China Securities Regulatory Commission, Administration of Clients' Transaction Settlement Funds Procedures

Promulgated: May 16 2001
Effective: January 1 2002
Applicability: The Procedures apply to the deposit and custody of clients' transaction settlement funds by securities companies, settlement companies and commercial banks (Article 4). Clients' transaction settlement funds include those involved in the securities business of a trust and investment company and those deposited with a securities company for the purpose of asset management (Articles 39 and 40). The Procedures do not apply to clients' transaction settlement funds for domestically listed foreign investment shares (B shares) (Article 41).

Main contents: The Procedures provide that a securities company must deposit all clients' transaction settlement funds into the client transaction settlement funds special deposit account and the liquidation reserve account (Article 5). A securities company can only have one client transaction settlement account and one self-owned funds special account with any one custody bank (Article 8). The local branches of the securities company must use the local branches of the same banks for this purpose (Article 7). The same rule applies to a settlement company, which shall open and maintain a liquidation reserve account, self-owned funds special account and capital verification special account (for new issues) with a settlement bank (Articles 7 and 8). The opening and closing of such accounts must be reported to the China Securities Regulatory Commission (CSRC) (Articles 9 and 10). Balances of such accounts must also be reported to the CSRC on a monthly or other periodic basis (Article 20). Any abnormality in such accounts must also be promptly reported to the CSRC (Article 21). Funds in client transaction settlement accounts can only be used for settlement of client transaction and client withdrawal, and securities companies and settlement companies must not use such funds to provide security for any third party (Article 23). Commercial banks that play the role of custody banks or settlement banks must meet the conditions specified in the Procedures and obtain certificates from the CSRC (Articles 25 and 26).
Related legislation: PRC, Securities Law (Amended), Oct 27 2005, CLP 2006 No.1 p31