On 14 December 2012, the State Administration of Foreign Exchange (“SAFE”) issued the revised Rules on Foreign Exchange Administration of Securities Investments in the PRC by Qualified Foreign Institutional Investors (the “Revised Rules”). The Revised Rules made several important amendments to the version issued in 2009. The Revised Rules specifically refer to the futures trading account, which provides the implementation measures which will finally allow QFIIs to open accounts to commence stock index futures trading. It also allows a RMB special account to be split into a maximum of six for different clients’ assets, which will help QFIIs to better meet client asset segregation requirements of their home jurisdictions. In addition, the Revised Rules relax certain restrictions on repatriation/remittance of funds by QFIIs.
Key changes contained in the Revised Rules include:
- The QFII quota of a QFII which is a sovereign wealth fund, central bank or currency administration authority is no longer subject to the US$1 billion cap.
- Modified RMB account structure
- A QFII may open a maximum of six RMB deposit accounts for specific purpose to house assets of different underlying clients. Transfer of funds between these accounts is prohibited.
- The Revised Rules provide for different RMB deposit accounts for specific purpose to be opened for securities trading and stock index futures trading respectively, except that where the custodian bank is already a custodian bank for futures trading margin, the QFII may use the same RMB deposit account for both securities trading and futures trading.
- Existing QFIIs with RMB special accounts wanting to open new RMB deposit accounts for specific purpose or change the existing special RMB bank accounts should cancel the existing accounts and open new RMB deposit accounts for specific purpose. Any existing RMB special account will be treated as RMB deposit accounts for specific purpose of securities trading.
- Basic deposit account – As a pre-condition for a QFII to open RMB deposit accounts for specific purpose, it must first open a basic deposit account. It is however unclear whether existing QFIIs that do not open RMB deposit accounts for specific purpose need to open basic deposit accounts. A QFII cannot deposit funds in the basic deposit accounts for domestic securities trading, and the purpose for opening RMB basic deposit accounts remains to be further clarified.
- The Revised Rules relax certain restrictions on repatriation/remittance of funds by QFIIs.
- Open-ended China funds – Under the Revised Rules, repatriation by open-ended China fund’s may now be processed by the custodian bank without SAFE approval where the monthly net repatriation does not exceed 20% of its total investment in China at the end of the last year. Additionally, the repatriation/remittance by an open-ended China fund may be conducted on a weekly rather than a monthly basis.
- Other QFIIs – Under the Revised Rules, SAFE approval for repatriation of profits is no longer required. Such QFII may repatriate its realised profits directly through its custodian bank where the total monthly repatriation (including principal and profits) does not exceed 20% of its total investment in China at the end of the last year.
Name: “Rules on Foreign Exchange Administration of Securities Investments in the PRC by Qualified Foreign Institutional Investors” (revised on 14 December 2012) 《合格境外机构投资者境内证券投资外汇管理规定》（2012年12月14日修订）
Issuing authority: SAFE
Subject: QFII and foreign exchange administration
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