Rules for the Establishment of Securities Companies with Foreign Equity Participation (Revised)

Revised on October 11 2012. Latest revision can be found at: http://www.chinalawandpractice.com/Article/3114172/Rules-for-the-Establishment-of-Securities-Companies-with-Foreign-Equity-Participation-2nd-Revision.html

(Promulgated by the China Securities Regulatory Commission on December 28 2007 and effective as of January 1 2008.)

Order of the CSRC No.52

Article 1: These Rules are formulated in accordance with the relevant provisions of the Company Law and the Securities Law in order to meet the needs of the opening up of the securities market to foreign investment, to strengthen and improve the oversight of securities companies with foreign equity participation and to clarify the conditions and procedures for the establishment of securities companies with foreign equity participation.

Article 2: For the purposes of these Rules, the term "securities company with foreign equity participation" means:

(1) a securities company jointly invested in and established in accordance with the law by a foreign shareholder and a domestic shareholder; or

(2) a securities company converted from a Chinese-invested securities company as a result of a foreign investor acquiring or subscribing for an equity interest therein in accordance with the law.

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

Article 4: The name, organizational form, registered capital, establishment and duties of the elements of the organizational structure, etc., of a securities company with foreign equity participation shall comply with laws and regulations such as the Company Law, the Securities Law, etc., and relevant CSRC provisions.

Article 5: A securities company with foreign equity participation may engage in the following business:

(1) underwriting and sponsoring the issuance of shares (including renminbi-denominated common shares and foreign investment shares) and bonds (including sovereign bonds and corporate bonds);

(2) brokering foreign investment shares

(3) brokering, and dealing for own account in, bonds (including sovereign bonds and corporate bonds); and

(4) other business approved by the CSRC.

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

(1) it has registered capital that complies with the Securities Law;

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

(3) it has not less than 30 persons who have obtained qualifications to engage in securities business in accordance with the provisions of the CSRC, and has the necessary accounting, legal and computer professionals;

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

(5) it has a place of business that satisfies the requirements and business facilities that are up to standard; and

(6) other prudential conditions as specified by the CSRC.

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

(1) its residing country or region has a sound securities legal and regulatory system, has executed a memorandum of understanding for cooperation in securities regulation with the CSRC or an organization recognized by the CSRC and maintains an effective relationship of regulatory cooperation;

(2) it has been lawfully established in its residing country or region and has at least one organization that has lawful qualifications to engage in finance business; the foreign shareholder may not transfer its equity in the securities company with foreign equity participation for three years from the date on which it obtained such equity participation;

(3) it has been in business continuously for at least five years and has not been the recipient of a major penalty imposed by the regulatory authority or administrative or judicial authorities of its residing country or region during the most recent three years;

(4) during the most recent three years, its financial indicators have complied with the laws, and satisfied the requirements of the regulatory authority, of its residing country or region;

(5) it has sound internal control systems;

(6) it has a good reputation and business results; and

(7) other prudential conditions as specified by the CSRC.

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

Among the domestic shareholders of a securities company with foreign equity participation, there shall be one Chinese-invested securities company. However, if a Chinese-invested securities company is converted into a securities company with foreign equity participation, this restriction shall not apply.

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

Article 10: The percentage of the shares of, or the percentage of the interest in, a securities company with foreign equity participation held by foreign investors may not, in the aggregate, exceed one-third (including shares/interests held directly or controlled indirectly).

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

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

Article 11: The directors, supervisors and senior management personnel of a securities company with foreign equity participation shall have the qualifications for their positions specified by the CSRC.

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

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

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

(3) supporting documentation evidencing that the principal senior management personnel that the securities company with foreign equity participation intends to appoint satisfy the conditions for their positions;

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

(5) audited financial statements of the domestic and foreign shareholders for the three years prior to the application;

(6) an explanatory letter issued by the relevant regulatory authority of the residing country or region of the foreign shareholder or an overseas organization recognized by the CSRC on whether the foreign shareholder satisfies the conditions specified in items (2), (3) and (4) of Article 7 hereof;

(7) a legal opinion issued by a law firm in China; and

(8) other documents as required by the CSRC.

Article 13: The CSRC shall examine the application documents specified in the preceding Article in accordance with laws, administrative regulations and these Rules, and render its decision on whether or not to grant its approval and notify the applicant thereof in writing by the prescribed deadline. If it withholds its approval, it shall give its reasons in writing.

Article 14: The shareholders shall pay their capital contributions in full or provide the agreed upon conditions of cooperation, elect the directors and supervisors, engage the senior management personnel, apply to the administration for industry and commerce for establishment registration and collect the business licence within six months from the date on which the CSRC issued the approval document.

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

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

(2) the company's articles of association;

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

(4) a list of the directors, supervisors, senior management personnel and principal business personnel, proofs of their qualifications for their positions and proofs of their qualifications to engage in securities business;

(5) the text of its internal control regulations;

(6) a document describing its place of business and business facilities; and

(7) other documents as required by the CSRC.

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

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

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

A foreign shareholder that acquires, or takes an equity participation in, a Chinese-invested securities company shall satisfy the conditions specified in Article 7 hereof and the ratio of the equity acquired or capital contribution made shall comply with Article 10 hereof.

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

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

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

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

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

(5) a list of the persons appointed by the foreign investor who are to serve with the securities company, their résumés and pertinent proofs of their qualifications to engage in securities business and proofs of their qualifications for their positions;

(6) photocopies of the foreign shareholder's business licence or registration certificate and certificate of relevant business qualifications;

(7) audited financial statements of the foreign shareholder for the three years prior to the application;

(8) an explanatory letter issued by the relevant regulatory authority of the residing country or region of the foreign shareholder or an overseas organization recognized by the CSRC on whether the foreign shareholder satisfies the conditions specified in Items (2), (3) and (4) of Article 7 hereof;

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

(10) a legal opinion issued by a law firm in China; and

(11) other documents as required by the CSRC.

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

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

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

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

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

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

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

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

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

(7) other documents as required by the CSRC.

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

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

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

Article 25: A foreign investor may, in accordance with the law, acquire shares of a listed Chinese-invested securities company through securities transactions on a stock exchange, or establish a relationship of strategic cooperation with a listed Chinese-invested securities company and, with the approval of the CSRC, hold shares of such company, and in neither case shall the approved scope of business of the listed Chinese-invested securities company change. Provided that the controlling shareholder is a Chinese-invested shareholder, a listed Chinese-invested securities company shall not be subject to the restriction that requires the shareholding percentage of at least one Chinese-invested shareholder to be not less than one-third.

If a foreign investor is to hold together with a third party at least 5% of the shares of a listed Chinese-invested securities company through securities transactions on a stock exchange in accordance with the law or by way of an agreement or other arrangement, it shall satisfy the conditions specified in Article 7 hereof and comply with Article 129 of the Securities Law.

The percentage of the shares of a listed Chinese-invested securities company held directly or controlled indirectly by a single foreign investor may not exceed 20%. The percentage of the shares of a listed Chinese-invested securities company held directly or controlled indirectly by all foreign investors may not exceed 25%.

Article 26: The application documents and the information submitted to the CSRC in accordance with these Rules must be in Chinese. If the documents or information issued by a foreign shareholder, the relevant regulatory authority of its residing country or region or the overseas organization recognized by the CSRC are in a foreign language, they shall be accompanied by Chinese translations that are consistent with the original texts.

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

Article 27: These Rules shall, mutatis mutandis, apply to equity participation in securities companies by investors from the Hong Kong and Macao Special Administrative Regions and from Taiwan.

Article 28: Where these Rules are silent on any matter relating to the establishment, change, termination of business, business activities and oversight of securities companies with foreign equity participation, the other relevant CSRC provisions shall apply.

Article 29: These Rules shall be effective as of July 1 2002.