7. 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.)