Securities investment rules to change By Zhang Ran (China Daily) Updated: 2005-12-29 06:37
Formally ineligible holding companies of foreign financial institutions can
now invest in Chinese securities firms, thanks to a regulation under revision
that aims to open the door to overseas investors.
Before China Securities Regulatory Commission made this move, only foreign
financial corporations - not their parent companies - were authorized to invest
in Chinese securities firms.
However, the rules still say that these institutions have to be in the
securities business for more than 10 years, have good risk management and
internal control systems and a good international reputation.
But with the new rule, the above requirements will not apply to smaller
shareholders from overseas who want to invest less than 5 per cent into a
Chinese securities companies.
There is no major change for foreign financial corporations that hold larger
stakes.
"The move, by lowering the threshold for small shareholders, is aiming to
provide more opportunities for overseas non-financial institutions and their
holding companies to invest in securities," said Dong Chen, a researcher from
China Securities.
Dong mentioned that currently foreign investors interested in domestic
securities firms are mainly financial institutions that expect much more than a
5 per cent share. The draft also places regulations on domestic securities
firms.
According to the draft, money must occupy at least two thirds of the firm's
total registered capital. The move is said to be a safeguard against investors
who use non-performing securities and creditor's rights to invest, which can
often lead to bad quality assets from the start.
The draft declared independent board directors should occupy at least one
third of the board's seats, increased from the "one fourth seat" rule in
previous regulation.
It also extended the time for securities firms to find a commercial bank as
their custodian to manage client's money by one year.
The government had originally ordered securities firms to find custodians at
the end of 2006.
The China Securities Regulatory Commission will decide which commercial banks
will have qualifications to be a custodian.
(China Daily 12/29/2005 page10)
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