Tentative Provisions for the Examination and Approval of the Scope of Business of Securities Companies

(Promulgated by the China Securities Regulatory Commission on October 30 2008 and effective as of December 1 2008.)

Announcement of the CSRC [2008] No.42

Article 1: These Provisions have been formulated pursuant to the Securities Law and the Regulations for the Oversight of Securities Companies in order to clarify matters relevant to the examination and approval of the scope of business of securities companies.

Article 2: A securities company shall engage in securities business and other business within the scope lawfully approved by the China Securities Regulatory Commission (CSRC), and may not operate outside such scope.

Article 3: If a securities company provides securities investment consulting services to its securities brokerage customers, but does not execute standalone contracts in respect thereof with its customers or charge a separate fee therefor, and the securities brokerage commission it charges does not exceed the specified upper limit, it shall not be required to obtain securities investment consulting qualifications but shall implement mutatis mutandis the rules for securities investment consulting business.

Article 4: If in its cash management a securities company invests its own funds in legally publicly offered treasury bonds, investment grade corporate bonds, money market funds, central bank paper and other such low risk and highly liquid securities approved by the CSRC, or a pooled asset management plan or dedicated asset management plan that it has established with the approval of the CSRC, and the scale of such investment does not exceed 80% of its net capital, or if it buys and sells securities as a result of performing its underwriting obligations in accordance with the law, it shall not be required to obtain qualifications for dealing in securities for its own account, but shall implement mutatis mutandis the rules for dealing in securities for its own account.

Article 5: Subject to approval by the CSRC, a securities company may engage in business not explicitly provided for in the Securities Law, the Regulations for the Oversight of Securities Companies, or rules or regulatory documents of the CSRC (Novel Business).

The Novel Business engaged in by a securities company shall not violate current laws, administrative regulations or CSRC provisions, the risks thereof shall be measurable, controllable and bearable, it shall be closely related to the company's existing securities business, be conducive to the full utilisation of the company's existing business outlets, customer resources, business expertise or management experience and be conducive to the optimisation of customer services and improving the company's profit model.

When a securities company is to engage in a Novel Business, it shall establish an internal assessment and review mechanism, conduct full assessment and testing on the legal compliance and the feasibility of, and the potential risks associated with, such Novel Business, and formulate a system for the management of such business and specify the operating procedure, risk control measures therefor and measures for protecting the lawful rights and interests of customers.

Article 6: Securities companies that are controlled by the same work unit or individual or between/among which there exists a control relationship may not engage in the same business, unless the relevant companies take effective measures to ensure that they do not compete against one another by clearly demarcating their respective business territories or target customer groups.

Article 7: The CSRC shall check and approve the scope of business of a securities company in accordance with the statutory conditions at the time of the establishment of the company. No more than four types of business shall be approved for a newly-established company, unless otherwise provided by the CSRC.

A change in the scope of business of a securities company shall be subject to the approval of the CSRC. A change in the scope of business may involve an increase or a reduction in the types of business engaged in. A securities company may not apply for an increase of more than two types of business at any one time.

Article 8: A securities company wishing to increase the types of business it engages in shall satisfy the following prudential requirements:

(1) after the increase in the types of business it engages in, its registered capital shall comply with Article 127 of the Securities Law;

(2) its corporate governance structure is sound, its internal management is effective and it can effectively control the risks associated with its existing business and the new business it is applying for;

(3) during the most recent year its risk control indicators continuously complied with provisions and after the increase in the types of business it engages in, its net capital will comply with provisions;

(4) during the most recent two years, it has not been penalised for a major violation of laws or regulations, and during the most recent year, it has not been subjected to major regulatory measures nor is it currently under investigation by relevant authorities or the industry self-regulation organisation for a suspected major violation of laws or regulations;

(5) it has senior management personnel to take charge of the additional business it is applying for and the appropriate number of professional personnel to engage in the additional business it is applying for;

(6) its information system operates in a secure and stable manner and no material incident has occurred during the most recent year; and the information system related to the additional business it is applying for complies with provisions;

(7) it has a securities business permit and has been continuously in business for at least one year; and, if it is applying for another increase in the types of business it engages in, more than six months have elapsed since the approval of its preceding application;

(8) the operation and management of its existing business is good; and

(9) it meets other requirements as specified in laws or administrative regulations or by the CSRC.

If an additional business that a securities company applies for is a Novel Business, it shall additionally comply with the second paragraph of Article 5 hereof. If a securities company's subsidiary that engages in securities business applies to increase the types of business it engages in, it shall additionally comply with Article 7 of the Trial Provisions for the Establishment of Subsidiaries by Securities Companies (Revised).

Article 9: When a securities company applies to increase the types of business it engages in, it shall submit the following materials to the CSRC:

(1) an application form;

(2) the resolution of the shareholders' (general) meeting on the change in the scope of business;

(3) a copy of the business management system and the risk control system related to the additional business it is applying for;

(4) an account of the company's compliant operation during the most recent two years;

(5) an account of the secure and stable operation of its information system;

(6) an account of the operation and management of its existing business; and

(7) other materials that the CSRC requires be submitted.

If an additional business that a securities company applies for is a Novel Business, it shall additionally submit a business implementation plan, a feasibility study report, a review report on the compliance of the business implementation plan issued by the company's compliance officer, and a legal opinion. If a company is one of more than one company that is controlled by the same work unit or individual or between/among which there exists a control relationship and the business it is applying for is one that another of the companies has received approval to engage in, a plan for dividing the business, the agreement by the relevant companies to implement the division of business, the resolutions of the shareholders' (general) meetings of the relevant companies concerning the agreement on implementing the division of business, and a legal opinion shall additionally be submitted.

If a securities company's subsidiary engaging in securities business applies to increase the types of business it engages in, it shall additionally submit the other materials specified in Article 8 of the Trial Provisions for the Establishment of Subsidiaries by Securities Companies (Revised).

Article 10: The CSRC shall review applications by securities companies to increase the types of business they engage in in accordance with provisions and based on the principle of prudential regulation, and render its decision on whether or not to grant approval within 45 working days from the date it accepted the application.

With respect to a Novel Business, the CSRC may arrange for relevant experts to carry out an assessment and may first give approval for a pilot project by several securities companies. Based on the results of the pilot project, it may progressively broaden the scope of the pilot project, open the business after formulating relevant business rules or cease to approve new applications.

Article 11: A securities company shall, after the approval of its application to increase the types of business it engages in, apply to the company registration authority for amendment of its registration in accordance with the law and, within 15 working days from the date of amendment of its registration, submit to the CSRC a photocopy of the duplicate of its business licence and the list, résumés and photocopies of the qualification certificates of the senior management personnel and securities business personnel who are to be in charge of the additional business it has applied for and apply for a new securities business permit.

After receipt of the application, the CSRC shall notify its agency in the place where the securities company is domiciled to conduct an onsite inspection. The agency shall conduct an inspection of the securities company's relevant business facilities, information system and place of business, etc. within 15 working days from the date of receipt of the notice and issue an inspection report.

If it is determined after the review and inspection that the securities company fully satisfies the stipulated conditions, the CSRC shall issue it a new securities business permit.

Article 12: A securities company may not engage in the additional business it has applied for or carry out marketing activities in respect thereof such as publicity, promotion, contacting of customers, etc. until it has obtained its new securities business permit.

If a securities company receives approval to additionally engage in business involving the provision of services to customers, such as securities brokering, securities asset management, margin trading and short sale of securities, it shall, once it has obtained its new securities business permit, take effective measures to commence investor education activities relating to the business such as publicising the relevant legislation, knowledge dissemination and risk warning.

Article 13: If a securities company applies to reduce the types of business it engages in, it shall submit to the CSRC an application form, the resolution of the shareholders' (general) meeting on the change in the scope of business and a plan for winding up the business that it has applied to eliminate. If the business it has applied to eliminate involves retail customers, it shall additionally submit a plan and written undertaking to handle customer-related matters in a smooth and stable manner.

The securities company shall, once its application to reduce the types of business it engages in has been approved, wind up the relevant business in accordance with provisions, apply to the company registration authority for amendment of its registration and, within 15 workings from the date of amendment of its registration, apply to the CSRC for a new securities business permit on the strength of a photocopy of the duplicate of its business licence and other such materials.

Article 14: A securities company shall, within five working days from the date of acceptance of its application by the CSRC, submit to the CSRC agency of the place where it is domiciled for the record the application materials it submitted to the CSRC in accordance herewith.

If the CSRC agency has any objections to the matters applied for by, or the contents of the application materials of, the securities company, it shall make the same known to the CSRC within 10 working days from the date of receipt of the application materials submitted by the securities company for record filing.

Article 15: The examination and approval of the financial consultancy services for mergers, acquisitions and reorganisations of listed companies, securities sponsorship business, securities investment fund sales business and the business of acting as an intermediary for futures companies shall be handled in accordance with current relevant provisions, and these Provisions shall not apply thereto.

Once a securities company is granted approval to add or eliminate any of the aforementioned types of business, it shall carry out the procedures for amendment of its business registration in accordance with the law and apply to the CSRC for issuance of a new securities business permit.

Article 16: A securities business permit issued to a securities company by the CSRC pursuant to the Securities Law before the amendment thereof in 2005 (Original Permit) shall continue to be valid and the securities company may engage in its business based on the correspondence of the types of business specified on its Original Permit and business as specified in Article 125 of the Securities Law. For the correspondence of the types of business specified on Original Permits and business as specified in Article 125 of the Securities Law, see the Comparison of Terms for the Types of Business of Securities Companies.

If a securities company applies for issuance of a new securities business permit due to the expiration of its Original Permit or a change in particulars recorded thereon, the CSRC shall revise the terminology for the types of business on the Original Permit in line with the correspondence mentioned in the preceding paragraph.

Article 17: A securities company shall, within 10 working days of obtaining its new securities business permit, submit a photocopy of the duplicate thereof to the CSRC agency of the place where it is domiciled for the record.

Article 18: The CSRC and its agencies shall oversee the business activities of securities companies in accordance with the law. If a securities company violates laws or regulations in its business activities, its risk control indicators fail to comply with provisions or another statutorily mandated circumstance arises, the CSRC and its agency may, depending on the circumstances, take measures against it such as imposing restrictions on its business activities, suspending part or all of its business and revoking its business permit in accordance with the law.

Article 19: These Provisions shall be effective as of December 1 2008. The Several Opinions on Further Strengthening the Oversight of Securities Companies (Zheng Jian Ji Gou Zi [1999] No.14) issued by the CSRC on March 16 1999 shall be repealed simultaneously.

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