Issuing authority: the State Council of the PRC (“State Council”)
Subject: Stock index futures, margin financing and securities lending
In 2008, the China Securities Regulatory Commission (“CSRC”) announced that the PRC was ready to formally launch margin financing and securities lending business on a trial basis (the “2008 Announcement”) (please refer to our China Hot Topic dated 6 October 2008). Subsequent to this, there was no further announcement on the launch of these businesses. Finally, on 8 January 2010, the CSRC made a formal announcement (the “2010 Announcement”) that the State Council has given it the green light to launch margin financing and securities lending businesses as a pilot scheme. The 2010 Announcement also states that the State Council has approved the launch of stock index futures (with CSI300 index futures being the first to be introduced) on the China Financial Futures Exchange (“CFFE”), which will also mark the commencement of trading on the CFFE since its establishment in 2006. However, as the approval of the State Council is an in-principle approval, the 2010 Announcement does not go into detail on the mechanics and rules regulating the margin financing and securities lending businesses and the stock index futures. It is expected that relevant implementing rules will be issued soon.
Highlights
Margin financing and securities lending
- According to the 2010 Announcement, the CSRC will soon select a first batch of securities companies to participate in the pilot scheme by considering their scale of net capital, compliance track record, net assets risk control indicators, and their readiness for conducting such business.
- As mentioned in our China Hot Topic dated 6 October 2008, only a small number of PRC securities companies will be approved to conduct margin financing and securities lending business on a trial basis and foreign-invested securities companies will unlikely be able to participate at this stage.
Stock index futures
- According to the 2010 Announcement, final preparation for the launch of the CSI300 index futures is under way and should be completed in the next three months. During this period, the CSRC and CFFE will promulgate various implementing rules in respect of suitability of investors, account opening requirements and the like.
- It remains unclear whether a foreign invested enterprise in the PRC (“FIE”) will be able to open an account with the CFFE. If an FIE can open an account with the CFFE, it may be possible for a foreign investor to trade stock index futures through its FIE, subject to business scope requirements.
Please contact Fang Jian (jian.fang@linklaters.com tel: +86 21 2891 1858) if you would like further details.
