Establishment of Securities Companies with Foreign Equity Participation Rules

Article 3: The China Securities Regulatory Commission (CSRC) is in charge of the examination, approval and oversight of securities companies with foreign equity participation.

Article 4: The form of organization of securities companies with foreign equity participation shall be the limited liability company.

The names and registered capital of securities companies with foreign equity participation, as well as the establishment and duties of the elements of their organizational structures, shall comply with the Company Law, the Securities Law and the relevant provisions of the CSRC.

Article 5: Securities companies with foreign equity participation may engage in the following business:

(1) distribution of shares (including ordinary shares denominated in renminbi and foreign investment shares) and bonds (including government bonds and corporate bonds);

(2) brokerage of foreign investment shares;

(3) brokerage of, and dealing for own account in, bonds (including government bonds and corporate bonds); and

(4) other business approved by the CSRC.

For the purposes of the preceding paragraph, "foreign investment shares" includes foreign investment shares listed in China (B shares) and foreign investment shares listed abroad.

Securities companies shall submit applications concerning their scope of business to the CSRC in accordance with the first paragraph of this article. Securities companies that engage in the business of acting as lead distributors of shares shall obtain lead share distributor qualifications in accordance with the provisions of the CSRC on the administration of the qualifications of securities companies to act as lead distributors of shares.

Article 6: A securities company with foreign equity participation shall satisfy the following conditions:

(1) it has registered capital complying with the provisions of the Securities Law on the registered capital of comprehensive securities companies;

(2) its shareholders have the qualifications specified herein and their capital contribution ratios and methods of contribution comply with the provisions hereof;

(3) it has no less than 50 persons who have obtained qualifications to engage in securities business in accordance with the provisions of the CSRC and it has the necessary accounting, legal and computer professionals;

(4) it has sound mechanisms for internal management and risk control; a sound mechanism for separate administration of its distribution business, brokerage business, business for own account, etc. in terms of organization, personnel, information, business execution, etc.; and appropriate internal control technology systems;

(5) it has business premises that satisfy requirements and trading facilities that are up to standard; and

(6) other prudential conditions specified by the CSRC.

Article 7: An overseas shareholder of a securities company with foreign equity participation shall satisfy the following conditions:

(1) the country in which it is located has sound securities laws and regulatory systems, and such country's securities regulator has entered into a memorandum of understanding with the CSRC concerning cooperation in the regulation of the securities sector and maintains an effective regulatory cooperation relationship with the CSRC;

(2) it is legally qualified to carry on securities business in the country in which it is located, has carried on financial business for not less than 10 years and has not been subjected to serious penalties by its securities regulator or a judicial authority during the past three years;

(3) all of its risk control indicators for the past three years conform to the requirements of the laws and the requirements of the securities regulator of the country in which it is located;

(4) it has sound internal control regulations;

(5) it has a good reputation, and achieved good operating results, in the international securities market; and

(6) other prudential conditions specified by the CSRC.

Article 8: A domestic shareholder of a securities company with foreign equity participation shall satisfy the CSRC's qualification conditions for securities company shareholders.

At least one of the domestic shareholders of a securities company with foreign equity participation shall be a wholly mainland-owned securities company. However, wholly mainland-owned securities companies that are converted into securities companies with foreign equity participation shall not be subject to this provision.

Article 9: Domestic shareholders may make their capital contributions in cash or in the form of physical assets required in the conduct of business. Overseas shareholders shall make their capital contributions in freely convertible currency.

Article 10: The shareholdings of the overseas shareholders, or the interests they hold in the securities company with foreign equity participation, may not exceed one-third in the aggregate (including both direct and indirect holdings).

The shareholding of at least one of the wholly mainland-owned securities companies comprising the domestic shareholders, or the interest it holds in the securities company with foreign equity participation, may not be less than one-third.

In the case of a wholly mainland-owned securities company converted into a securities company with foreign equity participation, at least one wholly mainland-owned shareholder shall have a shareholding of not less than one-third.

Article 11: The chairman of the board, general manager and deputy general manager(s) of a securities company with foreign equity participation shall possess the professional qualifications for senior management personnel of securities companies specified by the CSRC.

Article 12: To apply for the establishment of a securities company with foreign equity participation, a representative jointly designated or an agent jointly appointed by all of the shareholders shall submit the following documents to the CSRC:

(1) an application form jointly signed by the overseas and domestic shareholders' legal representatives or their authorized representatives;

(2) the draft contract and articles of association for the establishment of the securities company with foreign equity participation;

(3) an application form for recognition of the professional qualifications of the candidates for the posts of chairman of the board, general manager and deputy general manager of the securities company with foreign equity participation;

(4) photocopies of the shareholders' business licences or registration certificates and their securities business qualification certificates;

(5) the domestic and overseas shareholders' audited financial statements for the year preceding the application;

(6) a written statement, issued by the securities regulator of each country in which an overseas shareholder is located, as to whether such shareholder satisfies the conditions specified in Items (2) and (3) of Article 7 hereof; and

(7) a legal opinion issued by a law firm in China qualified to practise securities-related business.

Article 13: The application documents specified in the preceding article will be examined by the CSRC in accordance with the relevant laws and administrative regulations and these Rules. The CSRC will decide whether or not to approve the application, and will notify the applicant thereof in writing, within 45 working days after the date of its receipt of the application documents that meet the requirements. If it decides not to grant approval, it will state its grounds therefor in writing.

Article 14: Within six months from the date of issuance of the CSRC's approval document, the shareholders shall make their capital contributions in full or provide all of the stipulated cooperation conditions, elect a board of directors, appoint the senior management personnel and apply for registration of the establishment of the securities company with foreign equity participation to, and obtain a business licence from, the administration for industry and commerce.

Article 15: The chairman of the board of the securities company with foreign equity participation or his authorized representative shall submit the following documents to the CSRC, and apply for a Securities Business Permit, within 15 working days from the date of issuance of the business licence:

(1) a photocopy of the duplicate of the business licence;

(2) the company's articles of association;

(3) a capital contribution verification report issued by an accounting firm in China qualified to practise securities-related business;

(4) a name list and the résumés of the directors, supervisors and senior management personnel, and a name list and photocopies of the securities business qualification certificates of the key personnel engaged in business operations;

(5) the text of its internal control regulations; and

(6) a document describing its business premises and trading facilities.

Article 16: The application documents specified in the preceding article will be examined by the CSRC in accordance with the relevant laws and administrative regulations and these Rules. The CSRC will make a decision within 15 working days after the date of its receipt of the application documents that meet the requirements. Those that satisfy the prescribed conditions will be issued a Securities Business Permit, whereas those that do not satisfy the conditions will not be issued a Securities Business Permit and will be notified in writing of the grounds therefor.

Article 17: A securities company with foreign equity participation may not commence business and may not engage in securities business if it has not obtained a Securities Business Permit issued by the CSRC.

Article 18: A wholly mainland-owned securities company that applies for conversion into a securities company with foreign equity participation must satisfy the conditions specified in Article 6 hereof.

An overseas shareholder that acquires, or takes an equity participation in, a wholly mainland-owned securities company shall satisfy the conditions specified in Article 7 hereof and the ratio of the equity acquired or capital contribution made shall comply with Article 10 hereof.

Article 19: To apply for conversion into a securities company with foreign equity participation, a wholly mainland-owned securities company shall submit the following documents to the CSRC:

(1) an application form signed by its legal representative;

(2) the resolution of its shareholders' meeting concerning its conversion into a securities company with foreign equity participation;

(3) the draft amendments to its articles of association;

(4) the equity assignment agreement or the capital contribution agreement (share subscription agreement);

(5) a name list and the résumés of the persons proposed to be seconded by the foreign investor for positions in the securities company;

(6) photocopies of each overseas shareholder's business licence or registration certificate and securities business qualification certificate;

(7) each overseas shareholder's audited financial statements for the year preceding the application;

(8) a written statement, issued by the securities regulator of the country in which an overseas shareholder is located, as to whether such shareholder satisfies the conditions specified in Items (2) and (3) of Article 7 hereof;

(9) the plan for disposal of the business that, according to law, a securities company with foreign equity participation is not permitted to engage in; and

(10) a legal opinion issued by a law firm in China qualified to practise securities-related business.

Article 20: The application documents specified in the preceding article will be examined by the CSRC in accordance with the relevant laws and administrative regulations and these Rules. The CSRC will decide whether or not to approve the application, and will notify the applying securities company thereof in writing, within 30 working days after the date of its receipt of the application documents that meet the requirements. If it decides not to grant approval, it will state its grounds therefor in writing.

Article 21: A securities company that has been granted approval for conversion shall, within six months from the date of issue of the CSRC's approval document, handle the equity assignment or capital increase related matters, dispose of the business that, according to law, a securities company with foreign equity participation is not permitted to engage in, and apply for amendment of its registration to, and obtain a new business licence from, the administration for industry and commerce.

Article 22: A securities company that has been granted approval for conversion shall submit the following documents to the CSRC, and apply for a new Securities Business Permit, within 15 working days after the date of amendment of its registration:

(1) a photocopy of the duplicate of its business licence;

(2) the articles of association of the securities company with foreign equity participation;

(3) the company's original securities business permit and the duplicate(s) thereof;

(4) a capital contribution verification report issued by an accounting firm in China qualified to practise securities-related business;

(5) a report on its disposal of the business that, according to law, a securities company with foreign equity participation is not permitted to engage in; and

(6) a legal opinion and verification report on the disposal mentioned in the preceding item, issued by a law firm and an accounting firm that are qualified to practise securities-related business.

Article 23: The application documents specified in the preceding article will be examined by the CSRC in accordance with the relevant laws and administrative regulations and these Rules. The CSRC will make a decision within 15 working days after the date of its receipt of the application documents that meet the requirements. Those that satisfy the prescribed conditions will be issued a new Securities Business Permit, whereas those that do not satisfy the prescribed conditions will not be issued a new Securities Business Permit and will be notified in writing of the grounds therefor.

Article 24: The newly established or surviving securities company resulting from the merger of securities companies with foreign equity participation or the merger of a securities company with foreign equity participation and a wholly mainland-owned securities company shall satisfy the conditions for establishment of a securities company with foreign equity participation as specified herein, and its scope of business and the ratio of the equity or interest held by the overseas shareholder(s) shall conform with these Rules.

If there are one or more overseas shareholders among the shareholders of a securities company established through the division of a securities company with foreign equity participation, such securities company's scope of business and the ratio of the equity or interest held by the overseas shareholder(s) shall conform with these Rules.

Article 25: The application documents submitted and relevant information delivered to the CSRC in accordance with these Rules must be in Chinese. If any of the documents and information issued by an overseas shareholder and the securities regulator of the country in which it is located are in a foreign language, they shall be accompanied by Chinese translations that are consistent with the original texts.

If the documents submitted and materials delivered by the applicant are insufficient to fully describe its situation, the CSRC may require the applicant to provide supplementary explanations.

Article 26: These Rules shall, mutatis mutandis, apply to equity participation in securities companies by investors from the Hong Kong and Macao Special Administrative Regions and from Taiwan.

Article 27: Where these Rules are silent on any matter relating to the establishment, change, termination, business activities and oversight of securities companies with foreign equity participation, the other relevant CSRC provisions shall apply.

Article 28: These Rules shall be implemented as of July 1 2002.