PRC Securities Law (Amended)

Revised in August 31 2014. Latest revision can be founded at: http://www.chinalawandpractice.com/Article/3390486/PRC-Securities-Law-Revised-in-2014.html

(Promulgated on October 27 2005 and effective as of January 1 2006.)

PRC President's Order No.43

PART ONE: GENERAL PROVISIONS

Article 1: This Law is formulated in order to standardize the issuing and trading of securities, to protect the lawful rights and interests of investors, to safeguard the social and economic order and the public interest and to promote the development of the socialist market economy.

Article 2: This Law applies to the issuing and trading in the People's Republic of China of shares, corporate bonds and such other securities as are lawfully recognized by the State Council. Securities not covered by this Law shall be governed by the PRC Company Law and other laws and administrative regulations.

This Law shall apply to the listing and trading of government bonds and shares of securities investment funds, unless other otherwise provided by laws or administrative regulations, in which case such provisions shall apply.

The measures for the administration of the offering and trading of securities derivatives will be specified by the State Council in line with the principles of this Law.

Article 3: The issuing and trading of securities must be carried out in line with the principles of openness, fairness and justice.

Article 4: The parties involved in the issuing and trading of securities shall have equal legal status and adhere to the principles of voluntariness, compensation and good faith.

Article 5: The issuing and trading of securities must be conducted in accordance with laws and administrative regulations. Fraudulent and insider trading and manipulation of the securities market are prohibited.

Article 6: The securities business shall be engaged in and administrated as a business separate from banking business, trust business and insurance business. Securities companies shall be established independently from banking, trust and insurance business organizations. If the state has other provisions, such provisions shall be exceptions.

Article 7: The State Council's securities regulatory authority shall implement centralized and unified regulation of the nationwide securities market according to law.

The State Council's securities regulatory authority may establish offices as necessary, in order to perform its regulatory functions as authorized.

Article 8: Subject to centralized and unified regulation by the state of securities issuing and trading activities, securities associations shall be established according to law to carry out self-regulation.

Article 9: The state audit authority shall supervise stock exchanges, securities companies, securities depository and clearing institutions and the securities regulatory authority, by means of auditing the same according to law.

PART TWO: OFFERING OF SECURITIES

Article 10: Public offers of securities must meet the conditions prescribed in laws and administrative regulations and be reported in accordance with the law to the State Council's securities regulatory authority, or the department authorized by the State Council, for check and approval. No work unit or individual may make a public offer of securities if the same has not been checked and approved in accordance with the law.

A public offer shall be constituted if:

(1) the securities are offered to the public in general;

(2) the offer of securities is targeted at particular persons who, in the aggregate, exceed 200; or

(3) another offer as specified in laws or administrative regulations is made.

The use of announcements, public inducements or a disguised public offer method is not permitted for non-public offers of securities.

Article 11: If an issuer applies to offer to the public shares or corporate bonds convertible into shares and such offer is to be underwritten in accordance with the law or if it is to offer to the public other securities that laws or administrative regulations specify are subject to a sponsorship system, it shall engage an institution with sponsorship qualifications to serve as sponsor.

A sponsor shall abide by professional rules and the industry code, act in good faith with due diligence, prudently check the issuer's application documents and information disclosure materials and guide the issuer in operating with compliance.

The qualifications of sponsors and the measures for the administration thereof shall be specified by the State Council's securities regulatory authority.

Article 12: The public offer of shares for the establishment of a company limited by shares shall comply with the conditions set forth in the PRC Company Law and other conditions specified by the State Council's securities regulatory authority as approved by the State Council, and the offer application and the following documents shall be submitted to the State Council's securities regulatory authority:

(1) the company's articles of association;

(2) the promoters' agreement;

(3) the promoters' names, the number of shares for which they have subscribed, the nature of their capital contributions and their investment certificates;

(4) the share prospectus;

(5) the name and address of the bank that will receive the share proceeds on the company's behalf; and

(6) the name of the underwriter and relevant agreement.

If a sponsor is engaged in accordance with this Law, the offer sponsorship letter issued by the sponsor shall also be submitted.

If laws or administrative regulations specify that the establishment of the company is subject to approval, the relevant approval documents shall also be submitted.

Article 13: A company that wishes to make a public offer of new shares shall satisfy the following conditions:

(1) having a sound organizational structure that operates well;

(2) having the capacity for sustained profitability and a good financial position;

(3) not having fraudulent entries in its financial accounting documents for the most recent three years or committed another major violation of the law; and

(4) satisfying other conditions specified by the State Council's securities regulatory authority as approved by the State Council.

If a listed company is to make a non-public offer of new shares, it shall satisfy the conditions specified by the State Council's securities regulatory authority as approved by the State Council and make a submission to the State Council's securities regulatory authority for check and approval.

Article 14: When a company is to make a public offer of new shares, it shall submit its offer application and the following documents to the State Council's securities regulatory authority:

(1) the company's business licence;

(2) the company's articles of association;

(3) the resolution of the shareholders' general meeting;

(4) the share prospectus;

(5) financial accounting reports;

(6) the name and address of the bank that will receive the share proceeds on the company's behalf; and

(7) the name of the underwriter and relevant agreement.

If a sponsor is engaged in accordance with this Law, the offer sponsorship letter issued by the sponsor shall also be submitted.

Article 15: The proceeds of a public offer of shares by a company must be used in accordance with the purpose of the funds as described in the share prospectus. Any change in the purpose of the funds described in the share prospectus must require a resolution of the shareholders' general meeting. If the purpose is changed without authorization and such change is not rectified, or not subsequently ratified by the shareholders' general meeting, no public offer of new shares may be allowed.

Article 16: To make a public offer of corporate bonds, the following conditions shall be satisfied:

(1) in the case of a company limited by shares, having net assets of not less than Rmb30 million, or, in the case of a limited liability company, having net assets of not less than Rmb60 million;

(2) the balance of bonds will not, in the aggregate, exceed 40% of the company's net assets;

(3) the average distributable profits for the most recent three years are sufficient to pay the interest on the corporate bonds for one year;

(4) the investment orientation for the proceeds complies with state industrial policies;

(5) the coupon rate on the bonds does not exceed the coupon rate level set by the State Council; and

(6) other conditions specified by the State Council.

The proceeds from a public offer of corporate bonds must be used for the approved purpose and may not be used to make up losses or for non-production related expenditures.

A listed company that offers corporate bonds convertible into shares shall, in addition to satisfying the conditions specified in the first paragraph, satisfy the conditions for the public offer of shares of this Law and make a submission to the State Council's securities regulatory authority for check and approval.

Article 17: To apply to make a public offer of corporate bonds, the following documents shall be submitted to the department authorized by the State Council or the State Council's securities regulatory authority:

(1) the company's business licence;

(2) the company's articles of association;

(3) the corporate bond offer method;

(4) an asset appraisal report and capital verification report; and

(5) other documents specified by the department authorized by the State Council or the State Council's securities regulatory authority.

If a sponsor is engaged in accordance with this Law, the offer sponsorship letter issued by the sponsor shall also be submitted.

Article 18: No further public offer of corporate bonds may be made if:

(1) not all of the corporate bonds from the previous public offer have been taken up;

(2) a breach of contract has been committed in respect of, or the principal and interest have not been paid on time on, corporate bonds that have already been issued to the public or other debts, and such state is ongoing; or

(3) the purpose of the proceeds from a public offer of corporate bonds was changed in violation of this Law.

Article 19: The formats and submission methods of the application documents to be submitted by issuers in applying in accordance with the law for check and approval of offer of securities shall be prescribed by the authority or department responsible for check and approval according to law.

Article 20: The application documents for the issuing of securities submitted by issuers to the State Council's securities regulatory authority or the department authorized by the State Council must be truthful, accurate and complete.

Securities service institutions and personnel that issue relevant documents for an offer of securities must strictly perform their statutory duties and warrant the truthfulness, accuracy and completeness of the documents that they issue.

Article 21: When an issuer is to make an initial public offering of shares, it shall, after submitting the application documents, disclose in advance the application documents in accordance with the provisions of the State Council's securities regulatory authority.

Article 22: The State Council's securities regulatory authority shall establish a public offering review committee to review, in accordance with the law, applications to offer shares.

The public offering review committee shall consist of professionals from the State Council's securities regulatory authority and other relevant specialists engaged from outside the said authority. The committee shall vote on applications to offer shares and state the opinion reached by it upon review.

The specific method for forming the public offering review committee, the term of office of its members and its working procedures shall be specified by the State Council's securities regulatory authority.

Article 23: The State Council's securities regulatory authority shall be responsible for the check and approval of applications to offer shares in accordance with the statutory conditions. The check and approval procedures shall be made public, and shall be subject to supervision according to law.

The persons involved in the review, or check and approval, of applications to offer shares may not have a material connection with, or directly or indirectly accept gifts from, the applicant, or hold shares for whose issuance the application for check and approval has been made or have any private contact with the applicant.

The check and approval by the department authorized by the State Council of applications to offer corporate bonds shall be carried out by reference to the preceding two paragraphs.

Article 24: The State Council's securities regulatory authority or the department authorized by the State Council shall decide whether to approve upon check or not, based on the statutory conditions and the statutory procedure, within three months of the date of acceptance of the securities offer application documents. Any period during which the issuer supplements or revises the offer application documents as required shall not be counted within the aforementioned three months. If the State Council's securities regulatory authority or the department authorized by the State Council withholds its approval, it shall state the reasons therefor.

Article 25: Once an application to offer securities has been checked and approved, the issuer shall publish the public offer documents prior to making the public offer of the securities, as prescribed in laws and administrative regulations, and make the said documents available for public review at the designated locations.

Prior to disclosing in accordance with the law of the information that securities are to be offered, no informed person may disclose or divulge such information.

Issuers may not offer securities before they publish the public offer documents.

Article 26: If, after rendering a decision to approve an offer of securities, the State Council's securities regulatory authority or the department authorized by the State Council discovers that the offer fails to comply with the statutory conditions or statutory procedure, and the issue has yet to be made, it shall revoke the decision and discontinue the issuing. If the issue has been made but the securities have yet to be listed, it shall revoke its approval decision and the issuer shall issue a refund to the holders of the securities at the issue price plus interest at the rate on bank deposits of the same period. The sponsor shall be jointly and severally liable with the issuer, unless it is able to establish that it was not at fault. If the issuer's controlling shareholder or de facto controller was at fault, it shall be jointly and severally liable with the issuer.

Article 27: After shares have been issued in accordance with the law, the issuer shall itself be responsible for any change in its operations or earnings; and the investors shall themselves be responsible for any investment risks caused by such change.

Article 28: If an issuer makes an offer of securities to the public in general and laws or administrative regulations specify that such offer shall be underwritten by a securities company, the issuer shall execute an underwriting agreement with a securities company. The underwriting of securities shall take the form either of best efforts underwriting or firm commitment underwriting.

The term 'best efforts underwriting' means the method of underwriting whereby the securities company sells the securities on the behalf of the issuer and, at the end of the underwriting period, returns to the issuer all of the unsold securities.

The term 'firm commitment underwriting' means the method of underwriting whereby the securities company purchases, pursuant to an agreement, all of the issuer's securities or whereby it purchases, at the end of the underwriting period, all the securities remaining after the sale.

Article 29: An issuer that makes a public offer of securities has the right to independently select, in accordance with the law, a securities company to carry out underwriting. Securities companies may not solicit securities underwriting business by means of unfair competition.

Article 30: To underwrite securities, a securities company shall enter into a best efforts underwriting agreement or a firm commitment underwriting agreement with the issuer. Such agreement shall include the following:

(1) the names and domiciles of the parties and the names of their legal representatives;

(2) the class, quantity, amount and offering price of the securities to be underwritten on a best efforts or firm commitment basis;

(3) the period and the initial and final dates for underwriting on a best efforts or firm commitment basis;

(4) the method and date of payment of the proceeds from underwriting on a best efforts or firm commitment basis;

(5) the fee for underwriting on a best efforts or firm commitment basis and the method of settlement thereof;

(6) liability for breach of contract; and

(7) other matters prescribed by the State Council's securities regulatory authority.

Article 31: When underwriting securities, securities companies must examine the truthfulness, accuracy and completeness of the public offer documents. If they find that such documents contain any falsehoods, misleading statements or major omissions, they may not carry out the sales activities. If the securities company has already begun to sell the securities, it must immediately discontinue the sales activities and adopt rectification measures.

Article 32: If the total face value of securities to be offered to the public in general exceeds Rmb50 million, the offer shall be underwritten by an underwriting syndicate. The underwriting syndicate shall be composed of a securities company acting as chief underwriter and participating securities companies.

Article 33: The maximum period for best efforts or firm commitment underwriting of securities shall be 90 days.

During the period of best efforts or firm commitment underwriting, securities companies shall ensure that the securities underwritten on a best efforts or firm commitment basis are first sold to subscribers. Securities companies may not first set aside for themselves securities that they underwrite on a best efforts basis, or purchase in advance and retain securities that they have underwritten on a firm commitment basis.

Article 34: If shares are issued at a premium, the issuing price shall be determined through consultations between the issuer and the securities company handling the underwriting.

Article 35: If an offer of shares is made using best efforts underwriting and the quantity of shares sold to investors at the expiration of the underwriting period falls below 70% of the offer target, the offer shall be deemed a failure and the issuer shall issue a refund to the share subscribers at the issue price plus interest at the rate on bank deposits of the same period.

Article 36: When a public offer of shares is made, the issuer shall, within the prescribed period after the expiration of the best efforts or firm commitment underwriting period, report the details of its share offer to the State Council's securities regulatory authority for the record.

PART THREE: TRADING OF SECURITIES

Section One: General Provisions

Article 37: Securities purchased and sold in accordance with the law by the parties to a securities transaction must be securities that have been issued and delivered in accordance with the law.

Securities that have not been issued in accordance with the law may not be purchased and sold.

Article 38: Shares, corporate bonds and other securities issued in accordance with the law that are subject to legal restrictions on the period during which they may be transferred may not be purchased or sold during the restricted period.

Article 39: Shares, corporate bonds and other securities publicly offered in accordance with the law shall be listed and traded on a stock exchange established in accordance with the law or transferred in another securities trading venue approved by the State Council.

Article 40: The listing and trading of securities on a stock exchange shall be accomplished through public, centralized trading or other method approved by the State Council's securities regulatory authority.

Article 41: The securities purchased and sold by the parties to a securities transaction may be in the form of scripts or such other forms as prescribed by the State Council's securities regulatory authority.

Article 42: Securities trading shall take the form of spot transactions or such other forms as prescribed by the State Council.

Article 43: The working personnel of stock exchanges, securities companies, securities depository and clearing institutions and the securities regulatory authority, and other persons prohibited by laws and administrative regulations from participating in share trading, may not, while in office or during the statutory period, hold, purchase or sell shares directly, under an assumed name or under the name of another. Such working personnel and persons also may not accept shares as gifts.

When anyone becomes a member of working personnel or a person as described in the preceding paragraph, he/she must transfer any existing shareholding in accordance with the law.

Article 44: Stock exchanges, securities companies and securities depository and clearing institutions must keep confidential the accounts opened for their clients according to law.

Article 45: Securities service institutions and persons that issue documents such as audit reports, asset appraisal reports or legal opinions, etc. for a share offer may not purchase or sell the shares in question during the underwriting period for such shares and for a period of six months after the expiration thereof.

In addition to the provisions of the preceding paragraph, securities service institutions and persons that issue documents such as audit reports, asset appraisal reports or legal opinions, etc. for listed companies may not purchase or sell the shares in question from the date on which they accept the appointment by the listed company until the sixth day after the said documents have been disclosed.

Article 46: The fees charged for securities trading must be reasonable. The fee items, fee standards and collection methods shall be made public.

The fee items, fee standards and administration methods for securities trading shall be centrally prescribed by the relevant competent department of the State Council.

Article 47: If a director, supervisor or senior officer of a listed company, or a shareholder who holds at least 5% of the shares of a listed company, sells shares of the company that he/she/it holds within six months of acquiring the same, or buys such shares back within six months of selling the same, the gains obtained therefrom shall belong to the company and the board of directors of the company shall recover such gains from him/her/it. However, a securities company that underwrote shares on a firm commitment basis and which, after purchasing the shares remaining after the sale, holds at least 5% of the shares shall not be subject to the six month time limit when selling such shares.

If the board of directors of the company fails to act in accordance with the preceding paragraph, shareholders shall have the right to demand that the board of directors act within 30 days. If the board of directors of the company fails to act within the aforementioned time period, shareholders shall have the right, in the interests of the company, to directly institute legal proceedings in a people's court in their own name.

If the board of directors of the company fails to act in accordance with the first paragraph, the responsible directors shall be jointly and severally liable in accordance with the law.

Section Two: Listing of Securities

Article 48: When applying for the listing and trading of securities, an application shall be submitted to the stock exchange, which shall review the same and give its consent in accordance with the law, after which the parties shall execute a listing agreement.

A stock exchange shall arrange for the listing and trading of government bonds pursuant to a decision of the department authorized by the State Council.

Article 49: When applying for the listing and trading of shares, corporate bonds convertible into shares or other securities that laws or administrative regulations specify are subject to the sponsorship system, an institution with sponsorship qualifications shall be engaged to act as sponsor.

The second and third paragraphs of Article 11 hereof shall apply to listing sponsors.

Article 50: A company limited by shares applying to list its shares shall satisfy the following conditions:

(1) its shares have been publicly issued after check and approval by the State Council's securities regulatory authority;

(2) the company's total share capital is not less than
Rmb30 million;

(3) the publicly issued shares account for at least 25% of the company's total shares; or, in the case of a company whose total share capital exceeds Rmb400 million, its publicly issued shares account for at least 10% of the company's total shares; and

(4) the company has not committed a major violation of the law nor have there been fraudulent entries in its financial accounting reports during the most recent three years.

A stock exchange may specify listing conditions that are more stringent than those in the preceding paragraph, which it shall submit to the State Council's securities regulatory authority for approval.

Article 51: The State encourages companies that conform to industrial policies and meet the conditions for listing to have their shares listed.

Article 52: When applying for listing and trading of shares, the following documents shall be submitted to the stock exchange:

(1) the listing report;

(2) the resolution passed at the shareholders' general meeting concerning the share listing application;

(3) the company's articles of association;

(4) the company's business licence;

(5) the financial accounting reports of the company for the most recent three years audited by an accounting firm in accordance with the law;

(6) a legal opinion and a listing sponsorship letter;

(7) the most recent share prospectus; and

(8) other documents specified in the listing rules of the stock exchange.

Article 53: Once an application for the listing and trading of shares has been reviewed and approved by the stock exchange, the company that signed the listing agreement shall publish the documents relating to the share listing within the prescribed period of time and make such documents available for public review at the designated locations.

Article 54: In addition to publishing the documents specified in the preceding article, the company that signed the listing agreement shall publish the following matters:

(1) the date on which the shares are approved for trading on the stock exchange;

(2) a list of the names and holdings of the 10 shareholders who hold the largest numbers of shares in the company;

(3) the de facto controller of the company; and

(4) the names of the directors, supervisors and senior officers, and particulars of their holdings of the company's shares and/or bonds.

Article 55: A stock exchange shall decide to suspend the listing and trading of a listed company's shares if:

(1) the company no longer satisfies listing conditions due to a change in the company's total share capital, spread in share equity, etc.;

(2) the company fails to disclose details of its financial position in accordance with provisions or has made fraudulent entries in its financial accounting report, which could mislead investors;

(3) the company has committed a major violation of the law;

(4) the company has suffered continuous losses during the most recent three years; or

(5) another circumstance specified in the listing rules of the stock exchange arises.

Article 56: A stock exchange shall decide to terminate the listing and trading of a listed company's shares if:

(1) a change in the company's total share capital, spread in share equity, etc. changes in such a way that it no longer satisfies listing conditions, and it still fails to meet listing conditions after the period specified by the stock exchange;

(2) the company fails to disclose details of its financial position or has made fraudulent entries in its financial and accounting reports, and refuses to rectify the same;

(3) the company has suffered continuous losses during the most recent three years., and fails to return to profitability in the subsequent year;

(4) the company is dissolved or declared bankrupt; or

(5) another circumstance specified in the listing rules of the stock exchange arises.

Article 57: Companies applying for listing and trading of corporate bonds shall meet the following conditions:

(1) the term of the corporate bonds is not less than one year;

(2) the amount of corporate bonds actually issued is not less than Rmb50 million; and

(3) the company still meets the statutory conditions for the issuing of corporate bonds at the time of application for the listing of its bonds.

Article 58: When applying for listing and trading of corporate bonds, the following documents shall be submitted to the stock exchange:

(1) the listing report;

(2) the resolution of the board of directors concerning the corporate bond listing application;

(3) the company's articles of association;

(4) the company's business licence;

(5) the method of offer of the corporate bonds;

(6) the number of corporate bonds actually issued; and

(7) other documents specified in the listing rules of the stock exchange.

If an application is made for the listing and trading of corporate bonds convertible into shares, the listing sponsorship letter issued by the sponsor shall also be submitted.

Article 59: Once an application for the listing and trading of corporate bonds has been reviewed and approved by the stock exchange, the company that signed the listing agreement shall publish its corporate bond listing documents and relevant documents within the prescribed period of time and make its application documents available for public review at the designated locations.

Article 60: A stock exchange shall decide to suspend the listing and trading of a company's corporate bonds if after the corporate bonds have been listed for trading:

(1) the company commits a major illegal act;

(2) the company no longer meets the conditions for listing corporate bonds due to a major change in its circumstances;

(3) the proceeds of the corporate bond offer are not used for the approved purpose;

(4) the company fails to perform its obligations under the method of offer of the corporate bonds; or

(5) the company has suffered continuous losses during the most recent two years.

Article 61: If a company is in the situation described in Item (1) or (4) of the preceding article and the consequences are verified to be serious, or if a company is in the situation described in Item (2), (3) or (5) of the preceding article and fails to eliminate the same within a specified time limit, the stock exchange shall decide to terminate the listing and trading of the company's bonds.

If a company is dissolved or declared bankrupt, the stock exchange shall terminate the listing and trading of the company's bonds.

Article 62: An application for a review may be submitted to the review organization established by the stock exchange in the event of dissatisfaction with a decision by the stock exchange to suspend or terminate a listing, or not to grant a listing.

Section Three: Continuing Disclosure

Article 63: The information disclosed in accordance with the law by issuers and listed companies must be true, accurate and complete and may not contain false or misleading statements or material omissions.

Article 64: The share prospectus or the method of offer of corporate bonds shall be published where shares are publicly offered in accordance with the law upon check and approval by the State Council's securities regulatory authority or where corporate bonds are publicly offered in accordance with the law upon check and approval by the department authorized by the State Council. When new shares or corporate bonds are publicly offered in accordance with the law, financial accounting reports shall also be published.

Article 65: Within two months of the date of conclusion of the first half of each financial year, listed companies or companies whose bonds have been listed for trading shall submit to the State Council's securities regulatory authority and the stock exchange an interim report with the following contents, and publish the same:

(1) the company's financial accounting reports and business situation;

(2) major litigation involving the company;

(3) the particulars of any changes in the shares or corporate bonds already issued;

(4) any major matters submitted for consideration by the shareholders' general meeting; and

(5) other matters specified by the State Council's securities regulatory authority.

Article 66: Within four months of the last day of each financial year, listed companies or companies whose bonds have been listed for trading shall submit to the State Council's securities regulatory authority and the stock exchange an annual report with the following contents, and publish the same:

(1) the company's general circumstances;

(2) the company's financial accounting reports and business situation;

(3) the r¨¦sum¨¦s and the details of the shareholdings of the directors, supervisors and senior officers;

(4) the details of shares and corporate bonds already issued, including the name list of the 10 shareholders who hold the largest number of shares in the company and the number of shares held by them;

(5) the de facto controller of the company; and

(6) other matters specified by the State Council's securities regulatory authority.

Article 67: If a major event that could have a relatively large effect on the trading price of a company's shares arises and investors are not yet aware thereof, the listed company shall promptly submit an ad hoc report to the State Council's securities regulatory authority and the stock exchange on the details of the major event and publicly announce the same, explaining the reason for the event, the current situation and the possible legal consequences that may arise.

The circumstances set forth below shall constitute major events as specified in the preceding paragraph:

(1) a major change in the company's business policies or scope of business;

(2) a decision by the company concerning a major investment or major asset purchase;

(3) conclusion by the company of a major contract that may have a major effect on the company's assets, liabilities, rights, interests or business results;

(4) incurrence by the company of a major debt or default on a major debt;

(5) incurrence by the company of a major deficit or major loss;

(6) a major change in the external production or business conditions of the company;

(7) a change in the directors, not less than one third of the supervisors or the manager of the company;

(8) a relatively large change in the shareholding of, or control of the company by, a shareholder holding at least 5% of the Company's shares or the de facto controller of the company;

(9) a decision to reduce the company's capital, merge, divide or dissolve the company or file for bankruptcy;

(10) a major lawsuit involving the company, or a resolution of the shareholders' general meeting or board of directors is revoked or declared invalid in accordance with the law;

(11) the company is suspected of committing a criminal offence and the judicial authorities have placed the case on the docket and are investigating, or a director, supervisor or senior officer of the company is suspected of committing a criminal offence and the judicial authorities have taken enforcement measures; and

(12) other matters specified by the State Council's securities regulatory authority.

Article 68: A listed company's directors and senior officers shall sign written confirmation opinions in respect of the regular reports of the company.

The supervisory board of a listed company shall review the regular reports of the company prepared by the board of directors and issue written comments on its review thereof.

The directors, supervisors and senior officers of a listed company shall ensure that the information disclosed by the company is true, accurate and complete.

Article 69: If the share prospectus, method of offer of corporate bonds, financial accounting reports, listing report documents, annual report, interim report, ad hoc reports or other disclosed information published by an issuer or listed company contain false or misleading statements or material omissions, thereby causing investors to incur a loss in securities trading, the issuer or the listed company shall be liable for damages. The issuer's or listed company's directors, supervisors, senior officers and other persons directly responsible as well as the sponsor and the securities company acting as underwriter shall be jointly and severally liable with the issuer or listed company, unless he/she/it is able to establish that he/she/it was not at fault. If the issuer's or listed company's controlling shareholder or de facto controller is at a fault, it shall be jointly and severally liable with the issuer or listed company.

Article 70: Information that must be disclosed according to law shall be published in the media designated by the State Council's securities regulatory authority and shall also be made available for review by the public at the company's domicile and stock exchange.

Article 71: The State Council's securities regulatory authority shall supervise the release of annual reports, interim reports, ad hoc reports and announcements of listed companies, the allotment of new shares or rights issues of listed companies, and the acts of listed companies' controlling shareholders and parties with an obligation to disclose information.

The securities regulatory authority, the stock exchange, the sponsor, the securities company acting as underwriter, and relevant persons may not divulge the contents of company announcements mandated by laws or administrative regulations before such announcements are made.

Article 72: If a stock exchange decides to suspend or terminate the listing and trading of a security, it shall promptly announce the same and report the same to the State Council's securities regulatory authority for the record.

Section Four: Prohibited Trading Acts

Article 73: It is forbidden for informed persons with insider information on the trading of securities or persons who have illegally obtained insider information to use such information to engage in securities trading activities.

Article 74: Informed persons with insider information on the trading of securities include:

(1) the directors, supervisors and senior officers of issuers;

(2) shareholders who hold at least 5% of the shares of a company and their directors, supervisors and senior officers, and the de facto controller of a company and its directors, supervisors and senior officers;

(3) the companies in which an issuer has a controlling interest and their directors, supervisors and senior officers;

(4) persons who have access to insider information of a company by virtue of their positions in the company;

(5) the working personnel of the securities regulatory authority, and other persons who have a hand in the administration of the offering and trading of securities by virtue of their statutory duties;

(6) the relevant personnel of sponsors, securities companies acting as underwriters, stock exchanges, securities depository and clearing institutions and securities service institutions; and

(7) other persons specified by the State Council's securities regulatory authority.

Article 75: Insider information is information that, in the course of securities trading, has not yet been disclosed and concerns the company's business or financial affairs or may have a major effect on the market price of the company's securities.

The following information is insider information:

(1) the major events described in the second paragraph of Article 67 hereof;

(2) company plans concerning distribution of dividends or increase of registered capital;

(3) major changes in the company's equity structure;

(4) major changes in security for the company's debts;

(5) any single mortgage, sale or write-off of a major asset used in the business of the company exceeding 30% of the said asset;

(6) potential liability for major damages to be assumed in accordance with the law as a result of an act committed by a company's director(s), supervisor(s) or senior officer(s);

(7) plans concerning the takeover of listed companies; and

(8) other important information determined by the State Council's securities regulatory authority to have a marked effect on securities trading prices.

Article 76: Informed persons with insider information on the trading of securities and persons who have illegally obtained insider information may not purchase or sell the securities of the relevant company, divulge such information or recommend to others that they purchase or sell the relevant securities until the insider information has been made public.

Where otherwise provided in this Law in respect of the purchase of shares of a listed company by a natural person, legal person or other organizations that holds, or by virtue of an agreement or other arrangement jointly holds with another, at least 5% of the shares of the company, such provisions shall apply.

If an act of insider trading causes investors to incur a loss, the person so acting shall be liable for damages in accordance with the law.

Article 77: It is prohibited for anyone to manipulate the securities market in any of the following ways:

(1) carrying out combined or successive sales or purchases by building up an advantage in terms of funds or shareholdings or using one's advantage in terms of information, thereby manipulating the price or volume of securities traded, whether independently or in collusion;

(2) collaborating with another person to mutually trade securities at a pre-arranged time, price and method, thereby affecting the price or volume of securities traded;

(3) conducting securities transactions between accounts actually controlled by oneself, thereby affecting the price or volume of securities traded; or

(4) manipulating the securities market by other methods.

If an act of securities market manipulation causes investors to incur a loss, the person so acting shall be liable for damages in accordance with the law.

Article 78: It is prohibited for working personnel of the state, working personnel of the media and relevant persons to fabricate and disseminate false information, thereby disturbing the order of the securities market.

It is prohibited for stock exchanges, securities companies, securities depository and clearing institutions, securities service institutions, securities associations and the securities regulatory authority, and their working personnel, to make false statements or give misleading information in the course of securities trading.

Securities market information disseminated by any mass medium must be truthful and objective. All mass media are prohibited from disseminating misleading information on the securities market.

Article 79: It is prohibited for securities companies and their working personnel to commit the following fraudulent acts that are detrimental to the interests of their clients:

(1) purchase or sale of securities on behalf of a client in violation of the client's instructions;

(2) failure to provide a client with written confirmation of a transaction within the prescribed period;

(3) misappropriation of securities entrusted by a client for purchase or sale, or of funds in a client's account;

(4) purchase or sale of securities on behalf of a client without instructions from the client, or purchase or sale of securities on one's own account under a client's name;

(5) enticing a client to make an unnecessary purchase or sale of securities in order to obtain commission revenue;

(6) using the media or other means to provide or disseminate information that is false or misleads investors; or

(7) other acts contrary to a client's authentic declaration of intention or acts detrimental to a client's interests.

If an act of defrauding clients causes clients to incur a loss, the persons so acting shall be liable for damages in accordance with the law.

Article 80: It is prohibited for a legal person to illegally use another's account to engage in securities trading. It is forbidden for a legal person to lend out its or another's securities account.

Article 81: Channels for the entry of funds into the market shall be expanded in accordance with the law, but the illegal flow of funds into the stock market is prohibited.

Article 82: It is prohibited for anyone to misappropriate public funds to purchase or sell securities.

Article 83: When a state-owned enterprise or an enterprise in which state-owned assets account for a controlling interest purchases or sells listed and traded shares, it must comply with relevant state provisions.

Article 84: If stock exchanges, securities companies, securities depository and clearing institutions, securities service institutions and their working personnel discover any prohibited trading acts in the course of securities trading, they shall timely report such acts to the securities regulatory authority.

PART FOUR: TAKEOVER OF LISTED COMPANIES

Article 85: Investors may take over a listed company by means of takeover by offer, takeover by agreement or other lawful methods.

Article 86: If, through securities transactions on a stock exchange, an investor's holding or, by virtue of an agreement or other arrangement, its joint holding with another of the issued shares of a listed company reaches 5%, it shall submit a written report to the State Council's securities regulatory authority and the stock exchange, notify the listed company and make an announcement within three days of the date of the occurrence of such event. During the aforementioned period, it may not make any further purchase or sale of the relevant listed company's shares.

After an investor's holding or, by virtue of an agreement or other arrangement, its joint holding with another of the issued shares of a listed company reaches 5%, it shall, in accordance with the preceding paragraph, submit a report and make an announcement whenever the percentage of the issued shares of the relevant listed company that it holds increases or decreases by 5%. During the reporting period and for two days after the report and announcement, it may not make any further purchase or sale of the relevant listed company's shares.

Article 87: Written reports and announcements made in accordance with the preceding article shall include the following:

(1) the name and domicile of the shareholder;

(2) the name and amount of stock held; and

(3) the date on which the shareholding or the increase or decrease in the shareholding reached the statutory percentage.

Article 88: If, through securities transactions on a stock exchange, an investor's holding or, by virtue of an agreement or other arrangement, its joint holding with another of the issued shares of a listed company reaches 30% and it continues to buy up such shares, it shall, in accordance with the law, issue to all of the listed company's shareholders a takeover offer for all or part of the listed company's shares.

A takeover offer to acquire part of the listed company's shares shall specify that, if the number of shares that the shareholders of the targeted company undertake to sell exceeds the target number of shares to be acquired, the acquirer shall effect the acquisition pro rata.

Article 89: When issuing a takeover offer pursuant to the preceding article, the acquirer must first submit a report on the takeover of the listed company to the State Council's securities regulatory authority. The report shall contain the following particulars:

(1) the name and domicile of the acquirer;

(2) the decision of the acquirer concerning the takeover;

(3) the name of the listed company targeted;

(4) the purpose of the takeover;

(5) a detailed description of the shares bought up and the number of shares scheduled to be bought up;

(6) the term and price of the takeover;

(7) the amount and guaranteed availability of the funds required for the takeover; and

(8) the ratio between the total number of issued shares of the target company and the number of such shares held at the time of submission of the takeover report.

The acquirer shall simultaneously submit a copy of the listed company takeover report to the stock exchange.

Article 90: The acquirer shall announce its takeover offer 15 days after the date on which it submits the listed company takeover report pursuant to the preceding article. If, within the aforementioned period, the State Council's securities regulatory authority discovers that the listed company takeover report does not comply with laws or administrative regulations, it shall timely inform the acquirer and the acquirer may not announce its takeover offer.

The term of takeover as specified in a takeover offer shall be not less than 30 and not more than 60 days.

Article 91: During the period of time for acceptance as fixed in a takeover offer, the acquirer may not revoke its takeover offer. If the acquirer needs to amend the takeover offer, it must submit a report to the State Council's securities regulatory authority and the stock exchange in advance. If approved, the acquirer shall make an announcement.

Article 92: The conditions of takeover set forth in the takeover offer shall apply to all shareholders of the target company.

Article 93: In the case of takeover by offer, during the term of the takeover, the acquirer may not sell shares in the target company, nor may it purchase shares in the target company by any method other than that prescribed in, or on any conditions other than those of the offer.

Article 94: In the case of takeover by agreement, the acquirer may effect the share transfer by entering into an agreement with the shareholders of the target company, as prescribed in laws and administrative regulations.

When a listed company is taken over by agreement, the acquirer must, within three days after the agreement is reached, submit a written report on the takeover agreement to the State Council's securities regulatory authority and the stock exchange, and make an announcement.

The takeover agreement may not be performed until the announcement has been made.

Article 95: In the case of takeover by agreement, the parties to the agreement may on an ad hoc basis entrust a securities depository and clearing institution with custody of the shares transferred pursuant to the agreement and with deposit of the funds with the designated bank.

Article 96: If a takeover is effected by agreement and the acquirer's acquisition or, by virtue of an agreement or other arrangement, its joint acquisition with another of the issued shares of a listed company reaches 30%, and it continues to buy up such shares, it shall issue to all of the listed company's shareholders a takeover offer for all or part of the listed company's shares, unless the State Council's securities regulatory authority exempts it from making such offer.

If an acquirer acquires the shares of a listed company by way of an offer in accordance with the preceding paragraph, it shall abide by Articles 89 to 93 hereof.

Article 97: If, after the expiration of the takeover period, the spread of the equity of the acquired company ceases to satisfy listing conditions, the listing and trading of such listed company's shares shall be terminated by the stock exchange in accordance with the law. The other shareholders who still hold shares of the acquired company shall have the right to sell their shares to the acquirer on terms equivalent to that of the takeover offer, and the acquirer shall acquire the same.

If, upon completion of the takeover, the acquired company no longer meets the criteria for a company limited by shares, it shall change its enterprise form in accordance with the law.

Article 98: During the takeover of a listed company, the shares in the target listed company that are held by the acquirer may not be transferred for 12 months following the completion of the takeover.

Article 99: After the conclusion of the takeover, the acquirer and the acquired company shall merge and the company shall be dissolved. The existing shares of the dissolved company shall be replaced by the acquirer in accordance with the law.

Article 100: After the conclusion of the takeover, the acquirer shall, within 15 days, report the particulars of the takeover to the State Council's securities regulatory authority and the stock exchange, and make an announcement.

Article 101: The acquisition of the shares of a listed company held by an investment organization authorized by the state shall be subject to the approval of the competent department in accordance with the provisions of the State Council.

The State Council's securities regulatory authority shall formulate the specific measures for the takeover of listed companies in line with the principles of this Law.

PART FIVE: STOCK EXCHANGES

Article 102: A stock exchange is a legal person that provides a venue and the facilities for the centralized trading of securities, organizes and supervises securities trading and implements self-regulatory management.

The establishment and dissolution of stock exchanges shall be decided on by the State Council.

Article 103: To establish a stock exchange, a constitution must be formulated.

The formulation and amendment of the constitution of a stock exchange shall be subject to the approval of the State Council's securities regulatory authority.

Article 104: Stock exchanges must include the words 'stock exchange' in their names. No other work unit and no individual may use the name 'stock exchange' or a similar name.

Article 105: The fee revenue that stock exchanges may dispose of by themselves shall first be used to ensure the normal operation and gradual improvement of the stock exchange and its facilities.

The property accumulated by a stock exchange that implements a membership system shall belong to its members. The rights and interests in the stock exchange shall be enjoyed jointly by its members. Accumulated property may not be distributed to the members while the stock exchange is in existence.

Article 106: A stock exchange shall have a board of governors.

Article 107: A stock exchange shall have a general manager, who shall be appointed and removed by the State Council's securities regulatory authority.

Article 108: The persons described in Article 147 of the PRC Company Law and the following persons may not serve as responsible persons of stock exchanges:

(1) responsible persons of stock exchanges or securities depository and clearing institutions, and directors, supervisors and senior officers of securities companies, who were removed from office due to a violation of the law or a breach of discipline, where not more than five years have elapsed since the date of their removal from office; and

(2) lawyers, certified accountants, and professional personnel of investment consultancies, financial consultancies, credit rating agencies, asset appraisal organizations or verification organizations, whose qualifications were cancelled due to a violation of the law or a breach of discipline, where not more than five years have elapsed since the date of cancellation.

Article 109: Working personnel of stock exchanges, securities depository and clearing institutions, securities service institutions or securities companies who were dismissed for violating the law or breaching discipline, and working personnel of state authorities who were punished by dismissal, may not be employed as working personnel of stock exchanges.

Article 110: Only members of a stock exchange may enter that stock exchange to participate in centralized trading.

Article 111: Investors shall sign a securities trading authorization agreement with a securities company, open a securities trading account with the company, and instruct, in writing, by telephone or otherwise, the company to purchase and sell securities on their behalf.

Article 112: A securities company shall, as instructed by an investor, issue trading orders in accordance with the rules of the stock exchange, participate in centralized trading in the stock exchange and bear the commensurate settlement liability based on the results of the concluded transactions. The securities depository and clearing institution shall effect settlement of securities and funds with the securities company based on the results of the concluded transactions and in accordance with the settlement rules, and carry out for the securities company's clients the procedures for registration of the change in ownership of the securities.

Article 113: Stock exchanges shall ensure that the centralized trading is organized fairly and shall announce real-time quotes concerning the securities trading. They shall compile securities market quotes tables for each day of trading, and announce the same.

Without the permission of a stock exchange, no work units or individuals may release real-time quotes concerning the securities trading.

Article 114: If a sudden event affecting the normal conduct of securities trading occurs, stock exchanges may effect a technical suspension of trading. Stock exchanges may decide to temporarily suspend the market if a sudden event of force majeure occurs or in order to protect the normal order of securities trading.

When stock exchanges effect a technical suspension of trading or decide to provisionally suspend the market, they must report the same to the State Council's securities regulatory authority in a timely manner.

Article 115: Stock exchanges shall implement real-time monitoring of the securities trading, and shall report any unusual trading as required by the State Council's securities regulatory authority.

Stock exchanges shall supervise the disclosure of information by listed companies and relevant parties with an obligation to disclose information to ensure that they accurately disclose information in accordance with the law in a timely manner.

A stock exchange may, as required, limit trading in a securities account that is experiencing major unusual transactions and shall report the same to the State Council's securities regulatory authority for the record.

Article 116: Stock exchanges shall allocate a certain percentage of their transaction levies, membership levies and seat levies to establish a risk fund. The risk fund shall be managed by the board of governors of the stock exchange.

The specific percentages of allocations to, and measures for the use of, the risk fund shall be specified by the State Council's securities regulatory authority in conjunction with the State Council's finance department.

Article 117: Stock exchanges shall deposit the risk fund collected by them in dedicated accounts with their banks, and may not use the same without authorization.

Article 118: Stock exchanges shall, pursuant to securities laws and administrative regulations, formulate listing rules, trading rules, membership rules and other relevant rules, and submit the same to the State Council's securities regulatory authority for approval.

Article 119: If, in carrying out duties related to securities trading, the responsible persons and other working personnel of stock exchanges discover that a material relationship with themselves or any of their relatives is involved, they shall withdraw.

Article 120: The transaction results of trading that has been conducted pursuant to trading rules formulated in accordance with the law may not be changed. Traders may not be released from the civil liability incurred as a result of their violation of rules during trading. Gains obtained from trading against the rules shall be dealt with pursuant to the relevant provisions.

Article 121: If persons engaged in securities trading inside a stock exchange violate the trading rules of the stock exchange, the stock exchange shall impose disciplinary punishments. If the circumstances are serious, the offenders' qualifications shall be revoked and they shall be barred from entering the exchange to carry out securities trading.

PART SIX: SECURITIES COMPANIES

Article 122: Establishment of securities companies must be subject to the examination and approval of the State Council's securities regulatory authority. No work units or individuals may engage in the securities business without the approval of the State Council's securities regulatory authority.

Article 123: For the purposes of this Law, the term 'securities company' means a limited liability company or company limited by shares established in accordance with the PRC Company Law and this Law and that engages in the securities business.

Article 124: To establish a securities company, the following conditions shall be satisfied:

(1) having articles of association that comply with laws and administrative regulations;

(2) the main shareholders having a capacity for sustained profitability, good creditworthiness, no record of a major violation of laws or regulations during the most recent three years and net assets of not less than Rmb200 million;

(3) having registered capital complying with this Law;

(4) the directors, supervisors and senior officers having the qualifications for their positions, and the working personnel being qualified to engage in the securities business;

(5) having sound risk management and internal control systems;

(6) having a compliant place of business and business facilities; and

(7) satisfying other conditions specified in laws and administrative regulations and by the State Council's securities regulatory authority as approved by the State Council.

Article 125: Subject to the approval of the State Council's securities regulatory authority, a securities company may engage in some or all of the following businesses:

(1) securities brokerage business;

(2) securities investment consulting;

(3) provision of financial advisory services relating to securities trading and securities investment activities;

(4) securities underwriting and sponsorship;

(5) securities business for its own account;

(6) securities asset management; and

(7) other securities businesses.

Article 126: Securities companies must carry the words "证券有限责任公司"¹ or "证券股份有限公司"² in their names.

Article 127: Securities companies that engage in the businesses specified in Items (1) to (3) of Article 125 hereof shall have minimum registered capital of Rmb50 million; those engaging in any one of the businesses specified in Items (4) to (7) shall have minimum registered capital of Rmb100 million; and those engaging in two or more of the businesses specified in Items (4) to (7) shall have minimum registered capital of Rmb500 million. The registered capital of a securities company shall be paid-in capital.

The State Council's securities regulatory authority may revise the minimum registered capital based on the principle of prudential regulation and the degree of risk attaching to each business, provided that the amounts may not be lower than those specified in the preceding paragraph.

Article 128: The State Council's securities regulatory authority shall examine an application for the establishment of a securities company in accordance with the statutory conditions and the statutory procedure and the principle of prudential regulation and render its decision on whether or not to grant approval within six months of the date of acceptance of such application, and notify the applicant. If it withholds its approval, it shall explain the reason therefor.

If an application for the establishment of a securities company is approved, the applicant shall apply for registration of establishment to the company registrar within the prescribed period of time and collect the business licence.

A securities company shall apply to the State Council's securities regulatory authority for a securities business operating permit within 15 days of the date of collecting its business licence. A securities company may not engage in the securities business until it has obtained its securities business operating permit.

Article 129: The establishment, takeover and closing down of branches and sub-branches by a securities company, the amendment of its scope of business, change in its registered capital, change in its shareholders who hold at least 5% of its equity or de facto controller, amendment of the important provisions of its articles of association, its merger, division, change in the form of the company, cessation of operations, dissolution and bankruptcy shall be subject to the approval of the State Council's securities regulatory authority.

The establishment or takeover of, or taking of an equity interest in, a securities business organization abroad by a securities company shall be subject to the approval of the State Council's securities regulatory authority.

Article 130: The State Council's securities regulatory authority shall specify such risk control indicators of securities companies as their net capital, ratio of net capital to liabilities, ratio of net capital to net assets, ratio of net capital to the scale of such business as business for their account, underwriting business, asset management business, etc., ratio of liabilities to net assets and ratio of operating assets to operating liabilities.

A securities company may not provide financing to, or security for, its shareholders or affiliated persons of its shareholders.

Article 131: The directors, supervisors and senior officers of securities companies shall be with integrity, honest and of good character, be familiar with securities laws and administrative regulations, have the operating and management skills required to perform their duties and have obtained the qualifications for their positions as approved by the State Council's securities regulatory authority before assuming their positions.

The persons described in Article 147 of the PRC Company Law and the following persons may not serve as the directors, supervisors or senior officers of securities companies:

(1) responsible persons of stock exchanges or securities depository and clearing institutions, and directors, supervisors and senior officers of securities companies, who were removed from office due to a violation of the law or a breach of discipline, where not more than five years have elapsed since the date of their removal from office;

(2) lawyers, certified accountants, and professional personnel of investment consultancies, financial consultancies, credit rating agencies, asset appraisal organizations or verification organizations, whose qualifications were cancelled due to a violation of the law or a breach of discipline, where not more than five years have elapsed since the date of cancellation.

Article 132: Working personnel of stock exchanges, securities depository and clearing institutions, securities service institutions or securities companies who were dismissed for violating the law or breaching discipline, and working personnel of state authorities who were punished by dismissal, may not be employed as working personnel of securities companies.

Article 133: Working personnel of state authorities, and other persons prohibited by laws and administrative regulations from concurrently holding positions in companies, may not concurrently hold positions in securities companies.

Article 134: The state will establish a securities investor protection fund. The securities investor protection fund shall be composed of funds paid in by securities companies and other funds raised in accordance with the law. The specific measures for raising, management and use of such fund shall be specified by the State Council.

Article 135: Securities companies shall make allocations to a trading risk reserve from their annual after-tax profits. The reserve shall be used to make up losses from securities trading. The specific allocation percentage shall be specified by the State Council's securities regulatory authority.

Article 136: A securities company shall establish sound internal control systems and effective Chinese walls so as to guard against conflicts of interest between the company and clients and between different clients.

A securities company must keep its securities brokerage business, securities underwriting business, securities business for its own account and securities asset management business separate, and may not mix their operations together.

Article 137: Business on the own account of a securities company must be conducted in its own name. Such business may not be conducted in the name of another or in the name of an individual.

Business on the own account of a securities company must use the company's own funds and legally raised funds.

No securities company may lend its account for business carried out on own account to another for use.

Article 138: Securities companies shall have the lawful right to operate independently, and their lawful operations shall not be interfered with.

Article 139: The transaction settlement funds of clients shall be deposited with a commercial bank and separate accounts shall be opened and managed in each client's name. The specific measures and implementing steps shall be specified by the State Council.

A securities company may not include the transaction settlement funds and securities of clients among its own property. It is forbidden for any work unit or individual to misappropriate in any manner the transaction settlement funds and securities of clients. When a securities company goes bankrupt or is liquidated, the transaction settlement funds and securities of clients shall not be deemed part of the bankruptcy property or liquidation property. The transaction settlement funds and securities of a client may not be placed under seal, frozen, seized or have enforcement measures taken in respect thereof for a reason other than that of the debts of the client itself or other circumstance specified by law.

Article 140: When handling brokerage business, securities companies shall make available uniform printed securities sale and purchase instruction forms for use by instructing parties. If instructions are given in other ways, a record must be kept thereof.

The records of clients' instructions to purchase or sell securities shall be kept by the securities company for the prescribed period, irrespective of whether or not any transactions are concluded.

Article 141: When a securities company receives an instruction to purchase or sell securities, it shall purchase or sell the securities as an agent in accordance with the trading rules based on the securities' name, the purchase or sales quantity, the bidding method, the price range, etc. stated on the instruction form and record the transaction truthfully. After completion of the transaction, a transaction completion report shall be prepared in accordance with provisions and delivered to the client.

Account statements confirming trading acts and their transaction results that are drawn up in the course of securities trading must be truthful. Such statements shall be verified on a transaction by transaction basis by an examiner other than the person handling the transaction, in order to ensure that the book securities balance is the same as the number of securities actually held.

Article 142: The offering of margin services by a securities company to clients for the purchase and sale of securities shall be carried out in accordance with the provisions of the State Council and shall be subject to the approval of the State Council's securities regulatory authority.

Article 143: When handling brokerage business, securities companies may not accept blanket authorization to decide on the purchase or sale of securities, choose the types of securities or decide on the quantities to be purchased or sold or the purchase or sales price.

Article 144: Securities companies may not give any form of commitment to clients concerning earnings from the purchase or sale of securities or compensation for losses from the purchase or sale of securities.

Article 145: Securities companies and their working personnel may not privately accept instructions from a client to purchase or sell securities that has not gone through the company's place of business established in accordance with the law.

Article 146: If, in the course of securities trading activities, a member of the working personnel of a securities company violates the trading rules on the instructions of his/her securities company or by using his/her position, the securities company to which such person belongs shall bear full liability therefor.

Article 147: A securities company shall duly preserve clients' account opening information, instruction records, trading records and information relating to internal management and business operations. It is forbidden for anyone to conceal, forge, alter or destroy the same. The period of preservation of the aforementioned information shall not be less than 20 years.

Article 148: A securities company shall submit to the State Council's securities regulatory authority operating and management information and data on its business, finances, etc. The State Council's securities regulatory authority has the authority to require a securities company, its shareholders and de facto controller to provide relevant information and data within a designated period of time.

The information and data submitted or provided to the State Council's securities regulatory authority by a securities company, its shareholders and de facto controller must be true, accurate and complete.

Article 149: When it deems necessary, the State Council's securities regulatory authority may appoint an accounting firm or asset appraisal institution to conduct an audit or appraisal of a securities company's financial position, internal controls or asset value. The specific measures therefor shall be formulated by the State Council's securities regulatory authority jointly with relevant competent departments.

Article 150: If a securities company's net capital or other risk control indicators fail to comply with provisions, the State Council's securities regulatory authority shall order it to rectify the matter within a specified period of time. If it fails to rectify the matter within the specified period of time, or its acts seriously threaten the stable operation of the securities company or harm the lawful rights and interests of clients, the State Council's securities regulatory authority may, depending on the circumstances, take the following measures against it:

(1) placing restrictions on its business activities, ordering it to suspend part of its business or halting the approval of new business;

(2) halting the approval of the establishment or takeover of branches and sub-branches of a commercial nature;

(3) placing restrictions on its distribution of dividends or placing restrictions on the payment of remuneration or provision of benefits to directors, supervisors and senior officers;

(4) placing restrictions on its transfer of property or encumbrance of its property with other rights;

(5) ordering the replacement of directors, supervisors and/or senior officers or placing restrictions on their rights;

(6) ordering the controlling shareholder to transfer equity or placing restrictions on the exercise by the relevant shareholder of its shareholder rights; and

(7) revoking the permit for the relevant business.

Once a securities company has completed rectification, it shall submit a report to the State Council's securities regulatory authority. If, after an acceptance check, the company is found to comply with the relevant risk control indicators, the State Council's securities regulatory authority shall, within three days of the date of completion of the acceptance check, lift the relevant measures specified in the preceding paragraph that it imposed.

Article 151: If a shareholder of a securities company has made a fraudulent capital contribution or surreptitiously withdrawn its capital contribution, the State Council's securities regulatory authority shall order it to rectify the matter within a specified period of time, and may order it to transfer the equity of the securities company that it holds.

Until the shareholder mentioned in the preceding paragraph has rectified its violation of the law as required or, in addition to that, transferred the equity of the securities company that it holds, the State Council's securities regulatory authority may place restrictions on its shareholder rights.

Article 152: If a director, supervisor or senior officer of a securities company fails to act with due diligence, causing the securities company to commit a major violation of laws or regulations or exposing it to a material risk, the State Council's securities regulatory authority may revoke his/her qualifications for his/her position and order the company to replace him/her.

Article 153: If a securities company operates in violation of the law or is exposed to a material risk, thereby seriously threatening the order of the securities market or harming the interests of investors, the State Council's securities regulatory authority may take such regulatory measures against it as ordering it to suspend operations and undergo rectification, designating another institution to take control of it, imposing receivership or closing it down.

Article 154: While a securities company has been ordered to suspend operations and is undergoing rectification, under control of a designated institution in accordance with the law, under receivership, undergoing liquidation or exposed to a material risk, subject to the approval of the State Council's securities regulatory authority, the following measures may be taken against the directors, supervisors and senior officers of the securities company who are directly responsible and other persons directly responsible:

(1) by notifying the border control authority to prevent them from leaving the country in accordance with the law;
and/or

(2) by applying to the judicial authority to prohibit their removing, transferring or otherwise disposing of property or encumbering their property with other rights.

PART SEVEN: SECURITIES DEPOSITORY AND CLEARING INSTITUTIONS

Article 155: A securities depository and clearing institution is a non-profit legal person that provides centralized registration, deposit and clearing services for securities transactions.

The establishment of securities depository and clearing institutions shall be subject to approval by the State Council's securities regulatory authority.

Article 156: To be established, a securities depository and clearing institution shall meet the following conditions:

(1) it has its own funds of not less than Rmb200 million;

(2) it has the necessary venue and facilities for securities registration, deposit and clearing services;

(3) its main management personnel and working personnel are qualified to engage in the securities business; and

(4) other conditions specified by the State Council's securities regulatory authority.

The names of securities depository and clearing institutions shall carry the words "证券登记结算"³ in their names.

Article 157: Securities depository and clearing institutions shall perform the following functions:

(1) the establishment of securities accounts and clearing accounts;

(2) the deposit and transfer of ownership of securities;

(3) the registration of the names of the holders of securities;

(4) the settlement of listed securities traded on the stock exchange;

(5) the allotment of securities rights and interests upon entrustment by the issuer;

(6) the handling of inquiries concerning the above-mentioned businesses; and

(7) other businesses approved by the State Council's securities regulatory authority.

Article 158: A nationwide, centralized, unified method of operation shall be used for the registration and clearing of securities.

The articles of association and business rules of securities depository and clearing institutions shall be formulated in accordance with the law and be subject to approval by the State Council's securities regulatory authority.

Article 159: All of the securities held by a securities holder shall, while listed for trading, be deposited with a securities depository and clearing institution.

A securities depository and clearing institution may not misappropriate the securities of clients.

Article 160: Securities depository and clearing institutions shall furnish the securities issuers with the name lists of, and relevant information concerning, the holders of their securities.

On the basis of the results of securities registration and clearing, securities depository and clearing institutions shall confirm the fact that particular securities are held by particular holders and provide registered information on the holders of the securities.

Securities depository and clearing institutions shall ensure the truthfulness, accuracy and completeness of the name lists of the holders of securities and the records of registration of change in ownership. Such name lists and records may not be concealed, forged, altered or destroyed.

Article 161: Securities depository and clearing institutions shall adopt the following measures to ensure the normal operation of business:

(1) to have the necessary service equipment and comprehensive data security and protection measures;

(2) to have established comprehensive management systems for business, financial affairs and security, etc.; and

(3) to have established comprehensive risk management systems.

Article 162: Securities depository and clearing institutions shall properly preserve the original evidence and the relevant documents and data relating to registration, deposit and clearing. The period of preservation shall be not less than 20 years.

Article 163: A securities depository and clearing institution shall establish a securities clearing risk fund that shall be used as an advance against, or to make up for, losses incurred by the securities depository and clearing institution due to defaults in delivery, technical failures, operational errors or force majeure.

Allocations to the securities clearing risk fund shall be made from the securities depository and clearing institution's business revenues and gains and may be paid by clearing participants as a certain percentage of their securities trading volume.

The measures for the collection and management of a securities clearing risk fund shall be specified by the State Council's securities regulatory authority in concert with the State Council's finance department.

Article 164: The money in a securities clearing risk fund shall be deposited in a dedicated account at a designated bank for special management.

After a securities depository and clearing institution has paid compensation from the securities clearing risk fund, it shall seek recourse against the responsible person(s).

Article 165: Applications by securities depository and clearing institutions for their dissolution shall be subject to approval by the State Council's securities regulatory authority.

Article 166: When an investor appoints a securities company to conduct securities transactions, it shall apply to open a securities account. The securities depository and clearing institution shall open a securities account for the investor in its name in accordance with provisions.

When an investor applies to open an account, lawful documentation evidencing status as a citizen of China or status as a Chinese legal person, unless otherwise specified by the state, must be provided.

Article 167: When a securities depository and clearing institution offers netting services for securities transactions, it shall require clearing participants to deliver in full securities and funds on a delivery versus payment basis and provide a delivery guarantee.

Until completion of delivery, no one may utilize the securities, funds or guarantee used for delivery.

If a clearing participant fails to perform its delivery obligation on time, the securities depository and clearing institution shall have the right to dispose of the property specified in the preceding paragraph in accordance with its business rules.

Article 168: The various settlement funds and securities that a securities depository and clearing institution collects in accordance with its business rules must be deposited into a dedicated settlement account and may only be used for the settlement of completed securities transactions in accordance with its business rules. Enforcement measures may not be taken against such account.

PART EIGHT: SECURITIES SERVICE INSTITUTIONS

Article 169: Investment consultancies, financial consultancies, credit rating agencies, asset appraisal institutions and accounting firms that wish to engage in the securities service business shall be subject to the approval of the State Council's securities regulatory authority and the relevant competent departments.

The measures for the administration of the examination and approval of investment consultancies, financial consultancies, credit rating agencies, asset appraisal institutions and accounting firms that wish to engage in the securities service business shall be formulated by the State Council's securities regulatory authority and the relevant competent departments.

Article 170: The personnel of investment consultancies, financial consultancies and credit rating agencies who engage in the securities service business must have professional securities knowledge and at least two years of experience in the securities business or the securities service business. The standards and administrative measures for the recognition of their qualifications to engage in the securities business shall be formulated by the State Council's securities regulatory authority.

Article 171: When engaging in the securities service business, investment consultancies and their working personnel may not commit any of the following acts:

(1) investing in securities as an agent for a client;

(2) agreeing with a client to share earnings or losses from securities investment;

(3) purchasing or selling the shares of listed companies to which the consultancy provides services;

(4) utilizing the media or other means to provide or disseminate information that is false or misleads investors; or

(5) other acts prohibited by laws or administrative regulations.

If an investment consultancy or a member of its working personnel commits any of the acts specified in the preceding paragraph, thereby causing investors to incur a loss, it/he/she shall be liable for damages in accordance with the law.

Article 172: Investment consultancies and credit rating agencies engaged in securities service institutions shall charge service fees in accordance with the standards or charging methods prescribed by the relevant competent departments of the State Council.

Article 173: When a securities service institution prepares and issues an audit report, asset appraisal report, financial advisor report, credit rating report, legal opinion or other such document in connection with such securities business activities as the offering, listing, trading, etc. of securities, it shall act with due diligence, and check and verify that the contents of the documents and materials it relies on are truthful, accurate and complete. If the document prepared and issued by it contains false or misleading statements or material omissions, causing others to incur a loss, it shall bear joint and several liability for damages with the issuer or listed company, unless it is able to establish that it was not at fault.

PART NINE: SECURITIES ASSOCIATIONS

Article 174: A securities association is a self-regulating organization for the securities industry and is a social organization with legal personality.

Securities companies shall join securities associations.

The organ of authority of a securities association shall be the members' general assembly, composed of all of the members.

Article 175: The charter of a securities association shall be formulated by its members' general assembly and submitted to the State Council's securities regulatory authority for the record.

Article 176: A securities association shall perform the following functions:

(1) to educate and lead members to abide by securities laws and administrative regulations;

(2) to safeguard the lawful rights and interests of members according to law and to report members' opinions and requests to the securities regulatory authority;

(3) to collate and process information on securities and provide services to members;

(4) to formulate rules to be complied with by the members, to arrange for vocational training for the working personnel of its members and to organize business exchanges among members;

(5) to mediate in the event of disputes related to the securities business between members or between members and their clients;

(6) to make arrangements for research by members into the development, operation and relevant contents of the securities business;

(7) to supervise and inspect members' acts and to impose disciplinary punishments in accordance with provisions on any member that violates laws, administrative regulations or the charter of the association; and

(8) other functions specified in the charter of the association.

Article 177: A securities association shall have a board of governors. The members of the board of governors shall be elected as prescribed in the charter.

PART TEN: SECURITIES REGULATORY AUTHORITY

Article 178: The State Council's securities regulatory authority shall regulate the securities market in accordance with the law. It shall safeguard the order of the securities market and ensure the lawful operation of the same.

Article 179: The State Council's securities regulatory authority shall perform the following functions in the course of regulating the securities market:

(1) to formulate rules and regulations concerning regulation of the securities market according to law and to lawfully exercise its right to carry out examination/check and approval;

(2) to regulate according to law the offering, listing, trading, registration, deposit and clearing of securities;

(3) to regulate according to law the securities business activities of the securities issuers, listed companies, securities companies, securities investment fund management companies, securities service institutions, stock exchanges and securities depository and clearing institutions;

(4) to formulate according to law the qualification standards and code of conduct for persons engaged in the securities business, and to supervise the implementation of the same;

(5) to supervise and inspect according to law the disclosure of information in connection with securities offering, listing and trading;

(6) to direct and supervise the activities of securities associations according to law;

(7) to investigate and deal with violations of laws and administrative regulations concerning the regulation of the securities market, according to law; and

(8) other functions specified in laws and administrative regulations.

The State Council's securities regulatory authority may establish cooperative regulatory mechanisms with the securities regulatory authorities of other countries or regions to implement cross-border regulation.

Article 180: In performing its duties according to law, the State Council's securities regulatory authority shall have the authority to take the following measures:

(1) to conduct onsite inspections of securities issuers, listed companies, securities companies, securities investment fund management companies, securities service institutions, stock exchanges and securities depository and clearing institutions;

(2) to enter premises where a suspected violation of the law has been committed to investigate and collect evidence;

(3) to question the parties concerned and the work units and individuals connected with the event under investigation, and to require them to give explanations concerning matters connected with the event under investigation;

(4) to review and take copies of such information as property title registrations, communication records, etc. relating to the event under investigation;

(5) to review and take copies of the securities trading records, records of registration of change in ownership, financial accounting information and other relevant documents and information of the parties concerned and of the work units and individuals connected with the event under investigation, and to seal up documents and information that might be removed or concealed;

(6) to make inquiries concerning the fund accounts, securities accounts and bank accounts of the parties concerned and of the work units and individuals connected with the event under investigation; with the approval of the main person in charge of the State Council's securities regulatory authority, to freeze or place under seal property involved in the case, such as funds, securities, etc., for which there is evidence establishing that it has been or could be removed or concealed, or important evidence for which there is evidence establishing that it has been or could be concealed, forged or destroyed; and

(7) when investigating major violations of securities laws, such as securities market manipulation, insider trading, etc., it may, with the approval of the main person in charge of the State Council's securities regulatory authority, place restrictions on the purchase and sale of securities by the parties involved in the event under investigation, provided that the period of the restrictions may not exceed 15 trading days; in the event of a complex case, the period may be extended by 15 trading days.

Article 181: When the State Council's securities regulatory authority is conducting a supervisory inspection or an investigation while performing its functions according to law, its supervisory inspectors and investigators may not be less than two and they shall present their lawful credentials and the supervisory inspection or investigation notice. If the supervisory inspectors or investigators number less than two or if they fail to present their lawful credentials and the supervisory inspection or investigation notice, the work unit being inspected or investigated shall have the right to refuse such inspection or investigation.

Article 182: The working personnel of the State Council's securities regulatory authority must perform their duties faithfully, carry out their work in accordance with the law and be impartial and honest. They may not use the advantages of their positions to obtain improper gains, or divulge the trade secrets of relevant work units or individuals of which they have knowledge.

Article 183: When the State Council's securities regulatory authority is performing its functions according to law, the work units and individuals being inspected or investigated shall cooperate and truthfully provide the relevant documents and information. Such work units and individuals may not refuse to cooperate, obstruct inspection or investigation or conceal relevant documents or information.

Article 184: The rules and regulations and the regulatory work systems formulated according to law by the State Council's securities regulatory authority must be made public.

Decisions to impose penalties for illegal acts involving securities that are made by the State Council's securities regulatory authority on the basis of the results of its investigations must be made public.

Article 185: The State Council's securities regulatory authority shall, together with the other finance regulatory authorities of the State Council, establish a mechanism for sharing regulatory information.

When the State Council's securities regulatory authority conducts a supervisory inspection or investigation while performing its functions according to law, the relevant authorities shall cooperate with it.

Article 186: If, during the performance of its functions according to law, the State Council's securities regulatory authority suspects that an illegal act involving securities discovered by it may constitute a criminal offence, it shall hand the case over to the judicial authorities for them to handle.

Article 187: The personnel of the State Council's securities regulatory authority may not serve in an organization subject to the regulation of the State Council's securities regulatory authority.

PART ELEVEN: LEGAL LIABILITY

Article 188: If securities are publicly offered or publicly offered in a disguised form without the approval of the statutory authority, an order shall be issued to halt the offer, refund the proceeds raised plus interest at the rate for bank deposits of the same period and a fine of not less than 1% and not more than 5% of the illegal proceeds shall be imposed. A company established through an unauthorized public offer or disguised public offer of securities shall be closed down by the institution or department that legally performs the regulatory functions together with the local people's government at the county level or above. The persons directly in charge and the other persons directly responsible shall be given a warning and fined not less than Rmb30,000 and not more than Rmb300,000.

Article 189: If an issuer that does not satisfy the offer conditions uses fraudulent means to obtain approval for the offer, but the securities have not yet been offered, it shall be fined not less than Rmb300,000 and not more than Rmb600,000. If the securities have been issued, it shall be fined between 1% (inclusive) and 5% of the illegal proceeds. The persons directly in charge and the other persons directly responsible shall be fined not less than Rmb30,000 and not more than Rmb300,000.

If the controlling shareholder or de facto controller of the issuer instructed it to commit the illegal act specified in the preceding paragraph, it shall be penalized in accordance with the provisions of the preceding paragraph.

Article 190: If a securities company underwrites or acts as an agent in the purchasing and selling of securities that were publicly offered without approval, it shall be ordered to halt the underwriting or agency purchasing and selling, its illegal income shall be confiscated and it shall be fined not less than the amount of and not more than five times the illegal income; if there was no illegal income or the illegal income was less than Rmb300,000, it shall be fined not less than Rmb300,000 and not more than Rmb600,000. If investors incurred a loss as a result thereof, it shall be jointly and severally liable for damages with the issuer. The persons directly in charge and the other persons directly responsible shall be given a warning, their qualifications for their positions or qualifications to engage in the securities business shall be revoked and they shall be fined not less than Rmb30,000 and not more than Rmb300,000.

Article 191: If, in underwriting securities, a securities company commits any of the acts set forth below, it shall be ordered to rectify the matter, given a warning, its illegal income shall be confiscated and may be fined not less than Rmb300,000 and not more than Rmb600,000; if the circumstances are serious, its relevant business permit may be suspended or revoked. If other securities underwriters or investors incur a loss as a result thereof, it shall be liable for damages in accordance with the law. The persons directly in charge and the other persons directly responsible shall be given a warning and fined not less than Rmb30,000 and not more than Rmb300,000; if the circumstances are serious, the qualifications for their positions or qualifications to engage in the securities business shall be revoked:

(1) it publishes advertisements or conducts other publicity or promotional activities that are fraudulent or that mislead investors;

(2) it solicits underwriting business through unfair competitive means; or

(3) it commits another act that violates provisions on the securities underwriting business.

Article 192: If a sponsor issues a sponsorship letter that contains false or misleading statements or material omissions, or fails to perform other statutory duties, it shall be ordered to rectify the matter, given a warning, its illegal income shall be confiscated and it shall be fined not less than the amount of and not more than five times its business revenue; if the circumstances are serious, its relevant business permit shall be suspended or revoked. The persons directly in charge and the other persons directly responsible shall be given a warning and fined between not less than Rmb30,000 and not more than Rmb300,000; if the circumstances are serious, the qualifications for their positions or qualifications to engage in the securities business shall be revoked.

Article 193: If an issuer, listed company or other party with an obligation to disclose information fails to disclose information in accordance with provisions, or if the information disclosed contains false or misleading statements or material omissions, an order to rectify the matter shall be issued, a warning shall be given and a fine of not less than Rmb300,000 and not more than Rmb600,000 shall be imposed. The persons directly in charge and the other persons directly responsible shall be given a warning and a fine of not less than Rmb30,000 and not more than Rmb300,000.

If an issuer, listed company or other party with an obligation to disclose information fails to submit relevant reports in accordance with provisions, or if the submitted reports contain false or misleading statements or material omissions, an order to rectify the matter shall be issued, a warning shall be given and a fine of not less than Rmb300,000 and not more than Rmb600,000 shall be imposed. The persons directly in charge and the other persons directly responsible shall be given a warning and a fine of not less than Rmb30,000 and not more than Rmb300,000.

If the controlling shareholder or de facto controller of an issuer, listed company or other party with an obligation to disclose information directed it to commit the illegal acts mentioned in the preceding two paragraphs, such controlling shareholder or de facto controller shall be penalized in accordance with the preceding two paragraphs.

Article 194: If an issuer or listed company changes the purpose of the proceeds from a public offer of securities without authorization, it shall be ordered to rectify the matter, and the persons directly in charge and the other persons directly responsible shall be given a warning and a fine of not less than Rmb30,000 and not more than Rmb300,000.

If the controlling shareholder or de facto controller of an issuer or listed company directed it to commit the illegal act mentioned in the preceding paragraph, it shall be given a warning and a fine of not less than Rmb300,000 and not more than Rmb600,000. The persons directly in charge and the other persons directly responsible shall be penalized in accordance with the preceding paragraph.

Article 195: If a director, supervisor or senior officer of a listed company or a shareholder that holds at least 5% of the shares of the listed company purchases or sells the company's shares in violation of Article 47 hereof, he/she/it shall be given a warning and may be fined not less than Rmb30,000 and not more than Rmb100,000.

Article 196: If anyone illegally establishes a stock exchange, the people's government at or above the county level shall close down the same, confiscate any illegal income and impose a fine of not more than the amount of and not less than five times the illegal income. If there was no illegal income or the illegal income was less than Rmb100,000, a fine of not less than Rmb100,000 and not more than Rmb500,000 shall be imposed. The persons directly in charge and the other persons directly responsible shall be given a warning and a fine of not less than Rmb30,000 and not more than Rmb300,000.

Article 197: If anyone, without approval, establishes a securities company or illegally operates the securities business, the securities regulatory authority shall halt such activity, confiscate any illegal income and impose a fine of not less than the amount of and not less than five times the illegal income. If there was no illegal income or the illegal income was less than Rmb300,000, a fine of not less than Rmb300,000 and not more than Rmb600,000 shall be imposed. The persons directly in charge and the other persons directly responsible shall be given a warning and a fine of not less than Rmb30,000 and not more than Rmb300,000.

Article 198: If this Law is violated by engaging persons who do not have the qualifications for their positions or are not qualified to engage in the securities business, the securities regulatory authority shall order that the matter be rectified, give a warning and may impose a fine of not less than Rmb100,000 and not more than Rmb300,000. The persons directly in charge shall be given a warning and may be fined not less than Rmb30,000 and not more than Rmb100,000.

Article 199: If anyone who is prohibited by laws or administrative regulations from participating in share trading holds, purchases or sells shares directly, under an assumed name or in the name of another, he/she shall be ordered to dispose of the illegal shareholding in accordance with the law. The illegal income shall be confiscated, and a fine below the value of the shares purchased or sold shall be imposed. If the offender is a member of the working personnel of the state, he/she shall additionally be subjected to administrative penalties in accordance with the law.

Article 200: If a member of the working personnel of a stock exchange, securities company, securities depository and clearing institution, securities service institution or securities association deliberately provides false information or conceals, forges, alters or destroys trading records or deceives investors into purchasing or selling securities, his/her qualifications to engage in the securities business shall be revoked and he/she shall be fined not more than Rmb30,000 and not less than Rmb100,000. If he/she is a member of the working personnel of the state, he/she shall additionally be subjected to administrative penalties in accordance with the law.

Article 201: If a securities service institution or a member of its personnel that issues audit reports, asset appraisal reports, legal opinions or other such documents for offerings, listings and the trading of shares purchases or sells shares in violation of Article 45 hereof, it/he/she shall be ordered to dispose of the illegally held shares in accordance with the law, its/his/her illegal income shall be confiscated and it/he/she shall be fined below the value of the shares purchased or sold.

Article 202: If, prior to the announcement of information that may affect the offering or trading of securities or other information that may have a material impact on the price of securities, an informed person with insider information on securities trading or a person who has illegally obtained insider information purchases or sells such securities, divulges such information or recommends to others to purchase or sell such securities, he/she shall be ordered to dispose of the illegally held securities in accordance with the law, his/her illegal income shall be confiscated and he/she shall be fined not less than the amount of and not more than five times his/her illegal income; if there was no illegal income or if the illegal income was less than Rmb30,000, he/she shall be fined not less than Rmb30,000 and not more than Rmb600,000. If a work unit engages in insider trading, the persons directly in charge and the other persons directly responsible shall also be given a warning and fined not less than Rmb30,000 and not more than Rmb300,000. If a member of the working personnel of a securities regulatory authority engages in insider trading, he/she shall be subjected to stiffer penalties.

Article 203: If this Law is violated by manipulating the securities market, an order to dispose of the illegally held securities in accordance with the law shall be issued, the illegal income shall be confiscated and a fine not less than the amount of and not more than five times the illegal income shall be imposed; if there was no illegal income or if the illegal income was less than Rmb300,000, a fine of not less than Rmb300,000 and not more than Rmb3,000,000 shall be imposed. If a work unit engages in the manipulation of the securities market, the persons directly in charge and the other persons directly responsible shall be given a warning and a fine of not less than Rmb100,000 and not more than Rmb600,000.

Article 204: If the law is violated by purchasing or selling securities during the period when transfer is restricted, an order to rectify the matter shall be issued, a warning shall be given and a fine below the value of the securities purchased or sold  shall be imposed. The persons directly in charge and the other persons directly responsible shall be given a warning and a fine of not less than Rmb30,000 and not more than Rmb300,000.

Article 205: If a securities company violates this Law by providing margin services for the purchase and sale of securities by clients, its illegal income shall be confiscated, its relevant business permit shall be suspended or revoked and it shall be fined below the value of the margin. The persons directly in charge and the other persons directly responsible shall be given a warning, their qualifications for their positions or qualifications to engage in the securities business shall be revoked and they shall be fined not less than Rmb30,000 and not more thna Rmb300,000.

Article 206: If the order of a securities market is disturbed by violating the first or third paragraph of Article 78 hereof, the securities regulatory authority shall order that the matter be rectified, confiscate the illegal income and impose a fine of not less than the amount of and not more than five times the illegal income; if there was no illegal income or if the illegal income was less than Rmb30,000, it shall impose a fine of not less than Rmb30,000 and not more than Rmb200,000.

Article 207: If the second paragraph of Article 78 hereof is violated by issuing false statements or misleading information in the course of securities trading activities, an order to rectify the matter shall be issued and a fine of not less than Rmb30,000 and not more than Rmb200,000 shall be imposed. If the offender is a member of the working personnel of the state, he/she shall additionally be subjected to administrative penalties in accordance with the law.

Article 208: If this Law is violated by a legal person opening an account in another's name or using another's account to purchase and sell securities, it shall be ordered to rectify the matter, its illegal income shall be confiscated and it shall be fined not less than the amount of and not more than five times the illegal income; if there was no illegal income or if the illegal income was less than Rmb30,000, it shall be fined not less than Rmb30,000 and not more than Rmb300,000. The persons directly in charge and the other persons directly responsible shall be given a warning and a fine of not less than Rmb30,000 and not more than Rmb100,000.

If a securities company provides its own or another's securities trading account for the illegal act specified in the preceding paragraph, in addition to being penalized in accordance with the preceding paragraph, the persons directly in charge and the other persons directly responsible shall have their qualifications for their positions or qualifications to engage in the securities business revoked.

Article 209: If a securities company violates this Law by conducting the securities business for its own account in the name of another or in the name of an individual, it shall be ordered to rectify the matter, its illegal income shall be confiscated and it shall be fined not less than the amount of and not more than five times its illegal income; if there was no illegal income or if the illegal income was less than Rmb300,000, it shall be fined not less than Rmb300,000 and not more than Rmb600,000; if the circumstances are serious, its permit for engaging in the securities business for its own account shall be revoked. The persons directly in charge and the other persons directly responsible shall be given a warning, their qualifications for their positions or their qualifications to engage in the securities business shall be revoked and they shall be fined not less than Rmb30,000 and not more than Rmb100,000.

Article 210: If a securities company deals in securities or handles trading matters contrary to a client's instructions, or handles non-trading matters contrary to the client's authentic declaration of intention, it shall be ordered to rectify the matter and be fined not less than Rmb10,000 and not more than Rmb100,000. If the client sustains losses thereby, the securities company shall be liable for damages in accordance with the law

Article 211: If a securities company or securities depository and clearing institution misappropriates client funds or securities, or purchases or sells securities for a client without instruction from such client, it shall be ordered to rectify the matter, its illegal income shall be confiscated and it shall be fined not less than the amount of and not more than five times its illegal income; if there was no illegal income or if the illegal income was less than Rmb100,000, it shall be fined not less than Rmb100,000 and not more than Rmb600,000. If the circumstances are serious, it shall be ordered to close down or its permit for the relevant business shall be revoked. The persons directly in charge and the other persons directly responsible shall be given a warning, their qualifications for their positions or their qualifications to engage in the securities business shall be revoked and they shall be fined not less than Rmb30,000 and not more than Rmb300,000.

Article 212: If a securities company, in carrying out its brokerage business, accepts blanket authorization from a client to purchase or sell securities or gives a commitment to a client on earnings from the purchase or sale of securities or compensation for losses from the purchase or sale of securities, it shall be ordered to rectify the matter, its illegal income shall be confiscated and it shall be fined not less than Rmb50,000 and not more than Rmb200,000, additionally, its permit for the relevant business may be suspended or revoked. The persons directly in charge and the other persons directly responsible shall be given a warning and a fine of not less than Rmb30,000 and not more than Rmb100,000, additionally, their qualifications for their positions or their qualifications to engage in the securities business may be revoked.

Article 213: If an acquirer fails to perform such obligations as issuing a listed company takeover announcement, issuing a takeover offer, submitting a listed company takeover report, etc. in accordance with this Law, or modifies the takeover offer without authorization, it shall be ordered to rectify the matter, given a warning and a fine of not less than Rmb100,000 and not more than Rmb300,000. Until it has rectified the matter, it may not exercise the voting rights attaching to the shares that it acquired or, by virtue of an agreement or other arrangement, jointly acquired with another. The persons directly in charge and the other persons directly responsible shall be given a warning and a fine of not less than Rmb30,000 and not more than Rmb300,000.

Article 214: If an acquirer or the controlling shareholder of the acquirer uses the takeover of a listed company to harm the lawful rights and interests of the acquired company or its shareholders, it shall be ordered to rectify the matter and given a warning; if the circumstances are serious, it shall additionally be fined not less than Rmb100,000 and not more than Rmb600,000. If the acquired company and its shareholders incur a loss as a result thereof, the acquirer or its controlling shareholder shall be liable for damages in accordance with the law. The persons directly in charge and the other persons directly responsible shall be given a warning and a fine of not less than Rmb30,000 and not more than Rmb300,000.

Article 215: If a securities company or a member of its working personnel violates this Law by privately accepting instructions from a client to purchase or sell securities, an order shall be given to rectify the matter and a warning issued, and the illegal income shall be confiscated and a fine of not less than the amount of and not more than five times the illegal income shall be imposed. If there was no illegal income or the illegal income was less than Rmb100,000, a fine of not less than Rmb100,000 and not more than Rmb300,000 shall be imposed.

Article 216: If a securities company violates provisions by engaging without approval in the trading of unlisted securities, it shall be ordered to rectify the matter, the illegal income shall be confiscated, and a fine of not less than the amount of and not more than five times the illegal income shall be imposed.

Article 217: If, after a securities company has been established, it fails to commence business within three months without justifiable grounds or, after having commenced business, voluntarily suspends business for a continuous period of not less than three months, its corporate business licence shall be revoked by the company registry.

Article 218: If a securities company establishes, acquires or closes down a branch or sub-branch, or merges, divides, ceases operations, is dissolved or becomes bankrupt, or establishes, acquires or takes an equity interest in a securities business organization abroad without authorization in violation of Article 129 hereof, it shall be ordered to rectify the matter, its illegal income shall be confiscated and it shall be fined not less than the amount of and not moret than five times its illegal income; if there was no illegal income or if the illegal income was less than Rmb100,000, it shall be fined not less than Rmb100,000 and not more than Rmb600,000. The persons directly in charge shall be given a warning and a fine of not less than Rmb30,000 and not more than Rmb100,000.

If a securities company makes changes to relevant particulars without authorization in violation of Article 129 hereof, it shall be ordered to rectify the matter and fined not less than Rmb100,000 and not more than Rmb300,000. The persons directly in charge shall be given a warning and a fine of maximum Rmb50,000.

Article 219: If a securities company violates this Law by engaging in the securities business outside its scope of business, it shall be ordered to rectify the matter, the illegal income shall be confiscated, and a fine of not less than the amount of and not more than five times the illegal income shall be imposed; if there was no illegal income or if the illegal income was less than Rmb300,000, it shall be fined not less than Rmb300,000 and not more than Rmb600,000. If the circumstances are serious, the securities company shall be ordered to close down. The persons directly in charge and the other persons directly responsible shall be given a warning, their qualifications for their positions or their qualifications to engage in the securities business shall be revoked and they shall be fined not less than Rmb30,000 and not more than Rmb100,000.

Article 220: If a securities company fails to keep its securities brokerage business, securities underwriting business, securities business for its own account and securities asset management business separate according to law and mixes their operations together, it shall be ordered to rectify the matter, the illegal income shall be confiscated, and a fine of not less than Rmb300,000 and not more than Rmb600,000 shall be imposed. If the circumstances are serious, the relevant business permit shall be revoked. The persons directly in charge and the other persons directly responsible shall be given a warning and a fine of not less than Rmb30,000 and not more than Rmb100,000. If the circumstances are serious, their qualifications for their positions or their qualifications to engage in the securities business shall be revoked.

Article 221: If any entity submits sham supporting documents or uses other fraudulent means to conceal major facts and thus fraudulently obtains a securities business operating permit, or if a securities company commits a serious illegal act in the course of securities trading and is no longer qualified to operate such business, the securities regulatory authority shall revoke its securities business operating permit.

Article 222: If a securities company or any of its shareholders or the de facto controller of it violates provisions by refusing to submit or provide to the securities regulatory authority information and data on its operations and management, or if the information or data submitted or provided contains false or misleading statements or material omissions, it shall be ordered to rectify the matter, given a warning and fined not less than Rmb30,000 and not more than Rmb300,000, additionally, the relevant business permit of the securities company may be suspended or revoked. The persons directly in charge and the other persons directly responsible shall be given a warning and a fine of maximum Rmb30,000, additionally, their qualifications for their positions or their qualifications to engage in the securities business may be revoked.

If a securities company provides financing to, or security for, a shareholder or an affiliated party of a shareholder, it shall be ordered to rectify the matter, given a warning and a fine of not less than Rmb100,000 and not more than Rmb300,000. The persons directly in charge and the other persons directly responsible shall be fined not less than Rmb30,000 and not more than Rmb100,000. If the shareholder was at fault, the State Council's securities regulatory authority may place restrictions on its shareholder rights until it has rectified the matter as required. If it refuses to rectify the matter, it may be ordered to transfer the equity of the securities company that it holds.

Article 223: If a securities service institution fails to act with due diligence and the document that it prepares and issues contains false or misleading statements or material omissions, it shall be ordered to rectify the matter, its business revenue shall be confiscated, its securities service business permit shall be suspended or revoked and it shall be fined not less than the amount of and not more than five times its business revenue. The persons directly in charge and the other persons directly responsible shall be given a warning, their qualifications to engage in the securities business shall be revoked and they shall be fined not less than Rmb30,000 and not more than Rmb100,000.

Article 224: If anyone offers or underwrites corporate bonds in violation of this Law, the department authorized by the State Council shall impose penalties in accordance with relevant provisions of this Law.

Article 225: If a listed company, securities company, stock exchange, securities depository and clearing institution or securities service institution fails to preserve relevant documents or information in accordance with relevant provisions, it shall be ordered to rectify the matter, given a warning and a fine of not less than Rmb30,000 and not more than Rmb300,000; if it conceals, forges, alters or destroys relevant documents or information, it shall be given a warning and fined not less than Rmb300,000 and not more than Rmb600,000

Article 226: If a securities depository and clearing institution is established without the approval of the State Council's securities regulatory authority, the securities regulatory authority shall close down the same, confiscate the illegal income and impose a fine of not less than the amount of and not more than five times the illegal income.

If an investment consultancy, financial consultancy, credit rating agency, asset appraisal organization or accounting firm engages in the securities service business without approval, it shall be ordered to rectify the matter, its illegal income shall be confiscated and it shall be fined not less than the amount of and not more than five times its illegal income.

If a securities depository and clearing institution or a securities service institution violates this Law or the lawfully formulated business rules, the securities regulatory authority shall order rectification, confiscate the illegal income, and impose a fine of not less than the amount of and not more than five times the illegal income; if there was no illegal income or the illegal income was less than Rmb100,000, impose a fine of not less than Rmb100,000 and not more than Rmb300,000. If the circumstances are serious, the securities regulatory authority shall order the securities depository and clearing institution or securities service institution to close down or shall revoke its securities service business permit.

Article 227: If the State Council's securities regulatory authority or the department authorized by the State Council is characterized by any of the circumstances set forth below, the persons directly in charge and the other persons directly responsible shall be subjected to administrative sanctions in accordance with the law:

(1) it checks/examines and approves an application for the offering of securities, the establishment of a securities company, etc. that fails to comply with this Law;

(2) it violates provisions in taking such measures as an onsite inspection, investigation and collection of evidence, making of inquiries, freezing or placing under seal as specified in Article 180 hereof;

(3) it violates provisions in imposing administrative penalties on relevant organizations or personnel; or

(4) it commits another act of failing to perform its duties in accordance with the law.

Article 228: If a member of the working personnel of a securities regulatory authority or a member of the public offering review committee fails to perform his/her duties specified in this Law, abuses his/her authority, is derelict in his/her duties, uses the advantages of his/her position to obtain improper gains or divulges the trade secrets of relevant work units or individuals of which he/she has knowledge, his/her legal liability shall be pursued in accordance with the law.

Article 229: If a stock exchange examines and approves an application for the listing of securities that fails to satisfy the conditions specified in this Law, it shall be given a warning, its business revenue shall be confiscated and it shall be fined not less than the amount of and not more than five times its business revenue. The persons directly in charge and the other persons directly responsible shall be given a warning and a fine of not less than Rmb30,000 and not more than Rmb300,000.

Article 230: If the lawful exercise by a securities regulatory authority or its working personnel of its/their authority to conduct a supervisory inspection or investigation is refused or hindered without the use of violence or threats, public security administration related penalties shall be imposed in accordance with the law.

Article 231: If a violation of this Law constitutes a criminal offence, criminal liability shall be pursued in accordance with the law.

Article 232: If the property of anyone who has violated this Law and who therefore bears civil liability for damages and is required to pay a fine is insufficient to pay both the damages and the fine, such person shall first bear the civil liability for damages.

Article 233: If laws, administrative regulations or relevant provisions of the State Council's securities regulatory authority are violated and the circumstances are serious, the State Council's securities regulatory authority may take the measure of banning the relevant persons responsible from the securities market.

For the purposes of the preceding paragraph, the phrase "ban from the securities market" means the system wherein the affected person may not engage in the securities business or is prohibited from serving as a director, supervisor or senior officer in a listed company for a certain period of time or for life.

Article 234: All fines paid and illegal income confiscated in accordance with this Law shall be paid into the national treasury.

Article 235: If a party concerned is dissatisfied with a punishment decision of the securities regulatory authority or the department authorized by the State Council, such party may apply for an administrative review or directly institute proceedings in a people's court according to law.

PART TWELVE: SUPPLEMENTARY PROVISIONS

Article 236: Securities whose listing and trading on a stock exchange was approved pursuant to administrative regulations prior to the implementation of this Law shall continue to be traded according to law.

Securities business organizations that were established upon approval pursuant to administrative regulations and provisions of the State Council's administrative department in charge of finance prior to the implementation of this Law and that do not fully comply with the provisions hereof must meet the requirements specified herein within the specified time limit. The State Council shall separately formulate implementing measures therefor.

Article 237: When applying for approval to make a public offer of shares or corporate bonds, the issuer shall pay a review fee in accordance with provisions.

Article 238: If a domestic enterprise wishes to directly or indirectly offer securities abroad or to have its securities listed and traded abroad, it shall require the approval of the State Council's securities regulatory authority in accordance with the provisions of the State Council.

Article 239: The State Council will separately formulate the specific measures for the subscription for, and trading of, the shares of a domestic company in a foreign currency.

Article 240: This Law shall be effective as of January 1 2006.

Translator's Notes:

1 These characters mean "securities limited liability company".

2 These characters mean "securities company limited by shares".

3 These characters mean "securities depository and clearing".