China Securities Regulatory Commission, Circular on Issues Relevant to Investment of Securities Investment Funds in Warrants in the Reform Regarding the Separation of Equity Ownership and Trading Rights

Issued: August 15 2005

Main contents: The Circular states that securities investment funds (Funds) may hold warrants passively obtained in the reform regarding the separation of equity ownership and trading rights (Reform) and may sell or exercise such warrants in accordance with relevant provisions of the stock exchange (Section One). They are also allowed to invest in warrants issued in the Reform (Section Two). When a Fund manager intends to use Fund property to invest in a warrant in accordance with Section Two, it shall submit the warrant investment scheme to the China Securities Regulatory Commission and disclose it to the public (Section Three). When using Fund property to invest in warrants, the Fund manager shall not have: 1) the total amount of warrants purchased on any trading day by a single Fund exceeding 0.5% of the net asset value of the said Fund in the previous trading day; 2) the market value of all the warrants held by a single Fund exceeding 3% of the Fund's net asset value; and/or 3) the amount of the same warrant held by all the Funds managed by it exceeding 10% of the total issue volume of the warrant (Section Four). However, where the China Securities Regulatory Commission has provided otherwise, the ratio limits prescribed in Section Four(1), (2) and (3) shall not apply. If, due to factors other than those attributable to the Fund manager such as securities market fluctuations, Fund scale changes and payment of consideration in a Reform, the investment of a Fund does not comply with the investment ratios as specified in Section Four(2) and (3) and the Fund contract or the Fund's warrant investment scheme, the Fund manager shall make an adjustment within 10 trading days (Section Six).
Related legislation: PRC Securities Investment Fund Law, Oct 28 2003, CLP 2003 No.10 p.43 and Measures for the Administration of Securities Investment Fund Operations, Jun 29 2004, CLP 2004 No.9 p.63