State Council, Regulations for Handling Risks of Securities Companies

国务院证券公司风险处置条例

July 09, 2008 | BY

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Five measures may be taken to handle securities companies at risk.

Clp Reference: 3700/08.04.23 Promulgated: 2008-04-23 Effective: 2008-04-23

Promulgated: April 23 2008
Effective: as of date of promulgation
Applicability: These Regulations also apply to the handling of risks of futures companies (Article 62).

Main Contents: Where a securities company's risk control indicators do not meet the relevant requirements and the company fails to complete rectification within the stipulated time limit, the State Council's securities regulatory authority may order the securities company to stop some or all of its businesses to carry out rectification (Article 7). In circumstances such as a major financial crisis, the State Council's securities regulatory authority may commission the management of the securities company's businesses involving clients such as securities brokerage business to a third party. In serious circumstances, the State Council's securities regulatory authority may put the securities company into receivership (Article 8).

According to Article 12, if a securities company faces major risks but is in the following conditions, it may apply directly to the State Council's securities regulatory authority for administrative reorganization:

(1) its financial information is true and complete;

(2) it is supported by the people's government at the provincial level or other relevant parties; and

(3) it has substantial rectification measures and feasible reorganization plans.

The administrative reorganization implemented by a securities company may be in the form of capital injection, equity reorganization, debt reorganization, asset reorganization, merger or other forms (Article 13). The State Council's securities regulatory authority may directly shut down a securities company if:

(1) its illegal operations are exceptionally serious and facing huge risks;

(2) it is insolvent, and its assets are insufficient to discharge all of its debts or it clearly lacks the capacity to discharge such debts; and

(3) it needs to use the securities investor protection fund (Article 19).

Related Legislation: PRC Securities Law (Amended), Oct 27 2005, CLP 2006 No.1 p.31; and PRC Enterprise Bankruptcy Law, Aug 27 2006, CLP 2006 No.8 p.39

clp reference:3700/08.04.23(2)promulgated:2008-04-23effective:2008-04-23

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