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2009-11-19 15:01:05

China Securities Regulatory Commission Decree No.55

The “Decision on Amending the ‘Management Measures of Securities Companies’ Risk Control Indicators’”, approved at the 221st Chairman’s Meeting of the China Securities Regulatory Commission (CSRC) on March 4, 2008, is hereby promulgated and shall become effective as of December 1, 2008.

CSRC Chairman: Shang Fulin

June 24, 2008

 

The Decision on Amending “Management Measures of Securities Companies’ Risk Control Indicators”

 

1. The “risk reserve” in Article 2, 4, 19, 20, 21, 22, 23, 24, 25 and 41 is respectively amended to “risk capital reserve”.

2. The “risk capital reserve calculation statement” is respectively added to the “net capital calculation statement” in Article 2, 5, 7, 8, 27, 28, 30, 33 and 34.

3. The Article 3 is amended to: “The China Securities Regulatory Commission (hereinafter referred to as “CSRC”) may adjust the calculation standards of net capital and risk capital reserve and the calculation specifications of various business scales in accordance with the market development and the prudential principle. Prior to the adjustment, the CSRC shall publicly ask for the industry opinions and make transitional arrangement for the implementation of the adjustments.

As to the new products and businesses without regulations in terms of the risk adjustment proportion or the risk capital reserve’s calculation proportion, a securities company shall, prior to its investment in the products or its operation of the businesses, report or submit for approval to the CSRC and the CSRC agencies in the place where the company’s domicile is located according to the rules. The CSRC will, according to the characteristics and risks of the new products and businesses, fix the risk adjustment proportion and the risk capital reserve’s calculation proportion after collecting the industry opinions”.

4. One item is added as Item 3 in the Article 6: “Securities companies shall establish a sound pressure testing mechanism and conduct timely pressure tests of their risk control indicators according to the market changes”.

5. The Item 2 in the Article 9 is amended: “The basic calculation equation of net capital is: net capital = net assets - risk adjustment of financial assets - risk adjustment of other assets - risk adjustment of contingent liabilities -/+ other adjustments identified or approved by the CSRC”.

6. The Item 1 in the Article 11 is amended: “Securities companies shall fully retain provisions for assets impairment of relevant items according to the regulations while calculating net capital”.

7. The Article 12 is amended: “While calculating net capital, securities companies shall consolidate the same kind of financial assets in different subjects and conduct risk adjustment according to the attributes of financial assets”.

8. The Article 13 is amended: “Risk adjustment to the financial asset investment of securities companies shall be conducted with different proportions in line with the classification and liquidity of financial assets. If the classification of financial asset meets two or more standards, a risk adjustment with the highest proportion shall prevail.

As for securities companies violating the regulation and holding the extra proportion of financial assets, the CSRC and its agencies have the authority to require securities companies to increase the risk adjustment proportion when calculating net capital”.

9. The Article 15 is amended: “Risk adjustment to accounts receivable shall be conducted with different proportions according to the age and collectibility of accounts receivable. The age of accounts receivable shall be counted from the starting point of the business. If the classification of accounts receivable meets two or more standards, a risk adjustment with the highest proportion shall prevail. Items, including uncollectible refundable deposits showed by evidence, overdue lending capital and buying back the sale of financial assets, shall be integrated into accounts receivable, and a risk adjustment shall be conducted in the deduction principle for the accounts receivable”.

10. A provision is added before the Article 17: “A securities company shall deduct the net capital with certain proportion according to the guaranteed amount when providing a guarantee for its holding subsidiary’s commitment letter. The CSRC’s approved subsidiaries engaging in businesses including securities underwriting and sponsorship and securities asset management can count the guaranteed amounts provided by their parent companies into their net capital with certain proportions”.

11. The Item 5 in the Article 19 is deleted.

12. A provision is added after the Article 19: “Securities companies shall calculate all risk capital reserve according to the calculation standard of securities companies’ risk capital reserve as regulated by the CSRC.

Securities companies engaging in securities brokerage business shall calculate risk capital reserve according to the total amount of clients’ trading settlement capital under custody; securities companies engaging in businesses including securities self-dealing, underwriting, asset management as well as margin trading and securities lending shall calculate their risk capital reserve according to business scales; securities companies establishing branches or securities business departments shall calculate risk capital reserve of these subsidiaries; securities companies shall calculate risk capital reserve for operation according to the total business costs of the previous year. In addition, securities companies shall calculate corresponding risk capital reserve in line with other items and proportion as regulated by the CSRC”.
13. The Article 20 is deleted.

14. The Item 1 of the Clause 1 in the Article 21 is amended: “The total amount of self-dealing equity securities and securities derivatives shall not exceed 100% of the net capital”.

15. The Item 2 of the Clause 1 in the Article 21 is amended: “The total amount of self-dealing securities with fixed income shall not exceed 500% of the net capital”.

16. The Item 3 of the Clause 1 in the Article 21 is amended: “The cost of holding one kind of equity securities shall not exceed 30% of the net capital”.

17. The Item 4 of the Clause 1 in the Article 21 is amended: “The market capitalization of one kind of equity securities held by a securities company shall not exceed 5% of its total market capitalization, excluding the underwriting or other regulations by the CSRC”.

18. The Item 5 of the Clause 1 in the Article 21 is deleted.

19. The Clause 2 of the Article 21 is amended: “A securities company shall, according to the principle of the higher one between the cost price and the fair value, calculate self-dealing scale based on the category of self-dealing investment”.

20. The Clause 3 of the Article 21 is deleted.

21. The Article 22 and 23 are deleted.

22. The Item 4 and 5 of the Clause 1 in the Article 24 are deleted.

23. The Article 25 is deleted.

24. A provision is added before the Article 26: “A securities company can, in line with its self-reality, define relevant risk control indicators on the basis of the standards no lower than those regulated by the CSRC”.

25. The Clause 1 of the Article 29 is amended: “Securities companies shall, within 7 working days since the last day of each month, report monthly net capital calculation statements, risk capital reserve calculation statements and supervision statements of risk control indicators to the CSRC and its agencies.”

26. The Item 2 of the Article 35 is amended: “Securities companies are required to take measures to adjust their business scales and assets liabilities structures, to improve the quality of the net assets”.

27. The Item 4 of the Article 35 is amended: “Securities companies’ compliance departments are required to increase the check frequency to the risk control indicators and submit relevant reports on the risk control indicators’ level”.

28. The Item 1 of the Article 41 is amended: “Risk capital reserve: as to the risk of net assets’ loss possibly caused by securities companies’ business operation and subsidiaries establishment, the risk capital reserve shall be calculated under certain standards to establish a corresponding relationship with the net assets, thus ensuring corresponding net assets’ supports for all the risk capital reserves”.

29. The Item 3 of the Article 41 is amended: “Liabilities refer to the external liabilities, excluding the amounts in the agency business of securities trading”.

30. The Item 4 of the Article 41 is amended: “Assets refer to the own assets, excluding clients’ assets”.

31. The Item 6 of the Article 41 is amended: “Equity securities refer to the securities-related financial products such as stocks and products with stocks as main investment targets, including stocks, stock funds and other securities stipulated by the CSRC”.

32. The Item 7 of the Article 41 is amended: “Refundable deposits refer to the margins refunded or paid by securities companies due to their business operation”.

33. One Item is added to the Article 41: “Fixed income securities refer to the securities-related financial products such as bonds and products with bonds as main investment targets, including bonds, bond funds and other securities stipulated by the CSRC”.

This Decision shall take effect as of December 1, 2008.

The “Management Measures of Securities Companies’ Risk Control Indicators” will be amended and re-promulgated according to the Decision

 

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