Administrative Measures for Margin Financing and Securities Lending Services of Securities Firms
Administrative Measures for Margin Financing and Securities Lending Services of Securities Firms
Administrative Measures for Margin Financing and Securities Lending Services of Securities Firms
Order of the China Securities Regulatory Commission No.117
July 1, 2015
The Administrative Measures for Margin Financing and Securities Lending Services of Securities Firms, adopted at the 96th chairmen's executive meeting of the China Securities Regulatory Commission on June 3, 2015, are hereby promulgated for implementation as of the date of promulgation.
Xiao Gang, Chairman of the China Securities Regulatory Commission
Administrative Measures for Margin Financing and Securities Lending Services of Securities Firms
Chapter I General Provisions
Article 1 The Administrative Measures for Margin Financing and Securities Lending Services of Securities Firms (hereinafter referred to as the "Measures") are formulated with a view to standardizing margin financing and securities lending services of securities firms, improving the securities trading mechanism, preventing risks of securities firms, protecting the legitimate rights and interests of securities investors and public interests, and facilitating the stable and healthy development of securities market.
Article 2 In undertaking margin financing and securities lending services, securities firms shall abide by the laws, administrative regulations and the provisions of the Measures, strengthen internal control, strictly prevent and control risks, and make practical efforts to safeguard the legitimate rights and interests of the clients.
For the purpose of the Measures, the margin financing and securities lending services refer to the operational activities of lending of fund to clients for purchase of securities or lending of securities to them for sales thereof and collection of collateral.
Article 3 In undertaking margin financing and securities lending services, securities firms must obtain the approval by the China Securities Regulatory Commission (hereinafter referred to as the "CSRC"), and without approval by the CSRC, securities firms shall neither provide clients with any margin financing or securities lending nor provide any convenience or services for any margin financing or securities lending between clients inter se or between clients and others.
Article 4 Securities firms shall not conduct any of the following when undertaking margin financing and securities lending services:
1. to induce inappropriate clients to engage in margin financing and securities lending;
2. to fail to fully disclose the risks to clients;
3. to misappropriate illegally the collateral of the clients;
4. to engage in tunneling and commercial bribery;
5. to facilitate the clients' insider trading, market manipulation, information disclosure obligations evading and other improper trading activities; and
6. other acts prohibited by laws, administrative regulations and the provisions of the CSRC.
Article 5 The CSRC and its local offices shall carry out supervision and administration over the margin financing and securities lending services of securities firms in accordance with the laws, administrative regulations and the provisions of the Measures.
The Securities Association of China, stock exchanges and securities depositary and clearing agencies shall carry out self-disciplinary management over margin financing and securities lending services of securities firms in accordance with their respective articles of association and rules. China Securities Finance Corporation Limited shall monitor and supervise the margin financing and securities lending services of securities firms and the clients' transactions of margin financing and securities lending.
Article 6 The CSRC shall establish and perfect the counter-cyclical regulation mechanism for margin financing and securities lending services to conduct macro-prudential administration over the margin financing and securities lending services.
The stock exchanges shall establish the margin financing and securities lending services risk control indicator floating management mechanism to conduct counter-cyclical regulation of margin financing and securities lending services.
Chapter II Business Permit
Article 7 To apply for the qualification for providing margin financing and securities lending services, a securities firm shall meet the following conditions:
1. it has the qualifications to provide securities brokerage services;
2. it has sound corporate governance, effective internal control and capability to effectively identify, control and prevent operational risks and internal management risks;
3. it has not been subject to official investigation by the CSRC or is not during rectification due to suspected violation of laws or regulations in the recent two years;
4. it has good financial status with indicators of risk control in compliance with the relevant provisions consecutively for the latest two years and with the registered capital and net capital in line with the requirements after addition of the margin financing and securities lending services;
5. it ensures secure and complete clients' assets, effective implementation of the third-party custody of client transaction settlement fund, and complete and authentic clients' information;
6. it has established a sound mechanism for handling clients' complaints and is capable of timely and properly dealing with the disputes with clients;
7. it has established a client appropriateness management mechanism in conformity with regulatory provisions and self-discipline requirements to achieve the appropriateness match management over the clients and products;
8. the information system has been running stably and safely without any major event arising from the corporate governance issues in the past one year, and the technology system of margin financing and securities lending services has passed the test under the organization of a stock exchange or securities depositary and clearing agency;
9. it has senior officers and an appropriate number of business personnel intending to be responsible for the margin financing and securities lending services; and
10. other requirements prescribed by the CSRC.
Article 8 In order to apply for the qualification for providing margin financing and securities lending services, a securities firm shall provide the CSRC with the following materials, with copy thereof sent to the local office of the CSRC at its domicile:
1. application for providing margin financing and securities lending services;
2. resolution of the board of shareholders (general meeting) on the operation of the margin financing and securities lending services; and
3. the plan on margin financing and securities lending services, the text of internal management system, and standards for selection of clients formulated in accordance with Article 12 of the Measures;
4. register and qualification certification documents of the senior officers and business personnel in charge of the margin financing and securities lending services;
5. documents proving that the technical system of the margin financing and securities lending services has passed the test issued by a stock exchange or securities depositary and clearing agency; and
6. other documents to be submitted as required by the CSRC.
The legal representative and main responsible persons in charge of operation and management of the securities firm shall sign on the application for providing margin financing and securities lending services and promise that the application materials are authentic, accurate and complete, and shall be liable for any false records, misleading statements or material omissions in the application materials.
Article 9 A securities firm that has obtained the approval shall, in accordance with the relevant provisions, apply to the company registration authority for registration of the change of its business scope and apply to the CSRC for replacement of its Securities Business Operation Permit.
Only after obtaining the replaced Securities Business Operation Permit from the CSRC can a securities firm carry out margin financing and securities lending services.
Chapter III Business Rules
Article 10 In undertaking the margin financing and securities lending services, a securities firm shall open with a securities depositary and clearing agency a special securities account for securities lending, a covered securities account for client credit transactions, a securities settlement account for credit transactions, and a fund settlement account for credit transactions separately in its own name.
The special securities account for securities lending is used for recording the securities held by a securities firm for being lent to and being returned by the clients and may not be used for securities trading; the covered securities account for client credit transactions is used for recording the securities held by a securities firm in a fiduciary capacity for clients as a guarantee for the securities firm's claims arising from its margin financing and securities lending with the clients; the securities settlement account for credit transactions is used for securities clearing in margin financing and securities lending transactions of the clients; and the fund settlement account for credit transactions is used for fund clearing in margin financing and securities lending transactions of the clients.
Article 11 In undertaking the margin financing and securities lending services, a securities firm shall open a special fund account for margin financing and a covered fund account for client credit transactions with a commercial bank in its own name.
The special fund account for margin financing is used for deposit of the fund to be lent by a securities firm to its clients and the fund to be returned by its clients; and the covered fund account for client credit transactions is used for deposit of the fund delivered by the clients as a guarantee for the securities firm's claims arising from the margin financing and securities lending business with the clients.
Article 12 Prior to providing clients with margin financing or securities lending services, a securities firm shall conduct a credit investigation to know the identity, wealth and income, securities investment experience, risk preference as well as honesty and compliance records of the clients, conduct properly the client appropriateness management and make a written or electronic record of such information.
No securities firm shall open credit accounts for those clients who fail to provide the relevant information as required, have engaged in securities transactions for less than half a year, or lack ability of undertaking risks or whose daily securities assets are lower than CNY500,000 in the latest 20 trading days or who have been recorded with material breach of contracts, as well as the shareholders or affiliated parties of the securities firm.
The professional institutional investors participating in the margin financing or securities lending transaction are not subject to the requirements in the preceding paragraph for participation time in securities transaction and for securities assets.
For the purpose of Paragraph 2 of the present article, the "shareholders" exclude those only holding not more than 5% tradable shares of a listed securities firm.
A securities firm shall, in accordance with the requirements of appropriateness system, formulate the specific criteria for selection of clients in compliance with the provisions of the present article.
Article 13 Prior to providing its clients with margin financing or securities lending services, a securities firm shall conclude contracts for margin financing and securities lending with them that incorporate the essential clauses specified by the Securities Association of China, in respect of the following matters:
1.
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