Laws and Regulations
Securities Depository and Clearing Rules
Chapter 1 General Provisions
Article 1 The Securities Depository and Clearing Rules (hereinafter referred to as “ the Rules”) are formulated with a view to regulating securities depository and clearing activities, protecting the rights and interests of investors, maintaining the order of the depository and clearing activities, mitigating securities depository and clearing risks and promoting an efficient securities market in accordance with the Securities Law of the People's Republic of China, Company Law of the People's Republic of China and other applicable laws and regulations.
Article 2 The Rules are applicable to the depository and clearing of stocks, bonds, securities investment funds and securities derivatives (hereinafter referred to collectively as “Securities”) listed on the Stock Exchange.
The rules also apply to the depository and clearing of unlisted securities.
Apart from the Rules, matters concerning the depository and clearing of domestic listed foreign shares are also subject to applicable laws, regulations and requirements of the China Securities Regulatory Commission (hereinafter referred to as the “CSRC”).
Article 3 The securities depository and clearing activities shall be carried out in an open, fair, just, safe and efficient manner.
Article 4 The China Securities Depository and Clearing Co., Ltd. (hereinafter referred to as “the CSDCC”) is established as a not-for-profit legal entity for the purpose of providing securities registration, depository and clearing services.
The CSDCC adopts a nationwide centralized securities depository and clearing system on a self-discipline basis.
Article 5 The securities depository and clearing services shall be conducted in accordance with applicable laws, rules and regulations, requirements of the CSRC and the CSDCC’s operating rules.
Article 6 The CSRC shall supervise over the CSDCC’s securities depository and clearing activities in accordance applicable laws.
Chapter 2 Securities Depository and Clearing Institution
Article 7 The establishment and dissolution of the CSDCC shall be approved by the CSRC.
Article 8 The main services of the CSDCC are:
(1) The establishment and maintenance of securities accounts and clearing accounts;
(2) Securities depository and transfer;
(3) Registration of securities holders and their entitlement;
(4) Clearing and settlement of securities transactions as well as relevant management;
(5) Investment income distribution on behalf of securities issuers;
(6) Inquiry, information, consultation and training services in relation to securities depository and clearing services;
(7) Other services permitted by the CSRC.
Article 9 The CSDCC shall not engage in the following conduct:
(1) Investments irrelevant to the securities depositary and clearing service;
(2) Investment in real estate for commercial or speculative purposes;
(3) Securities trading beyond the scope prescribed in Article 65 and Article 66 of the Rules;
(4) Conduct prohibited by laws, regulations and the CSRC.
Article 10: CSDCC shall report to the CSRC for approval on the following matters:
(1) The formulation of or amendment to the articles of association or the operating rules;
(2) Significant international cooperation and exchange activities as well as those involving Hong Kong Macao and Taiwan affairs;
(3) The determination or adjustment of major charging items and rate schedule in relation to the securities depository and clearing service；
(4) The appointment or dismissal of the chairman of the board, the vice chairman, the general manager or the deputy general manager;
(5) Other issues which shall be approved by the CSRC under applicable laws and regulations.
The operating rules stated in (1) refer to the CSDCC’s operating procedures for the securities depository and clearing service, including securities account management, securities registration, depository, custody and clearing, as well as clearing participant administration.
Article 11 The CSDCC shall file the following issues and documents with the CSRC:
(1) The operational procedures;
(2) The formulation of or amendment to the management system, recovery plan and contingency procedures for the securities depository and clearing service;
(3) Provision of depository and clearing service for a new type of securities and the changes in the depository and clearing process;
(4) The admission or revocation of clearing participantship or status of clearing banks;
(5) Substantial business and technical risks, serious breach of laws and regulations or major lawsuits;
(6) The appointment or dismissal of general managers of the CSDCC branches, the CSDCC’s assistance general managers or divisional supervisors;
(7) The annual working report on business operations and the CSDCC’s compliance with relevant regulations;
(8) The CSDCC’s audited annual financial reports, financial budget and material expenditure; auditor appointment and replacement;
(9) Major cooperative agreements with the Stock Exchange and the forms for service agreements with securities issuers, clearing participants and clearing banks;
(10) Other issues and documents which shall be filed with the CSRC under applicable laws and regulations.
Article 12 The CSDCC shall keep properly the original records and relevant materials of securities registration, depository and clearing services for at least 20 years.
Article 13 The CSDCC retains the patent on data and information it compiles in relation to the securities depository and clearing service, which shall not be commercially exploited without approval from the CSDCC.
Article 14 The CSDSS and its staff are obligated to preserve the confidentiality of the data and information in relation to the securities depository and clearing service.
The CSDCC does not provide inquiry service for data and information in relation to the securities depository and clearing service, except in the following circumstances, where:
(1) The securities holder inquires about his securities information;
(2) The securities issuer inquires about the shareholder register and relevant information;
(3) The stock exchange asks for relevant data and materials in accordance with applicable laws and regulations;
(4) The people’s court, the procuratorate, the police or the CSRC conduct investigation and evidence collection under statutory conditions and procedures.
The CSDCC shall cater convenient account inquiry service for securities holders.
Article 15 The CSDCC shall make available for the public its operating rules, major charging items and the rate schedule in relation to the securities depository and clearing service.
The CSDCC shall consult with relevant market participants on the formulation or revision of the operating rules as well as the adjustment to major charging items and the rate schedule in relation to the securities depository and clearing service.
Article 16 The CSDCC’s staff shall act with dedication, diligence and compliance with laws and regulation, and shall not take undue advantages of his position for personal benefits or leak confidential information.
The CSRC will take administrative actions against the CSDCC, the supervisor in charge and staff involved for the breach of the Securities Law and the Rules.
Chapter 3 Securities Account Management
Article 17 To be eligible for securities investment, the investor shall open a securities account for recording the balance and changes of securities held by the investor.
Article 18 Securities shall be credited to the beneficiary’s account, unless otherwise provided by applicable laws, regulations and requirements of the CSRC that securities will be credited to the nominal holder’s account.
The CSDCC may ask the securities nominal holder to provide relevant information of the beneficiary in line with applicable laws and regulations.
Article 19 The investor shall apply to the CSDCC for establishing the securities account with reliable, accurate and complete account opening information.
Article 20 The CSDCC may establish the securities account directly or designate the qualified securities company as the account-opening agent.
The securities account shall be established in such a manner that reconciles the investor’s needs and optimization of resource allocation.
Article 21 The securities company shall apply to the CSDCC for the status as the securities account-opening agent.
The securities company shall, in line with the CSDCC’s operating rules, establish the true, accurate and full identity of the investor and other account-opening materials, and retain the records for at least 20 years.
Article 22 The beneficiary of the securities account is prohibited from lending the account to a third party.
Article 23 The CSDCC shall supervise the account opening activities by its agents in accordance with the operating rules, and may take administrative actions against the agent for the breach of the operating rules (e.g. license suspension or revocation), as well as refer the matter to the CSRC for instigating disciplinary actions against the defaulter including suspension or revocation of the securities business license; disciplinary proceedings may be exercised against the supervisor in charge and staff involved for the breach (including issuance of a reprimand jointly or severally, imposition of a fine and revocation of the business qualification or the securities industry license).
Article 24 The securities company shall know detailed client information and their credit standings, and monitor the use of securities accounts. Any improper use of the securities account will be handled in line with the CSDCC’s operating rules, and be reported to the CSDCC and the Stock Exchange. Where a legal entity establishes the securities account or trades securities in the name of the other person, the securities company shall refer the matter to the CSRC for instigating administrative actions against the defaulter.
Article 25 The CSDCC will take administrative actions including restricted access to or cancellation of the securities account against the investor’s improper operations in establishment and use of the securities account.
Chapter 4 Securities Registration
Article 26 The securities registration may be entrusted to the CSDCC by the issuer, where the two parties shall enter into a securities registration & service agreement with clarified rights and obligations for each party.
The CSDCC shall formulate and disseminate the form for the securities registration & service agreement.
The CSDCC may cater for registration of listed government bonds at the request of the government bond authority.
Article 27 The CSDCC shall maintain the shareholder register with the verification of investors’ shareholding status according to their account information.
Article 28 The securities issuer shall make the IPO shareholder register and other relevant materials available for the CSDCC to establish the original shareholder register of such securities.
The issuer shall guarantee the legality, authenticity, accuracy and integrity of materials it provides to the CSDCC. The CSDCC will not take any liability for any losses or damages arising from the misleading shareholder register and other incorrect materials attributable to the issuer.
Article 29 The CSDCC shall maintain the shareholder register of a listed securities according to the settlement records of securities transactions.
In case of securities transfer in the nature of negotiated or forced transfer, heritage, donation and government transfer, etc, the CSDCC shall process changes in the balance in securities accounts and the shareholder register in line with the operating rules.
The CSDCC shall earmark in the shareholder register the restricted securities holders in respect of securities pledge, lock-up and freeze.
Article 30 The CSDCC shall ensure the reliability, accuracy and integrity of the shareholder register and the securities transfer records, and shall be liable for any omission, counterfeit and destruction.
Article 31 The CSDCC shall deliver the shareholder register and relevant information to the securities issuer on a regular basis in line with the operating rules and the agreement.
Article 32 To apply for nominee services such as the investment income distribution, the securities issuer shall file required materials with the CSDCC and pay service fees in line with the operating rules and the agreement.
The securities issuer shall make announcement accordingly in case the CSDCC suspend nominee services due to the issuer’s failure in meeting its obligations.
Article 33 In case of termination of securities registration & service agreement by the securities issuer or its liquidation group, the CSDCC shall return the shareholder register and other registration materials to them in line with applicable laws.
Chapter 5 Securities Custody and Depository
Article 34 Unless otherwise provided by applicable laws, regulations and requirements of the CSRC, the CSDCC shall provide centralized depository of securities registered in the name of either the securities company or its clients, and the investor’s securities shall be held in the custody of the securities company.
Article 35 the CSDCC shall establish respective general legers for the securities company’s proprietary trading and brokerage trading for recording the deposit and withdrawal of securities registered in the name of the securities company and its clients.
Unless otherwise provided by applicable laws, regulations and requirements of the CSRC, the CSDCC shall be commissioned to maintain the securities company’s proprietary account and its clients’ securities accounts.
Article 36 To participate in securities investment, the investor shall enter into the securities brokerage, custody and clearing agreement with the securities company.
The CSDCC shall prescribe and disseminate the mandatory provisions in relation to the securities depositary and clearing service in the securities brokerage, custody and clearing agreement, which shall include, but not limited to:
(1) The Securities Company shall place the trading instructions upon client’s entrustment, execute settlement of each valid transaction and take corresponding settlement responsibility in line with the securities trading rules; the securities transfer between the securities company’s securities settlement account and its client’s account shall be executed by the CSDCC commissioned by the securities company after the market close.
(2) The investor and the securities company that involved in a collateralized repurchase agreement shall provide the required pledged securities to the CSDCC in accordance with the operating rules; the liabilities between the investor and the securities company will not prejudice the CSDCC’s pledge rights on the pledged securities.
(3) In case of a client’s default in meeting his payment obligations, the CSDCC may, on behalf of the securities company, transfer the client’s net-buy securities into the securities company’s Securities Disposition Account, and require the client to make the payment within a specified time limit. In case of a client’s default in meeting his securities delivery obligation, the securities company is entitled to detain equivalent amount of cash from the client.
Article 37 The securities company shall file with the CSDCC the establishment, change and termination of securities custody services for clients for the purpose of record retention.
Article 38 Unless otherwise provided by applicable laws, regulations and requirements of the CSRC, the securities company shall process the transfer of securities custody to another securities company upon the client’s request, in line with relevant operating rules of the stock exchange and the CSDCC.
Article 39 The securities company shall take effective measures to protect the securities under its custody from misappropriation and unauthorized sale.
The CSDCC shall take effective measures to protect the securities under its depository from misappropriation and unauthorized sale.
Article 40 The pledge, lock-up, freeze and fortfeit of securities shall be executed by the securities company and the CSDCC in accordance with applicable regulations.
Chapter 6 Securities Clearing & Settlement
Article 41 The securities company shall apply to the CSDCC for admission as the CSDCC clearing participant in order to participate in the central securities clearing and settlement system. The CSDCC and its participant shall enter into a Clearing & Settlement Agreement which serves to clearly define obligations and rights for each party.
The securities company that is not a clearing participant may enter into an Agency Clearing & Settlement Agreement with a clearing participant under which the clearing participant will act as the clearing & settlement agency on behalf of the securities company.
The CSDCC shall prescribe and publicize the standard samples for the Clearing & Settlement Agreement as well as the Agency Clearing & Settlement Agreement.
Article 42 The CSDCC shall designate a qualified commercial bank for settlement of money obligations in respect of the securities clearing and settlement services. The eligibility criteria and conditions applicable to the Designated Clearing Bank shall be set out by the CSDCC.
Article 43 The central securities clearing & settlement is structured as a stratified system wherein the CSDCC acts as the central counterparty to each clearing participant who in turn acts as the counterpart to each of its clients.
Article 44 The CSDCC shall set up a Central Stock Clearing Account and Central Cash Clearing Account for settlement of delivery or payment obligations due to or from the clearing participants on each settlement day.
Each clearing participant shall have a Stock Clearing Account and a Cash Clearing Account in the CSDCC for settlement of delivery or payment obligations in line with the provisions set out by the CSDCC. In relation to a clearing participant involved in proprietary trading, brokerage, and asset management activities simultaneously, a Brokerage Stock Clearing Account and a Brokerage Cash Clearing Account for settlement of brokerage trading shall be established as well and be separated from the Proprietary Stock Clearing Account and the Proprietary Cash Clearing Account which are used for settlement of proprietary trading.
Article 45 The CSDCC may adopt a Multilateral Net Settlement System (the MNS System), wherein the CSDCC becomes substituted as the common settlement counterparty to each clearing participant and settlement will be effected between each clearing participant and the CSDCC on a delivery versus payment basis (DVP basis).
Article 46 Under the MNS System, the Clearing & Settlement Agreement entered between the CSDCC and its participant shall address the following aspects:
(1) The payment or delivery obligations/ between the participants under a particular transaction will be transferred to the CSDCC, which becomes substituted as the sole settlement counterparty for the buyer and seller;
(2) Upon effective transfer of entitlements or obligations under a particular transaction, the CSDCC shall be obligated to satisfy the settlement obligations whilst be entitled to any benefit entitlement under that transaction.
Article 47 Under the MNS System, the obligation to deliver securities or the amounts to be paid between the CSDCC and each clearing participant in respect of the same issue of securities and having the same settlement date shall be set-off against each other to arrive at a net money position or net obligation of securities to be delivered. The clearing participants will be kept informed of its net money or securities position as calculated in the netting process.
Other securities settlement procedures are set out separately.
Article 48 Prior to the central settlement of transactions in the CSDCC, the clearing participant shall ensure that there are sufficient securities in its Stock Clearing Account as well as sufficient funds in its Cash Clearing Account available to effect the settlement by collecting the securities and funds due from its clients.
The transfer of securities ownership between the clearing participant and its client shall be executed by the CSDCC.
Article 49 The CSDCC will settle the net outstanding money/stock position at the stated settlement period by taking the money or securities due from the clearing participant, whilst making the payment or delivery of securities it owes to the clearing participant on an irrevocable basis.
The clearing participant who fails to make full payment of any sum payable or fails to deliver the securities due on a timely basis may not receive the money or securities due from its counterparty.
With regard to a clearing participant involved in proprietary trading, brokerage, and asset management activities simultaneously, the CSDCC may select to apply the funds in its Proprietary Cash Clearing Account to meet the liabilities owed by its client, provided that the funds in the Brokerage Cash Clearing Account are insufficient to meet the liabilities.
Article 50 When the central settlement closes, the clearing participant shall settle the payment or transfer of securities due to the clients.
The transfer of securities ownership between the clearing participant and its client shall be executed by the CSDCC.
Article 51 The CSDCC shall specify in its operating rules the settlement period for the central settlement of delivery of securities or money obligation between the CSDCC and its clearing participants, and the settlement of payment or transfer of securities between the participants and its clients respectively.
The clearing participants shall guarantee the satisfaction of the settlement obligations owed to both the CSDCC and the client within the stated settlement period as prescribed by the CSDCC.
Article 52 The clearing participant may request the CSDCC to take remedial actions towards the error in calculation of net money position or stock settlement positions for which the CSDCC assumes direct responsibilities, and to indemnify the clearing participant against any direct losses incurred as a result of the error, provided that the participant has satisfied any of the delivery or payment obligations.
Chapter 7 Risk Management and Default Rules
Section 1 Risk Management Measures
Article 53 To reduce the risk exposures associated with the securities depository & clearing operations, the CSDCC shall have in place effective risk management measures as follows:
(1) establishing effective risk management mechanism and internal control systems;
(2) constructing advanced technical systems with a set of technical standards and specifications adopted and followed by both the CSDCC and the clearing participants;
(3) developing sound admission criteria and risk assessment procedures applicable to the clearing participant applicant and the Designated Clearing Bank respectively; and
(4) making backup copies for clearing data and technical systems; formulating contingency plan and procedures in case of emergency
Article 54 The CSDCC shall work with the stock exchange to institute a risk control and management system with respect to the systematic risk of the securities market.
The CSDCC shall enter into a cooperation agreement with the stock exchange to define the respective obligations and rights of each party.
Article 55 The CSDCC shall coordinate the establishment of a Securities Clearing and Settlement Joint Guarantee Fund by the clearing participants on a risk sharing basis, which shall be used to provide guarantee of settlement in the event of defaults by clearing participant.
Rules concerning the fund establishment, application, administration and contribution in regard to the Joint Guarantee Fund shall be set out by the CSDCC in its operating rules.
Article 56 The CSDCC may require a clearing participant to provide collateral as security in respect of its obligations and liabilities to the CSDCC (the Settlement Collateral) or impose other risk control measures from time to time against a participant with regard to the participant’s particular risk exposure.
The specific amount of the collateral to be provided by the clearing participant shall be prescribed and adjusted by the CSDCC from time to time in proportion to the risk exposure of the participant.
The Settlement Collateral shall be strictly segregated from the assets of the CSDCC and be protected from unauthorized application. The CSDCC shall maintain a separate record of the Settlement Collateral provided by each clearing participant.
Article 57 The clearing participant is encouraged to deposit additional fund into the Cash Clearing Account as a reserve (the Reserve Fund) to meet the clearing and settlement liabilities.
The Reserve Fund shall be strictly segregated from the funds owned by the CSDCC and be protected from unauthorized application. The CSDCC shall maintain a separate record of the Reserve Fund deposited by each clearing participant.
Article 58 The CSDCC shall establish and maintain a Pledged Securities Safe Deposit Account used to keep the pledged securities handed over by a participant in connection with collateralized repurchase agreement.
Article 59 The following funds and securities that are collected or received by the CSDCC must be restricted to the use of securities clearing & settlement purposes under applicable CSDCC operating rules and procedures and shall be immune to any legal enforcement measures:
(1) funds or securities used as guarantee of settlement, such as the Securities Settlement Reserve Fund, the Securities Clearing & Settlement Joint Guarantee Fund, the Settlement Collateral, the Pledged Securities in connection with collectivized repurchase agreement, etc.;
(2) securities or funds held in the Central Securities Clearing Account, Central Cash Clearing Account, the Designated Escrow Account, or other designated accounts for settlement purposes;
(3) securities held in the Stock Clearing Account or the Securities Disposition Account for the participant; the funds held in the participant’s Cash Clearing Account in the amount that is payable under the transactions concluded;
(4) securities and funds held by investors that are subject to the settlement process under securities transactions concluded; and
(5) the bank deposit of the CSDCC, including the reserve funds provided by the participant for settlement purposes held in a special bank saving account, the special bank settlement account for subscription of new issues, and the bank deposit reserved for distribution of interest, dividend or other benefit entitlement.
Article 60 the CSDCC may establish line of credit with the bank, or pledge the securities kept in the Designated Escrow Account as security against bank loans as it thinks necessary for the purpose of financing its obligations and liabilities in relation with the central securities depository and clearing services.
Section 2 Default rules
Article 61 The CSDCC shall establish a Designated Escrow Account to detain the securities to be delivered to a receiving participant or the funds payable to a delivering participant in the event of defaults on settlement.
Article 62 In the event that a participant defaults in payment of any sum payable to the CSDCC, the following procedures shall be implemented:
(1) The defaulting participant shall forward to the CSDCC a Securities Transfer Instruction within a stated time period, detailing, (a) the descriptions and quantities of the securities for which the payment has been made in full and the designated account to be accredited with such securities; and (b) the descriptions and quantities of the securities for which the payment has not yet been made. Title and property in such unpaid securities (securities-on-hold) shall not pass to such participant as the case may be.
(2) Upon reception of the Securities Transfer Instruction within the stated time period, the CSDCC shall make delivery of the securities for which payment has been made in full whereas transfer the securities for which payment has not yet been made in full in the Designated Escrow Account in line with applicable clearing and settlement operating rules. In addition, The CSDCC must request the defaulting participant to put up additional fund or provide additional settlement collateral to meet the outstanding payment obligation.
Failure by the clearing participant to forward the valid Securities Transfer Instruction within a prescribed time limit constitutes a material settlement default. In that case, the CSDCC is entitled to put on hold all of the securities to be delivered to the defaulter, regardless of whether paid or not, in the Designated Escrow Account, and request the defaulting participant to put up additional funds or provide equivalent collateral to satisfy the outstanding payment.
Should the default continue to remain unsatisfied given the application of the proceeds of realization of the securities put on hold, the additional deposit of funds or the collateral provided by the defaulter, the CSDCC has the right to make a debit entry to the proprietary securities account of the defaulting participant and a corresponding credit entry to the Designated Escrow Account for the amount equivalent to the shortfall. The CSDCC will notify the participant affected of such transfer of securities afterwards.
Article 63 In the event that a participant defaults in payment of any sum payable to the CSDCC, the CSDCC has the power to apply the funds available towards the satisfaction of any amount due to the CSDCC In the following order of priority:
(1) cash collateral provided by the defaulting participant;
(2) cash held in the Joint Guarantee Fund that is contributed by the defaulting participant;
(3) cash held in the Joint Guarantee Fund that is contributed by clearing participants other than the defaulter;
(4) cash in the Securities Settlement Reserve Fund; or
(5) other funds available
Article 64 In the event that a participant defaults in delivery of securities, the CSDCC is entitled to delay the payment due to the delivering participant until the outstanding obligation is satisfied.
The CSDCC shall hold the amount to be paid to the delivering participant in the Designated Escrow Account and notify the participant affected of the amount put on hold. The defaulter shall put up additional valid securities or provide equivalent collateral acceptable to the CSDCC to satisfy the outstanding delivery obligation.
Article 65 In the event of a default on the part of a participant to fulfill its delivery obligations, the CSDCC may apply all or any of the equivalent securities in lieu of the securities that are the subject of the delivery obligations from the following sources towards the satisfaction of the obligations and liabilities of such participant to the CSDCC:
(1) securities furnished by the defaulter;
(2) securities purchased using the funds in the Designated Escrow Account;
(3) securities available to the CSDCC from other alternative sources
Article 66 Should the default on payment or delivery obligations continue unremedied within the stated time limit, the CSDCC may select to sell the securities collateral furnished by the defaulter, the pledged securities in connection with collateralized repurchase agreement, or the Securities-on-hold in the Designated Escrow Account.
The CSDCC may apply the proceeds from the sale of the above said securities towards the satisfaction of the payment or delivery obligations or the reimbursement of any expense or costs incurred; the balance of such sale proceeds remaining after satisfaction of all obligations and liabilities may be returned to the defaulting participant. If the outstanding obligations remain unsatisfied after application of the proceeds, the CSDCC may exercise recourse against the defaulting participant on the outstanding obligations or any cost or expense incurred.
Should the recourse against the defaulting participant fail, the CSDCC has the right to apply the funds in the Securities Clearing & Settlement Joint Guarantee Fund or the Securities Settlement Reserve Fund towards the satisfaction of the outstanding obligations or any cost or expense incurred from the default without prejudice to the right of the recourse in respect of the default.
Article 67 the CSDCC may require a participant that fails to discharge its payment or delivery obligations on due date to pay to it default fees under applicable provisions. The defaults fees will be credited to the Securities Settlement Reserve Fund.
Article 68 The CSDCC is entitled to take any of the following actions or such other action against a clearing participant upon the occurrence of an event of material default in any of the delivery or payment obligations:
(1) to restrict or prohibit the defaulting participant from having access to and/or using any or all of the clearing house’s facilities, suspend or revoke the clearing house participantship, and refer the matter to the stock exchange for imposition of sanctions on the trading activities of the defaulting participant;
(2) to refer the matter to the CSRC for instigating disciplinary actions against the defaulter including withdrawal or revocation of securities business license, as well as disciplinary actions against the chief in charge or other individuals involved severally or jointly, such as issuance of a warning, imposition of a fine, revocation of the qualifications for holding a senior office or securities practitioner qualifications, etc.
The CSDCC shall work with the stock exchange concerned to establish separate rules and procedures with respect to imposition of market trading activities sanctions against a defaulting clearing participant, and submit the procedures to the CSRC for approval.
Article 69 The CSDCC shall make full and itemized disclosure in its annual report with regard to its application of the resources of the Securities Clearing & Settlement Joint Guarantee Fund and the Securities Settlement Reserve Fund, as well as disclosures about any disciplinary actions or sanctions activated against defaulting participants as set out in Article 67.
Section 3 Participant-versus-Investor Default Rules
Article 70 The clearing participant may hold the securities to be delivered to its client in a Securities Disposition Account opened with the CSDCC under applicable provisions set out by the CSDCC until it has received payment in full in respect of the Securities-on-hold.
Article 71 The Clearing Participant may require a client to provide certain amount of collateral in certain form or impose other risk control measures as it thinks fit given the level of the client’s risk exposure.
The specific level of the collateral required of the investor is to be determined on an ex-ante basis in the agreement on securities brokerage, custody, and clearing services entered into by the participant and the individual client.
Article 72 In the event of a client default in any of the payment obligations due to the clearing participant, the clearing participant may instruct the CSDCC to transfer the net securities to be delivered to the defaulting client to its Securities Disposition Account instead, while inform the defaulting client to top up the outstanding payment obligations owed to the participant within the predefined time limit.
Article 73 In the event of a client default in delivery obligations owed to the clearing participant, the clearing participant may suspend the corresponding payment against such securities.
Article 74 Should the default by a client in any of its payment or delivery obligations continue unremedied within the predefined period, the participant may sell or utilize the securities or funds held in the Securities Disposition Account towards the satisfaction of any outstanding obligations.
The participant may apply the sale proceeds or the funds as said before towards the satisfaction of the payment or delivery obligations or the reimbursement of any expense or costs incurred; the balance of such sale proceeds or funds remaining after satisfaction of all obligations and liabilities shall be returned to the defaulting client. Conversely, if the outstanding obligations remain unsatisfied after application of the proceeds or the funds, the participant may exercise recourse against the defaulting client on the outstanding obligations or any cost or expense incurred
Article 75 The clearing participant shall be liable for the breach of its obligations to make timely payment due to the client and/or instruct the CSDCC in a timely manner to debit certain quantity and type of securities owing to the client from its Stock Clearing Account and simultaneously make a corresponding credit entry to the securities account of the receiving client. The participant must indemnify the client for any loss suffered by the client in respect of such default.
Article 76 A client default does not constitute a justifiable ground for a clearing participant to be exempted from its settlement obligations owed to the CSDCC, or to prejudice the operation of central clearing & settlement (whether concluded or ongoing) as well as the CSDCC’s execution of transfer of securities.
Article 77 The rules can be applied to the securities clearing and settlement procedures with regard to non-clearing-participant securities company versus investors.
Chapter 8 Supplementary Provisions
Article 78 The following expressions contained in these Rules shall, unless the context otherwise requires, bear the following meanings:
“Securities Registration” means the securities registration services provided by the CSDCC, where the CSDCC is entrusted by the issuer to establish and maintain a shareholder register as a form of share certificate evidencing title to securities.
“Stock Custody” means share custodial services offered by the securities company to retail investors including safekeeping of shares and management of corporate actions (e.g. collection of dividend, coupons, share entitlements, etc.) on behalf of the client.
“Stock Depository” means central depository and custodian of securities with the CSDCC, whereby the CSDCC provides safekeeping facilities for securities registered in the name of either a securities company or its clients, as well as caters for distribution of dividend, interest and other share entitlements, etc. on behalf of the beneficiary owner.
“Securities Clearing & Settlement” means clearing and settlement of securities transactions, i.e. netting of the total number of and settlement of financial obligations either delivery or payment obligations.
“Clearing” means a prescribed process under which the various obligations owed to or by a participant, as between that participant and all the other participants will be netted and converted into one net obligation owed to or by the participant.
“Settlement” involves the delivery of securities to perform contractual delivery obligations, as well as the corresponding payment of the purchase price on a netted basis.
“Nominal Holder” refers to the entity that is appointed to hold the securities as the nominee on behalf of the beneficiary owner.
“Clearing Participant” means a registered securities company or other institution admitted by the CSDCC to participant in the central clearing and settlement system.
“Central Counterparty” refers to the entity acting as a buyer to every seller and as the seller to every buyer of every trade registered with and cleared through it. The Central Counterparty serves to provide settlement guarantee.
“Delivery versus Payment” refers to a mechanism in an exchange-for-value settlement system which ensures that the final transfer of securities occurs if, and only if, the final payment for the purchase price occurs (i.e. delivery contingent on payment and vice-versa).
“Multilateral Netting” means a clearing and settlement arrangement whereby the CSDCC sets off the obligations to deliver securities or the amounts to be paid between each clearing participant to arrive at a net money position or net delivery obligation for each participant due to or from the CSDCC, and make the final settlement accordingly.
“Central Stock Clearing Account” means an account at the CSDCC used to settle the obligation for transfer of securities between the CSDCC and clearing participants under the multilateral netting arrangements.
“Central Cash Clearing Account” means an account at the CSDCC used to settle money obligations between the CSDCC and clearing participants under the multilateral netting arrangements.
“Stock Clearing Account of the Participant” means an account established in the CSDCC for each clearing participant used to make or take delivery of securities. In relation to a clearing participant involved in proprietary trading, brokerage, and asset management activities simultaneously, the Stock Clearing Account consists of two separate accounts- the Brokerage Stock Clearing Account for settlement of brokerage trading, and the Proprietary Stock Clearing Account for settlement of proprietary trading.
“Cash Clearing Account of the Participant” means an account established in the CSDCC for each clearing participant used to settle the payment obligations. In relation to a clearing participant involved in proprietary trading, brokerage, and asset management activities simultaneously, the Cash Clearing Account consists of two separate accounts- the Brokerage Cash Clearing Account for settlement of brokerage trading, and the Proprietary Cash Clearing Account for settlement of proprietary trading.
“Designated Escrow Account” means an account at the CSDCC used to hold the securities or funds until the corresponding delivery or payment is confirmed.
“Securities Disposition Account” means an account established in the CSDCC for a clearing participant used to hold the securities for which a client fails to make timely payment.
“Pledged Securities Safe Deposit Account” means the account at the CSDCC for the purpose of safekeeping of the securities or other collateral provided by clearing participants with respect to repurchase agreement.
“Securities Clearing Excess Reserve” refers to the fund deposited by a clearing participant in its Cash Clearing Account in the amount that there is sufficient to meet the liabilities of the participant to the CSDCC.
“Securities Clearing & Settlement Joint Guarantee Fund” refers to the fund contributed by all the clearing participant used to replenish the level of liquidity or to indemnify the CSDCC against losses incurred due to default by a clearing participant.
Article 79 Financial institutions other than the securities company may apply to the CSDCC for approval to engage in securities services ranging from opening of securities account at the CSDCC, securities custodial services, to securities clearing and settlement agency services in accordance with the Rules.
Article 80 All questions concerning the interpretation or application of or any other matter and revisions in connection with these Rules, shall be determined by the CSRC whose decision shall be final and binding on all parties.
Article 81 The Rules shall take effect on July 1, 2006.
The China Securities Regulatory Commission
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