RQFII pilot programme launched
February 07, 2012 | BY
clpstaff &clp articles &Participants subject to strict supervision and disclosure requirements
China's securities regulator issued two new laws on December 17 that launch a new pilot programme allowing overseas investors to invest in the Mainland's capital markets using renminbi (Rmb) capital raised offshore.
The China Securities Regulatory Commission (CSRC) released the Trial Measures on Securities Investments in China by Renminbi Qualified Foreign Institutional Investors of Fund Investment Companies and Securities Companies (基金管理公司、证券公司人民币合格境外机构投资者境内证券投资试点办法) (the Measures) and the Provisions for the Implementation of the (关于实施《基金管理公司、证券公司人民币合格境外机构投资者境内证券投资试点办法》的规定) (the Provisions).
The implementation of the new programme signals the formal opening of offshore Rmb investment in the domestic securities market. It is a major step toward the internationalisation of the Rmb, said lawyers from Han Kun Law Offices.
The current quota for investment is Rmb 20 billion, and the Provisions only allow for up to 20% of this to be invested in the stock markets as there has to be a minimum of 80% used for fixed-income securities instruments.
James Wang, a Beijing-based partner at Han Kun Law Offices, believes there will be quota expansions over the next few years should the pilot programme run smoothly. “The current quota is too small to have any significant impact on China's capital markets, so increasing the quotas will attract much more offshore Rmb to flow back into the Mainland public capital markets, which will shore up the Mainland's liquidity and help boost weak market confidence,” he said.
“In the long run,” added Wang's Beijing-based fellow partner Yang Chen, “the participation of more institutional investors will help stabilise China's capital markets and make them develop in a more healthy way.”
Rmb Qualified Foreign Institutional Investors (RQFIIs) are subject to strict supervision and disclosure requirements from the CSRC, the State Administration of Foreign Exchange (Safe) and the People's Bank of China (PBoC). The regulators may conduct inquiries and inspections, and require RQFIIs to provide relevant materials when asked.
In one stringent disclosure measure, the new rules require that a legal opinion be given to attest to an applicant's clean record. “The application documents for qualification of securities investment in China must include PRC or Hong Kong legal opinion, specifying whether the applicant and its domestic parent companies have been subject to any sanctions by local regulatory authorities over the last three years and whether the applicant has satisfied relevant conditions,” said Wang.
“Once a securities investment triggers relevant disclosure requirements, RQFIIs will have to submit information required to be disclosed to the CSRC”, said Yang.
The application to participate in the pilot programme can take up to 120 days. Once a full set of application documents has been received, the CSRC has up to 60 days to grant approval to the Hong Kong subsidiaries of fund management companies and securities companies. If the applicant receives CSRC approval, then it must submit certain documents to Safe for the investment quota. Safe will determine this within 60 days. CM
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