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Upon approval by the China Securities Regulatory Commission (CSRC), the Shanghai Stock Exchange (SSE) has recently released the “SSE Guidance for Business Management on Split-capital Funds” (the “Guidance” for short). As a major system arrangement for ensuring sound operation of the fund market, the “Guidance”, with the ideas of “let the buyers beware” and “let the sellers perform their duties”, specifies the investor suitability arrangement of the split-capital funds’ secondary market, the requirements for investors to sign “Risk Disclosure Statement of Investment in Split-capital Funds”, and the risk alert arrangement for fund mangers and securities companies.
According to an SSE official, the SSE solicited opinions from the public for the “Guidance” from September 9 to October 9, to which all market participants paid high attention, with a total of 535 opinions received by email, including 53 from institutions and 482 from individuals. Generally, they acknowledged the “Guidance” and gave opinions and suggestions for optimization and improvement. Upon study, the SSE accepted some opinions and adjusted and improved the “Guidance” as follows: (1) A sixth article was added, that is, the exchange, according to the market condition or as requested by fund managers, may suspend the subscription for split-capital funds and the application for partition and merger of funds, or carry out trading suspension and resumption. (2) The stipulation of one-hour trading suspension on B-category fund units on the afternoon of the down-conversion benchmark day was deleted. (3) It specified that investors shall sign the “Risk Disclosure Statement” in a written form on site at the relevant business department. (4) Contents of some articles were adjusted and perfected. The official introduced that for the most raised opinions and suggestions on lowering the threshold of investor suitability, no adjustment is made as the “Guidance” had made full survey and demonstration for the investor suitability of split-capital funds. Besides, some opinions and suggestions were not accepted as they are not covered by the “Guidance”, or have no conditions for implementation.
The main content of the “Guidance” includes: (1) The investor suitability system has been improved to enhance management on and risk disclosure of investors’ entry. By referring to the merits of high-risk financial products such as stock index futures and the business of margin trading and securities lending in investor suitability management, a threshold of securities assets worth RMB300,000 has been set for investors, and it is required that individual investors and general institutional investors should go through a comprehensive assessment and sign a risk disclosure statement of investment in split-capital funds before starting their split-capital funds trading and getting relevant permissions. Investors not meeting the above conditions for investor suitability may still continuously hold or sell the units of split-capital funds currently held by them at their discretion. (2) Risk alert measures have been strengthened to improve the pertinence and effectiveness of risk alert to investors. For the split-capital funds which may undertake or have undertaken down-conversion with high premium in B-category fund units, the relevant fund managers are required to issue an announcement on risk alert, and the members should timely disclose risk alert to investors as required by the exchange. (3) The investor education system has been improved to urge fund mangers and members to fulfill the duty of investor education. They are required to fully disclose risk alert of split-capital funds and better serve investors to properly handle disputes. (4) Investors’ responsibilities and obligations have been specified and investors’ risk awareness has been enhanced. Investors are required to observe the principle of “let the buyers beware”, and as requested by members, provide all the credentials of investor suitability management and be accountable for the authenticity, correctness and legality of the credentials. Besides, according to the existing operation and management system of split-capital funds, the “Guidance” further specifies the split-capital funds’ conversion business process, so that investors can correctly understand the conversion mechanism of split-capital funds.
The official added that a transitional period was set between the release of the “Guidance” and its official implementation, in a bid to ensure that relevant sides would make full preparations and the market trading would be in normal order. According to the notice of issuing the “Guidance”, the “Guidance” will take effect from May 1, 2017. Securities companies should complete relevant preparations for their business and technologies before February 25, 2017. After that, they may grant relevant permissions of split-capital funds to eligible investors. Investors without permissions will not be able to buy split units of split-capital funds and partition basic units of split-capital funds after May 1, 2017, but they may continuously hold or sell the units of split-capital funds currently held by them at their discretion.
