Laws and Regulations
Measures for the Administration of Securities Investor Protection Fund
Chapter 1 General Provisions
Article 1 These measures are formulated for the purpose of establishing long-term effective mechanism in the prevention and disposal of risks of securities companies, protecting the legitimate rights and interests of investors and promoting the orderly and sound development of securities market.
Article 2 Securities investor protection fund (hereinafter referred to as Fund) is a kind of fund raised and formed in accordance with these measures and aims to protect the interests of securities investors in the prevention and disposal of risks of securities companies.
The wholly state-owned China Securities Investors Protection Fund Corporation (hereinafter referred to as SIPF) is responsible for the raising, management and operation of the Fund.
Article 3 The Fund is mainly used to indemnify creditors in accordance with China’s relevant policies.
Article 4 Securities trading activities shall adopt such principles as openness, fairness and equity. Investors shall make the investment decision and bear the investment risks on their own.
During the investment activity, losses caused by the fluctuations of securities market or change in the value of the investment products shall be borne by the investors themselves.
Article 5 Funds shall be raised from and used in the market. The method and standard of raising the Fund shall be determined by China Securities Regulatory Committee (hereinafter referred to as CSRC), Ministry of Finance as well as People’s Bank of China.
Article 6 SIPF shall operate and work independently according to the relevant laws and regulations of China as well as these measures. The board of directors of SIPF shall be responsible for the compliant usage and safety of the Fund.
Chapter 2 The Functions and Organizational Structure of SIPF
Article 7 The functions of SIPF are:
(1) Raising, management and operation of the Fund;
(2) Monitoring the risks of securities companies and participating in the risk disposal of securities companies;
(3) Indemnifying creditors as required by China’s relevant policies in case a securities company is subjected to compulsory regulatory measures including dissolution, closure, bankruptcy and administrative takeover by CSRC and trustee operation;
(4) Organizing and participating in the clearing of the dissolved, closed or bankrupt securities companies;
(5) Management and disposal of the foreclosed assets and safeguarding the rights and interests of the Fund;
(6) Putting forward the supervision and disposal suggestions to CSRC in case a securities company’s operation and management have material risks that may damage investor’s interests and the safety of the securities market; Joining relevant authorities in establishing a rectification mechanism for the potential risks arising from the operation of securities companies;
(7) Other functions approved by the State Council.
Article 8 SIPF shall establish the mechanism for sharing the securities companies’ information with CSRC. CSRC shall notify SIPF statistical materials of operating and management information including the finance and business of the securities companies.
Where the potential risks of a securities company are found, CSRC shall, in accordance with relevant provisions, directly report SIPF the operating and management information as well as materials including the finance and business of the securities company.
Article 9 SIPF has a board of directors composed of nine directors. The Chairman is appointed by CSRC and approved by the State Council.
Article 10 The board is the decision-making organ of SIPF and is responsible for establishing the basic management systems, determining the setup of internal management structure, appointing and removing senior management, making decisions on important matters such as the raising, managing and operating of the Fund and performing other duties stipulated in the articles of association of SIPF.
Article 11 The board holds quarterly meetings as well as the temporary meetings when the chairman of the board or above 1/3 of the directors proposes jointly. The meeting could be held when 2/3 of the directors attend and decisions could be made when 1/2 of the directors vote to pass.
Chapter 3 Raising of the Fund
Article 12 Fund sources:
(1) 20% of the trading brokerage when the venture capitals of Shanghai Stock Exchange and Shenzhen Stock Exchange reach their respective upper limits.
(2) 0.5%-5% of the operating income of securities companies registered within the territory of China (excluding Hong Kong, Taiwan and Macau).
Those securities companies who have lower level of operation and management and higher level of risks shall pay the Fund in a higher proportion. SIPF shall determine the specific proportions for all securities companies after examining the corresponding risks and submit to CSRC for approval. Such proportions are revised annually. The Fund paid by securities companies is from the operating cost.
(3) Interest income from the frozen capital used to subscribe for such securities as stocks and convertible bonds;
(4) Compensation from relevant responsible parties and income of indemnify from liquidation of bankrupt securities companies;
(5) Donations of domestic and overseas institutions, organizations and individuals; and
(6) Other lawful income.
Article 13 Ministry of Finance injected the yearly interest differentials balance deposited in a special account from the frozen capital used to subscribe new shares as the registered capital of SIPF when SIPF is established. People’s Bank of China advances initial capital for the Fund and grants the special reloan whose upper limit is subject to the standard approved by the State Council.
Article 14 SIPF may adopt various ways of financing for the prevention and disposal of the risks arising from securities companies. SIPF may, upon the approval of the State Council, obtain special financing by issuing bonds if necessary.
Article 15 China Securities Depositary and Clearing Co. Ltd (hereinafter referred to as CSDCC) shall withhold and collect the Fund that securities companies shall pay in line with a certain proportion of the commission. Securities companies shall, in accordance with the revenue after auditing and the proportion approved in advance, confirm the amount of Fund they shall pay, and shall submit relevant report and pay the corresponding Fund to SIPF in the shortest possible time.
Securities companies who do not engage in securities brokerage business shall prepay the fund in accordance with the quarterly revenue and the predetermined proportion within 10 working days after each quarter and shall report to SIPF for paying up the Fund after determining the final amount through the annual audit.
Article 16 CSDCC and the stock exchanges shall pay part of interest earnings from frozen capital of securities purchasing and trading brokerage to SIPF according to a certain proportion. This part shall be paid to the account designated by SIPF within 10 working days after each quarter.
Chapter 4 Use of the Funds
Article 17 the fund shall be used:
(1) To indemnify creditors as required by China’s relevant polices in case a securities company is subject to compulsory regulatory measures, including dissolution, closure, bankruptcy, administrative takeover by CSRC and trustee operation;
(2) Other uses approved by the State Council.
Article 18 CSRC shall, in accordance with the risk conditions of securities companies, formulate risk disposal plans and SIPF shall make the usage plan of the Fund when it is needed in the process of risk disposal of securities companies. SIPF shall deal with the concerning matters of releasing the Fund after the approval from the State Council.
Article 19 SIPF shall, in accordance with laws, join the clearing work of securities companies when it gets the rights of indemnification after indemnifying relevant creditors under the usage of the Fund,
Chapter 5 Management and Supervision
Article 20 SIPF shall follow the safe and sound principles to fulfill the responsibility of the Fund’s operation and guarantee the safety of the Fund, in accordance with laws and regulations.
The usage of Fund is limited in bank deposits, bonds purchases, central banks bonds (including central banks bills), financial bonds issued by central financial institutions and other forms approved by the state council.
Article 21 The operating costs of SIPF are in line with relevant national rules. The board of directors is responsible for the formulation of the operating costs including the scope, standard, budget and settlement, and etc. The formulation shall be submitted to Ministry of Finance for approval.
Article 22 CSRC is responsible for monitoring SIPF in raising, management and operation of the Fund.
Ministry of Finance is responsible for the state-owned assets management and the financial supervision of SIPF.
People’s Bank of China is responsible for confirming, supervising and examining the use of re-loans.
Article 23 SIPF shall establish scientific performance appraisal system and submit the appraisal results to CSRC, Ministry of Finance, and People’s Bank of China at regular intervals.
Article 24 SIPF shall establish information reporting system, prepare and submit the monthly reports, seasonal reports for the raising, management and operation of the Fund to CSRC, Ministry of Finance and People’s Bank of China.
SIPF shall submit the annual special reports about the financial revenue and expenditure as well as the implementation of budgets and settlements to Ministry of Finance and accept the supervision and inspection.
SIPF shall submit the annual special reports about the usage of the re-loans and accept the supervision and inspection.
Article 25 CSRC shall submit a yearly report to the State Council about the operation of SIPF as well as the risk disposal of securities companies, and send a duplicate to the Ministry of Finance and People’s Bank of China respectively.
Article 26 Securities companies, as well as the custody and clearing institutions shall use the Fund as required and any misappropriation is prohibited.
SIPF shall conduct inspection towards the usage of the Fund or entrust intermediary institutions for special audit. Relevant Securities companies, trust & clearing institutions, units and individuals shall cooperate with the inspection.
Article 27 SIPF, securities companies, as well as the custody and clearing institutions shall keep the receipt and remittance documents, payment list and original vouchers with due care to make sure the completeness of original files and shall establish the fund accounting books.
Article 28 CSRC shall supervise securities companies to pay the full Fund and submit such management information and materials as finance and business to SIPF on schedule. CSRC shall in accordance with relevant provisions take measures against those securities companies for rejecting or deliberately delaying the Fund payment and failing to comply with prescribed provisions in submitting relevant information and materials.
Article 29 Such illegal acts as misappropriation, embezzlement and fraud of the Fund shall be severely cracked down in line with laws. Any relevant personnel who misconduct duties shall be investigated in accordance with laws and any suspect shall be transferred to judicial authorities for criminal liability.
Chapter 6 Supplementary Provisions
Article 30 The Custody and Clearing institutions mentioned in these measures refer to a group who conduct administrative takeover to securities companies, conduct trustee operation or a clearing group established in accordance with laws when securities companies are subject to administrative takeover, trustee operation, closure, dissolution or bankruptcy.
Article 31 These measures shall take effect as of July 1, 2005.
Article 32 CSRC, Ministry of Finance and People’s Bank of China is responsible for the explanation of these measures.
(This English version by China Securities Investor Protection Fund Co., Ltd. is for your reference only. In case any discrepancy exists between the Chinese and English context, the Chinese version shall prevail.)
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