Circular to Fund Management Companies and Fund Custodian Banks
September 30, 2005
Pursuant to the Securities Investment Funds Law of the PRC, the Regulations on Business Operations of Securities Investment Funds and other applicable laws and regulations, the Circular provides requirements as follows applicable to the investment by the money market fund (the Fund) in short-term financing bond (the Bond) with a view to strengthening regulation of the Fund’s investment practice and promote development of the Fund:
1. The Fund shall make investment in the Bond that meets the minimum credit rating criteria set out as follows:
1.1 The Bond in question shall have a minimum rating of “A-1” or an equivalent short-term credit rating assigned by a domestic credit rating agency (the CRA)
1.2 In circumstances where the Bond is exempted from credit rating requirements under relevant provisions, the Bond issuer shall satisfy either of the following criteria with respect to its credit ratings and the follow-up credit ratings for the last 3 years:
1.2.1 The issuer shall have a minimum credit rating of “AAA” or an equivalent long-term credit rating assigned by a domestic CRA.
1.2.2 The issuer shall have a minimum credit rating that is one notch lower than China’s debt rating assigned by an international CRA (i.e. “BBB+” if China’s debt is rated “A-”).
Where the Bond issuer is rated by both a domestic CRA and an international CRA, the domestic rating shall prevail.
2. The aggregate investments made by the Fund in the Bond and short-term corporate bonds offered by one issuer may not exceed 10% of the net value of the Fund asset. The Fund manager shall make appropriate adjustments to the position of the Fund in relevant bonds in 10 trading days in the event that the above-said 10% investment limit is broken by such factors as market fluctuation and changes in the Fund size that are not related to the Fund manager.
3. In the event that the Bond held by the Fund is downgraded, and therefore no longer meets the above-said credit rating criteria, it shall be disposed of within 20 trading days after the release of the relevant credit rating report.
4. The Circular shall come into force as of the date of promulgation.
The China Securities Regulatory Commission