Issues Relevant to Securities Companies' Engaging in Collective Entrusted Investment Management Business Circular

(Issued by the Department of Intermediary Supervision of the China Securities Regulatory Commission on April 29 2003.)

To all securities companies:

Recently some securities companies have been developing new businesses, and especially have done research on the new area of entrusted investment management. A small number are cooperating with commercial banks to raise funds from specified or unspecified investors, draw up a collective investment plan, and develop collective entrusted investment management. In order to strengthen the regulation of such business by securities companies, to safeguard the proper order of the securities market, and to protect the lawful rights and interests of investors in securities, you are now being notified of the following:

1. Collective entrusted investment management is a new form of investment management by securities companies. In comparison to traditional entrusted investment management there are more parties involved, the relationship between the rights and obligations of these parties is more complex, the demands with regard to management are higher, and management is more difficult. If this is not handled properly then financial and social risks will easily occur. Because of this the China Securities Regulatory Commission is speeding up the formulation of administrative procedures for the collective entrusted investment management by securities companies. Until these new procedures are implemented, securities companies shall not raise funds from specified or unspecified investors for a collective investment plan or carry out collective entrusted investment management. The raising of funds for collective investment plans must be stopped immediately from the date of issue of this Circular.

2. In the case of collective entrusted investment management being conducted by securities companies prior to the date of issue of this Circular, those companies shall within five days of the date of issue of this Circular report the relevant contracts, product brochures and publicity material, etc. to the China Securities Regulatory Commission (copied to the branch of the China Securities Regulatory Commission in the area in which they are registered) and shall immediately rectify the way in which such business is conducted that is in violation of regulations in accordance with the following provisions:

(1) Securities companies shall not undertake in writing or orally, overtly or covertly, to clients to bear investment losses or to guarantee investment profits. Those that provide clients with profit forecasts shall have full evidence for these and shall make it clear in writing that such forecasts are simply for consideration by the clients; clients shall bear the investment risk themselves.

(2) Securities and fund accounts used for collective investment plans shall be held in trust by commercial banks qualified to be the custodians of securities investment funds.

(3) The scope of investment involved in collective investment plans, the proportion of investment, and the agreements regarding rights and obligations concluded between clients and entrustees, shall be in accordance with the provisions of the China Securities Regulatory Commission, Regulating the Entrusted Investment Management Business of Securities Companies Circular (Zheng Quan Ji Gou Zi [2001] No.265).

3. All branches of the China Securities Regulatory Commission shall strengthen the regulation of collective entrusted investment management launched by securities companies within their jurisdiction and urge the operation of these securities companies to be in compliance with the document Zheng Quan Ji Gou Zi [2001] No.265 and this Circular. Securities companies conducting collective entrusted investment management in violation of provisions shall be dealt with rigorously in accordance with the relevant provisions, and the circumstances shall be reported in a timely manner to the China Securities Regulatory Commission.