Provisions for the Administration of the Asset Securitisation Business of Securities Companies

Article 2: For the purposes of these Provisions, the term “asset securitisation business” means the business activity wherein the cash flow generated by specific underlying assets or an asset portfolio is used as support for repayment, credit enhancement is achieved through structurisation and on which basis asset-backed securities are offered.

These Provisions shall govern the establishment of special purpose vehicles by securities companies for carrying on the asset securitisation business.

For the purposes of the preceding paragraph, the term “special purpose vehicle” means a dedicated asset management plan (an AMP) or other China Securities Regulatory Commission (the CSRC) recognised special purpose vehicle specifically established by a securities company to carry on the asset securitisation business.

Article 3: The property derived from the management, application, disposal or otherwise of the assets of an AMP shall be incorporated into the assets of the AMP. The expenses paid in handling AMP matters and debts owed to third parties shall be borne from the assets of the AMP.

The assets of an AMP shall be separate from the assets of the original beneficiaries, the manager, the custodian and other participants in the business.

If an original beneficiary, the manager, the custodian or other participant in the business is liquidated due to its being dissolved in accordance with the law, closed down in accordance with the law, declared bankrupt or for other such reason, the AMP assets shall not constitute part of its property subject to liquidation.

Article 4: The claims arising in connection with the management, application and disposal of the AMP assets by the manager may not be set off against the debts arising in connection with the assets of an original beneficiary, the manager, custodian, asset-backed securities investors or other participant in the business. The claims and debts arising in connection with the management, application and disposal by the manager of the assets of different AMPs may not be set off against each other.

Article 5: The assets of an AMP shall be kept in the custody of a commercial bank with the appropriate business qualifications, China Securities Depository and Clearing Corporation Limited, a securities company with custody business qualifications or other CSRC recognised asset custody institution.

Article 6: Asset-backed securities may, in accordance with provisions, be transferred on a stock exchange, the quotation and transfer system of the Securities Association of China, the over-the-counter market of securities companies or other CSRC recognised exchange.

Article 7: To offer asset-backed securities through the establishment of an AMP, a securities company shall submit an application to, and obtain the approval of, the CSRC.

The CSRC shall render its written decision on whether to grant or withhold its approval of an application within two months from the date of acceptance of such application.

Part Two: AMP

Article 8: For the purposes of these Provisions, the term “underlying assets” means specifiable property rights or property that comply with laws and regulations, the title to which is clear and that can generate an independent and foreseeable cash flow. Underlying assets may be a single property right or item of property or a portfolio of assets composed of several property rights or items of property.

The property rights or property specified in the preceding paragraph may be property rights such as an enterprise's receivables, credit assets, right to receive trust benefits or right to receive benefits from infrastructure; immovable property, such as commercial real property; as well as other property or property rights recognised by the CSRC.

Article 9: Where laws and regulations specify that approval and/or registration procedures need to be carried out for a transfer of underlying assets, the same shall be carried out in accordance with the law. Where laws and regulations do not require the carrying out of registration or if the conditions for carrying out registration are temporarily not satisfied, the manager shall adopt effective measures to safeguard the security of the underlying assets.

If underlying assets are claims, claim transfer matters shall be notified to the debtor in accordance with relevant laws.

Article 10: Underlying assets may not be encumbered by a security interest, such as a mortgage or pledge, or other rights restriction, unless the relevant security interest or other rights restriction can be lifted through a relevant arrangement of the AMP.

Article 11: If AMP assets are composed of new underlying assets purchased with the circulation of the cash flow generated by identical underlying assets, the legal documents for the AMP shall expressly state the conditions for the purchase and the scale of the purchase of such underlying assets, liquidity risks as well as the risk control measures. The scale and life of the underlying assets shall match the scale and life of the asset-backed securities.

Article 12: All of the monetary receipt and expenditure activities of an AMP shall be conducted through the AMP account.

Article 13: Asset-backed securities are the proof that an investor enjoys rights and interests in the AMP, and the same may be succeeded to, traded or transferred in accordance with the law. An asset-backed securities investor may not request division of AMP assets or request that the AMP buy back asset-backed securities.

An asset-backed securities investor shall enjoy the following rights:

(1) sharing in the returns of the AMP;

(2) participating in the distribution of the assets of the AMP remaining after liquidation in accordance with the subscription agreement and prospectus;

(3) receiving the asset management reports and other such AMP information disclosure documents, and reviewing and taking copies of information and documentation relating to the AMP;

(4) disposing of the asset-backed securities by means such as trading, transfer or pledge in accordance with the law;

(5) carrying out financing through repurchase in accordance with the relevant rules of the exchange; and

(6) other rights as specified in the subscription agreement and prospectus.

Article 14: The credit rating of the asset-backed securities of an AMP may be enhanced through an internal or external credit enhancement method.

The asset-backed securities offered by an AMP may be divided into different types. Each of the same type of asset-backed securities enjoys the same rights and interests and bears the same risks.

Article 15: A credit rating agency that has secured qualifications approved by the CSRC for credit rating business for securities markets (a CRA) may carry out the initial rating and follow-up ratings of asset-backed securities.

Article 16: The manager of an AMP and an institution selling the asset-backed securities shall take the measures set forth below to ensure that the investment decisions of an investor are prudent decisions made based on full knowledge of the risk and return characteristics of the asset-backed securities:

(1) understanding the property and income situation, risk bearing capacity, investment preferences, etc. of the investor and recommending asset-backed securities that are commensurate with his/her risk bearing capacity;

(2) fully disclosing to the investor the status of the underlying assets and cash flow forecast of the AMP as well as their effect on the AMP, the major provisions of the transaction contract and the risk and return characteristics of the asset-backed securities, and informing the investor of his/her rights and obligations in the asset-backed securities investment; and

(3) preparing a risk disclosure statement fully disclosing the investment risks, and before accepting the investor's subscription moneys, ensuring that he/she is familiar with the contents of the risk disclosure statement and having him/her sign the same.

Article 17: A dedicated account for the asset-backed securities offering shall be opened for an AMP, and the same shall be used for receiving, verifying and transferring the subscription moneys for the asset-backed securities. The manager shall report the details of the establishment of the AMP to the CSRC agency of the place where it is domiciled within five working days after the establishment of the AMP.

Article 18: If, at the end of the offering period, the scale of the offering of the asset-backed securities fails to reach the minimum scale specified in the prospectus, or the AMP fails to satisfy another establishment condition specified in the prospectus, the establishment thereof shall have failed. The manager shall refund the subscription moneys, with interest, to the investors within 10 working days from the date on which the offer period ended.

Article 19: Matters such as the registration, custody, transfer, settlement and cashing in of asset-backed securities shall comply with the regulations of the relevant exchange and pertinent securities depository and clearing institution. A securities company may provide bilateral quotation services for asset-backed securities.

Part Three: Manager and custodian

Article 20: A manager shall perform the following duties:

(1) conducting comprehensive due diligence investigation of the relevant transaction entities and underlying assets;

(2) during the life of the AMP, procuring the performance of the legally and contractually specified obligations by the original beneficiaries that could have a material impact on the AMP and the interests of the asset-backed securities investors (the Specific Original Beneficiaries) and the relevant institutions that provide services for the AMP;

(3) handling matters relating to the offering of the asset-backed securities;

(4) paying the offer proceeds to the original beneficiaries as agreed in a timely manner;

(5) managing the AMP assets in the interests of the asset-backed securities investors;

(6) erecting a relatively closed and independent cash flow collection mechanism for the underlying assets so as to duly guard against the risk of the AMP assets being commingled with other assets, diverted for other purposes, etc.;

(7) monitoring and inspecting the status of the Specific Original Beneficiaries as going concerns and the status of the underlying asset cash flow, and in the event that a material aberrant situation arises, taking the necessary measures to safeguard the security of the AMP assets;

(8) distributing the returns to the asset-backed securities investors as agreed;

(9) performing its information disclosure obligation;

(10) being responsible for liquidation upon termination of the AMP; and

(11) other duties as specified in laws, administrative regulations, CSRC provisions and the prospectus.

Article 21: A manager may not:

(1) fail to credit the offer proceeds to the account or carry out any other manner of off-book operations;

(2) collect proceeds exceeding the scale specified in the prospectus;

(3) divert AMP assets;

(4) use AMP assets to provide security or to give rise to other contingent liabilities;

(5) invest AMP assets in third parties in breach of the prospectus; or

(6) carry out other acts as prohibited in laws or administrative regulations, or by the CSRC.

Article 22: A manager shall keep separate accounts and independently account for the AMP, and different AMPs shall be kept mutually separate in terms of the accounts opened, funds transferred, bookkeeping records, etc.

Article 23: A manager shall, in respect of the material risks that could arise in the course of the life of the AMP, formulate genuinely practicable risk control measures and a risk handling contingency plan. When a risk arises, the manager shall implement the risk handling contingency plan with due diligence and protect the interests of the asset-backed securities investors to the greatest extent possible.

Article 24: In any of the following circumstances, the manager shall fully disclose in the prospectus the relevant matters and give an account of the potential risks and the risk prevention measures taken:

(1) the manager holds at least 5% of the shares or capital contributions in an original beneficiary;

(2) an original beneficiary holds at least 5% of the shares or capital contributions in the manager;

(3) in the most recent three years there has been an underwriting, sponsorship, financial advisor or other such business relationship between the manager and an original beneficiary; or

(4) another material interest relationship exists between the manager and an original beneficiary.

Article 25: If any of the circumstances set forth in Article 24 exists between the manager and an original beneficiary, or the manager has used its own funds or a pooled asset management plan, other client assets or a securities investment fund under its management to subscribe for the asset-backed securities, it shall take effective measures to guard against potential conflicts of interest.

The ceiling on the percentage of the asset-backed securities that a manager may subscribe for with its own funds or a pooled asset management plan, other client assets or a securities investment fund under its management shall be determined by it in accordance with relevant provisions and the contract.

Article 26: Once an AMP terminates, the manager shall establish a liquidation committee in accordance with the prospectus, which shall be responsible for safekeeping, taking inventory of, valuing, converting into cash and distributing the AMP assets.

The manager shall issue a liquidation report to the custodian and asset-backed securities investors and submit the results of the liquidation to the CSRC agency of the place where it is domiciled for the record within 10 working days from the date of completion of the liquidation of the AMP.

The manager shall engage an accounting firm with securities-related business qualifications to issue an audit opinion in respect of the liquidation report.

Article 27: The manager of an AMP may not be replaced without the consent of the CSRC.

If the manager has its asset management business qualifications revoked, is dissolved, is closed down, is declared bankrupt or is otherwise incapable of continuing to perform its duties, the CSRC shall designate an interim manager until such time as a new manager satisfying the requirements hereof is selected and appointed in accordance with the prospectus or other relevant legal document. The prospectus shall appropriately provide for such an eventuality.

Article 28: When the duties of a manager terminate, it shall carry out the procedures for the handover of the files and duties in a timely manner. The manager shall duly keep the AMP documents and information and safeguard the lawful rights and interests of the asset-backed securities investors until it has completed the handover procedures.

The manager shall submit a report to the CSRC agency of the place where it is domiciled within five working days from the date of completion of the handover procedures.

Article 29: When handling custody business for an AMP, a custodian shall perform the following duties:

(1) safekeeping the AMP assets;

(2) monitoring the manager's operation of the AMP, and if it discovers that a management instruction of the manager breaches the prospectus or custody agreement, demanding rectification of the same; and if the manager fails to rectify the matter, refusing to execute the instruction and reporting to the CSRC agency of the place where the manager is domiciled in a timely manner;

(3) issuing asset custody reports; and

(4) other matters as specified in the prospectus and related legal documents.

Part Four: Original beneficiaries

Article 30: An original beneficiary may not appropriate or damage AMP assets, and shall perform the following duties:

(1) transferring the underlying assets in accordance with laws, administrative regulations, the articles of association of the company and related agreements;

(2) cooperating with and supporting the manager, custodian and other institutions providing services for the asset securitisation business in performing their duties; and

(3) other duties as specified in the AMP legal documents.

Article 31: The documents that an original beneficiary submits to the manager and other such relevant participants in the business shall be true, accurate, complete and free of false records, misleading statements or material omissions. The original beneficiary shall ensure that the underlying assets are genuine, lawful and valid, and that there are no circumstances that could affect the establishment of the AMP.

Article 32: A Specific Original Beneficiary shall additionally satisfy the following conditions:

(1) its production and other businesses complying with laws, administrative regulations, its articles of association, or the enterprise's or public institution's internal rules and documents;

(2) its internal control systems being sound;

(3) its having the capacity to continue as a going concern, and being free of any material operating risks, financial risks or legal risks;

(4) its not having committed a material breach of contract, made a fraudulent information disclosure or committed another major violation of laws or regulations during the most recent three years; and

(5) other conditions as specified in laws, administrative regulations and CSRC provisions.

The aforementioned Specific Original Beneficiary shall, during the life of the AMP, maintain normal production and other business activities or provide reasonable support, and provide the assurance necessary for the forecast cash flow generated by the underlying assets. If a material event that could harm the interests of the asset-backed securities investors arises, it shall inform the manager thereof in writing in a timely manner.

Part Five: Establishment application

Article 33: To apply to establish an AMP and offer asset-backed securities, a securities company shall satisfy the following conditions:

(1) having securities asset management business qualifications;

(2) not having been subjected to administrative penalties due to a major violation of laws or regulations during the previous year; and

(3) having sound compliance and risk control systems and risk handling countermeasures, permitting it to effectively control business risks.

When applying to establish an AMP and issue asset-backed securities, a securities company shall submit the application documents to the CSRC in accordance with the attachment hereto.

Article 34: Asset-backed securities investors shall be qualified investors and may not exceed 200 in total.

The specific criteria for qualified investors shall be specified separately by the Securities Association of China.

Article 35: If asset-backed securities are transferred on an exchange as specified in Article 6 hereof, the investors in such asset-backed securities after the transfer shall be qualified investors and may not exceed 200 in total.

Part Six: Information disclosure

Article 36: The manager and custodian shall disclose the annual asset management report and annual custody report to the asset-backed securities investors within three months from the date on which each financial year ends. The manager shall carry out a disclosure of information to the asset-backed securities investors before each distribution of returns.

The annual asset management report and annual custody report shall be submitted by the manager to the CSRC agency of the place where it is domiciled for the record.

Article 37: An annual asset management report shall contain, at minimum, the following information:

(1) details of the operation of the underlying assets;

(2) details of the performance of the contracts/agreements by the Specific Original Beneficiaries, manager, custodian and other such participants in the business;

(3) details on the receipt and expenditure of funds into and from the AMP account;

(4) other matters that need to be reported to the asset-backed securities investors; and

(5) the audit opinion of an accounting firm in respect of the annual operation of the AMP.

Article 38: An annual custody report shall contain, at minimum, the following information:

(1) details of the custody of the AMP assets;

(2) details of the monitoring of the manager; and

(3) other matters that need to be reported to the asset-backed securities investors.

Article 39: If any of the following circumstances arises during the life of an AMP, the manager shall, in a timely manner, disclose the same to the asset-backed securities investors and report the same to the CSRC agency of the place where it is domiciled:

(1) returns are distributed in a manner not complying with that specified in the prospectus;

(2) an adverse adjustment of the credit rating of the asset-backed securities occurs;

(3) the underlying assets incur a loss exceeding 10% of the balance of the outstanding principal of the asset-backed securities;

(4) a material change in the operation of the underlying assets or their capacity to generate a cash flow occurs;

(5) a Specific Original Beneficiary, the manager, the custodian or the underlying assets are involved in a legal dispute that could affect the punctual distribution of returns;

(6) it is anticipated that the cash flow of the underlying assets will be at least 20% less than that forecast;

(7) a Specific Original Beneficiary, the manager, the custodian or other such relevant institution breaches a contract, adversely affecting the interests of the asset-backed securities investors;

(8) a material change occurs in the business operations of a Specific Original Beneficiary, the manager, the custodian or other such relevant institution, or it makes a decision to reduce its capital, merge, divide, dissolve, file for bankruptcy, etc., potentially affecting the interests of the asset-backed securities investors;

(9) the manager, custodian, CRA or other such relevant institution is replaced;

(10) the credit rating of a Specific Original Beneficiary, the manager, the custodian or other such relevant institution is adjusted, affecting the interests of the asset-backed securities investors; or

(11) another circumstance that could have a material effect on the interests of the asset-backed securities investors arises.

Part Seven: Regulation

Article 40: A securities company that engages in the asset securitisation business shall submit relevant business information as required by the CSRC and its agency in a timely manner. If a material event occurs in the course of the operation of the asset securitisation business, the securities company shall promptly report the same to the CSRC agency of the place where it is domiciled.

Article 41: A CSRC agency shall monitor the performance by the manager and custodian of their duties in the course of the asset securitisation business, and, in accordance with regulatory requirements, inspect the operation of the asset securitisation business. In the event of a violation of these Provisions, the CSRC agency shall order rectification within a specified period of time in accordance with the law and, depending on the circumstances, take the appropriate regulatory measures in accordance with the law.

Article 42: If a relevant institution that issues documents in respect of an AMP such as a cash flow forecast report, rating report or legal opinion fails to act with due diligence, or a document that it prepares or issues contains false records, misleading statements or material omissions, the CSRC shall impose penalties in accordance with relevant laws and administrative regulations such as the Securities Law. If a criminal offence is suspected, the case shall be transferred to the judicial authorities in accordance with the law to pursue criminal liability.

Article 43: A stock exchange, securities depository and clearing institution or other such self-regulatory organisation may formulate rules to regulate matters such as the offering, trading, transfer, registration, settlement and information disclosure of asset-backed securities.

Part Eight: Supplementary provisions

Article 44: For the asset securitisation business carried on by securities companies through other special purpose vehicles, matters shall be handled with reference to these Provisions, unless the CSRC provides otherwise, in which case such provisions shall apply.

Article 45: The offering and transfer of asset-backed securities on the exchanges specified in Article 6 hereof by securities investment fund management companies, futures companies, securities finance companies and other companies subject to CSRC regulation, as well as commercial banks, insurance companies, trust companies and other such financial institutions shall be governed by these Provisions mutatis mutandis.

Article 46: These Provisions shall be effective as of the date of promulgation.

List, and Requirements in Respect, of the Application Documents for the Establishment of an AMP and Offering of Asset-backed Securities by a Securities Company

1. Application Documents

(1) a written application;

(2) draft of the prospectus;

(3) drafts of the principal transaction contracts;

(4) a legal opinion;

(5) the audited financial accounting reports and an account of the financing of the Specific Original Beneficiaries for the most recent three years (if established for less than three years, those from the date of establishment); and

(6) other materials as required by the CSRC.

2. A prospectus shall include the following information:

(1) the transaction structure of the AMP;

(2) the credit enhancement method;

(3) the scale of the offering, type of product and term of, estimated return rate on, credit rating (if any), registration and custody of, the exchange for, and other such basic particulars of the asset-backed securities;

(4) details of the Specific Original Beneficiaries, manager and other such participants in the business;

(5) details of the underlying assets and their cash flow forecast or returns analysis;

(6) the arrangement for the management of the AMP assets;

(7) cash flow collection, investment and distribution;

(8) risk disclosure and preventive measures;

(9) the establishment, termination, etc. of the AMP;

(10) the liquidation procedure for the AMP, and the distribution sequence and method for the liquidation property;

(11) the information disclosure arrangements; and

(12) a summary of the principal transaction documents.

The prospectus shall state in a prominent location that the asset-backed securities only represent the corresponding shares in the rights and interests in the AMP and are not a debt of the manager or any other institution, and give a warning of the risks involved in investing in the asset-backed securities.

3. The legal opinion shall contain the following information:

(1) the qualifications and authority of the manager, sales institution and custodian;

(2) the lawfulness of legal documents such as the prospectus, asset transfer agreement, custody agreement and subscription agreement;

(3) the genuineness, lawfulness and validity of the underlying assets, vesting of rights therein and details of the liabilities thereof;

(4) the lawfulness of the transfer of the underlying assets;

(5) the lawfulness and validity of the arrangement for the credit enhancement of the AMP; and

(6) opinions on other material matters that could have an effect on the interests of the asset-backed securities investors.

4. The securities company, other relevant participants in the business and relevant personnel shall give an undertaking warranting that the contents of the application documents are true, accurate, complete and free of false records, misleading statements or material omissions and that they bear the attendant legal liability for the truthfulness, accuracy and completeness of the relevant documents they have issued and the information cited in the application documents.

5. When preparing the application documents, the securities company shall use factual and descriptive language to the greatest extent possible. When submitting the application documents, one original and two photocopies shall be submitted. Once the application documents have been accepted, they may not be added to, withdrawn or replaced without the consent of the CSRC.