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In order to further regulate the product development and other business activities of the publicly offered index funds on the exchange, promote the sustainable and healthy development of index funds, and protect legitimate rights and interests of investors, in accordance with the Guidelines No. 3 for Operation of the Publicly Offered Securities Investment Funds - Guidelines for Index Funds (the “Index Fund Guidelines” for short) issued by the China Securities Regulatory Commission (CSRC), the Shanghai Stock Exchange (SSE) formally released the Guidelines No. 1 of Shanghai Stock Exchange for the Application of the Self-Regulation Rules for Funds - Development of Index Funds (the “Index Fund Development” for short) on January 22.
In recent years, with the unified deployment of the CSRC, the SSE has adhered to the underlying principle of pursuing progress while ensuring stability, actively advanced the development of innovative products on the SSE’s fund market, guided the effective allocation of resources, boosted the high-quality development of the real economy, built bridges for the connectivity between the domestic and cross-border markets, improved the layout of products, and supported national strategies. With the size rapidly expanded and the products increasingly enriched to cover stocks, bonds, commodities, cross-border ETFs and money market funds, the index funds listed on the SSE have become an important instrument for investors' asset allocation and a major force participating in the capital market. As of the end of 2020, the size of the ETFs on the SSE exceeded RMB900 billion, an increase of over 50% from the end of 2019. For the whole year of 2020, the ETFs on the SSE recorded a turnover of more than RMB10 trillion. Specifically, the turnover of equity ETFs (including cross-border ETFs) amounted to RMB4.76 trillion, doubling that for the entire year of 2019.
The SSE has drafted the Index Fund Development to further clarify the specific regulatory requirements for the listed index funds such as ETFs, based on the provisions of the upper law. First, it is stipulated that the Index Fund Development is applicable to index funds. Index funds refer to ETFs and index LOFs that comply with the provisions of the Index Fund Guidelines, are listed and traded on the SSE and adopt full duplication or sample duplication for investment operations. Second, the specific indicators for the quality of the underlying indexes of the newly developed index funds are defined. Specific requirements are made for the number of constituent securities, weight distribution, index operation time, liquidity and other indicators of the underlying indexes of the index funds. In accordance with the principle of "separating the new from the old", the index funds that have been approved by or registered at the CSRC before the implementation of the Index Fund Development are not subject to the indicators. Third, the development procedures of index funds have been clarified. When a fund manager applies to the SSE for the development of an index fund, it is required to submit the index compilation plan, the explanation and pledge that the index meets specific indicators, and other materials. The SSE will issue a letter of no objection to the applicants that meet the requirements. Fourth, it is required that the index funds should complete the opening of positions before listing, so that the composition of the fund's investment portfolio conforms to the provisions of relevant laws and regulations, departmental rules and regulatory documents, and the agreements in the fund contract and other legal documents, reflecting the basic characteristics that index funds should track indexes.
On July 31, 2020, the SSE issued the Guidelines of Shanghai Stock Exchange for Development of Index Securities Investment Funds (Draft for Comment) (the "Development Guidelines" for short) in the market. On the whole, the public basically recognized the relevant arrangements for the development of index funds in the Development Guidelines, and the feedback focused on the requirements for some index indicators. With careful analysis, the SSE has adopted the common opinions and suggestions, including appropriately relaxing the time for the release of the underlying index of the index fund to be developed and adequately reducing the requirements for the liquidity of constituent securities, and improved some textual expressions.
The year of 2021 marks the 100th anniversary of the founding of the Communist Party of China (CPC), and it is also the first year for the 14th Five-year Plan. The SSE will earnestly implement the requirements at the 5th Plenary Session of the 19th CPC Central Committee, closely follow the requirements for accelerating the formation of a new development paradigm, improve the financial market system, the product line, the institutional framework and the infrastructure system, develop the international financial asset trading platforms, give better play to the pivotal role of the capital market in promoting the high-level circulation of the technology, the capital and the real economy, and strive to build itself into a world-class exchange.
