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Our Ref: No.138 [2005] CSRC
To: fund management companies, fund custodian banks
The warrant scheme has been introduced by some listed companies in the pilot reform of the split share structure of listed companies. Warrants, as a type of securities products, have their own operational features. As to securities investment funds (hereinafter referred to as “fund” which can be a single or a plural, as the case may be), their investment in warrants shall be carried out step by step on a trial basis and further provisions shall be specified in line with market conditions after certain experience is accomplished. Pursuant to the Securities Investment Fund Law of the PRC, Administrative Measures on Operation of Securities Investment Funds and other relevant provisions, the issues concerning pilot warrant investment by fund managers with their fund assets in the split share structure reform are hereby promulgated, with a view of standardizing fund operation and safeguarding the legitimate interests of fund unit holders.
1. A fund may hold warrants offered as compensation in the split share structure reform, or sell or exercise the said warrants in accordance with relevant rules of the stock exchanges.
2. A fund may invest, on its own initiative, in the warrants issued in the split share structure reform.
3. A fund manager to invest in warrants with fund assets as stated in Article 2 of this circular, shall file with the China Securities Regulatory Commission (CSRC) and publicly release the investment plan in compliance with relevant laws and regulations, and pertinent terms in the fund contract. Such investment plan shall include the limit on warrant investment proportion, investment strategy, means of information disclosure and risk control measures and so on, and fully disclose related investment risks.
4. A fund manager to invest in warrants with fund assets is prohibited from the following circumstances:
4.1 The aggregate amount of warrants a fund purchases in any trading day exceeds 5‰ of the net asset value of the fund in the last trading day.
4.2 The market capitalization of all warrants held by a fund exceeds 3% of the net asset value of the fund.
4.3 All funds under the management of the same fund manager collectively hold more than 10% of a single warrant.
The restrictions on warrant investment proportion in the foregoing Article 4.1, Article 4.2 and Article 4.3 of this circular shall be applicable unless otherwise stipulated by the CSRC.
5. A fund manager shall formulate a feasible investment plan based on the investment strategy and risk-return characteristics of the fund to invest in warrants, and set the specific investment proportion of warrants within the restrictions as stipulated in Article 4 of this circular.
6. A fund manager shall have its warrant investment plan adjusted within 10 trading days, in case the investment proportion concerned is not in line with that set forth in Article 4.2, Article 4.3 of this circular and the fund contract or the warrant investment plan for reasons other than the fund manager itself, such as market volatility, change in fund size and consideration paid in the split share structure reform and so on.
7. A fund manager to invest in warrants with fund assets is prohibited from illegitimate interests with insider information, manipulation of warrant prices or the prices of underlying securities, and interest transfer in warrant investment.
8. Fund managers and fund custodians shall duly perform the obligations of good faith, care and diligence, establish and improve the management system of warrant investment, and come up with effective risk control measures specifically designed for warrant investment so as to safeguard the legitimate interests of fund unit holders.
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.)
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