To cooperate with the exchanges' seat administration system reform, reinforce the self-regulatory supervision and realize members' trading admittance management and beforehand control, the "SSE Member Management Rules" and the "SZSE Member Management Rules" (hereinafter jointly referred to as "Member Management Rules") have made in special chapters the regulations for seats, PBUs and trading jurisdiction management.
I. Defining new systems for exchanges' administration of seats and PBUs to effectively protect the members' legal rights and interests
The "Member Management Rules", with fundamental regulations for the seats and PBUs, have defined the new systems for exchanges' administration of seats and PBUs, which provided code of conduct for the exchanges to smoothly impel the seat administration mode reform. According to the regulations in the "Member Management Rules", a member should at least hold one exchange's seat and participate in securities trading through PBUs. Upon repeated consideration, the "Member Management Rules" have clearly restricted the total number of seats. After taking the difference of the two exchange's current remaining seat amount into account, the regulations in the two exchanges for total number of seats differ slightly. The Shenzhen Stock Exchange (SZSE) has made the principle of "control for total number of seats" while the Shanghai Stock Exchange (SSE) has clearly put forward "restriction to total number of seats and no more additional seats". The restriction to total number of seats in the "Member Management Rules", a significant concept change in the exchanges' seat administration, will be an important method to protect the rights and interests of members.
The SSE has finalized the "SSE Detailed Rules for Implementation of PBUs" and relevant notices and is about to issue and implement them. The SZSE issued and implemented on January 1, 2007 the "SZSE Detailed Rules for Administration of Seats and PBUs" and relevant business guidelines. The two exchanges' new systems for administration of seats and Participant Business Units (PBUs) have solved the problem of the seats' rights and attributes as well as rationalized the relationship between seats and PBUs. According to the two exchanges' detailed rules, the seats stand for the rights and interests of the members in the exchanges, while the PBUs are carriers, through which the exchanges can provide services for members' trading activities and supervise them. Upon application by the members to exchanges, the PBUs are set as the basic business units to participate in securities trading and receive supervision and services. In line with the market fairness, the new systems are more flexible for members' trading management and support members to strengthen their internal risk control capacities, thus better protecting the rights and interests of the members.
II. Establishing trading jurisdiction management system and strengthening exchanges' self-regulatory supervision function
In the past, some members abused their trading jurisdiction in business like treasury bonds repo and took chances in malicious overdraft, which brought great risks to investors and market. All the facts have called the exchanges to administrate members' trading jurisdiction. To meet this demand, the "Member Management Rules", combining with the exchanges' previous practice in new products and businesses such as the warrants, has established a trading jurisdiction management system. Such a system requires that when participating in trading products, modes and scales introduced by exchanges, members should meet stipulated qualifications. Based on relevant rules, the exchanges will carry out supervision on members' trading jurisdiction according to their business scopes, operation conditions, market risk tolerance, trading and other related systems' conditions, internal risk control, professionals allocation and their behaviors in abiding by exchanges' business rules. Meanwhile, the exchanges can set, adjust and restrict the members' trading products, modes and scales on the stock exchanges.
The exchanges' trading jurisdiction management system is, in essence, to prevent the members from trading that is out of their risk tolerance, and thus keep them away from trading risks. What's more, to give full play to the self-regulatory supervision in cooperation with administration supervision, the trading jurisdiction management will be combined with the to-be-implemented business license management of the China Securities Regulatory Commission (CSRC). The trading jurisdiction management, to achieve the purpose of preventing trading risks, takes more detailed and timely measures for risk control under the precondition of CSRC's business permission. All this has met the requirements of pushing forward supervision pass, which was put forward at the symposium on comprehensive governance of securities companies.
The regulations of trading jurisdiction management in the "Member Management Rules" emphasize mainly on rights. Specific qualifications and scale management will be regulated in the detailed rules on business implementation of new trading products and modes introduced by the exchanges. So far, the two exchanges has carried out trading jurisdiction management in such businesses as the treasury bonds buy-out repo, the SSE Mutual Funds Distribution Channel, the warrant business, the ETF subscription and redemption, and the LOF subscription and redemption.
