2 March, 2016
On February 3, 2016, the State Administration of Foreign Exchange (“SAFE”) reissued the Provisions on Foreign Exchange Administration of the Domestic Securities Investment by Qualified Foreign Institutional Investors (“New Regulation”), which came into force the same day.
The New Regulation loosens certain restrictions of the original provisions in terms of the administration of the investment quota, lock-up period and capital inflow and outflow of the Qualified Foreign Institutional Investors (“QFIIs”) to promote further participation by QFIIs in the domestic securities market. Below is a summary of key amendments compared with the originalprovisions.
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New Regulation |
Original Provisions |
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Administration of Investment Quota |
Calculate the basic quota based on the AUM of the applicant and implement a record filing system for basic quota applications; for an application within a basic quota, the custodian bank will examine the relevant materials provided by the applicant, verify the quota and then |
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report to SAFE for filing and confirmation.
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restriction); in investment quota within 1 year of the preceding approval for investment quota. |
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Inbound Remittance
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No requirement on the time frame for the inbound remittance of QFII’s investment principal, however, if the investment quota of a QFII has not been effectively used within 1 year after the date of filing or approval, SAFE may cancel all or part of the unused investment quota.
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the balance of QFII’s investment quota: the accumulated net capital inflow of a QFII shall not exceed the filed or approved quota; a QFII may, at its discretion, make an outbound remittance of its investment principal and returns, and its investment quota will not be reduced in line with outbound remittance of investment principal. |
open-ended fund, the investment quota of the QFII shall be reduced upon calculation of the principal amount based on the proportion between the investment principal and profit and loss. |
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Lock-up Period of Investment Principal |
3 months, commencing on the day the accumulative total investment principal remitted inbound by QFII reaches USD 20 million. |
1 year (or 3 months in case of open-ended funds), commencing 6 months after obtaining the approval of its investment quota. |
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Outbound Remittance |
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accumulated monthly net capital remitted by a QFII thereunder shall not exceed 20% of the fund’s total domestic assets at the end of the preceding year. |
light of the net balance of netting for fund subscription and redemption. |
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Account Opening |
A QFII may open multiple dedicated RMB deposit accounts (for securities trading) for clients’ funds it manages, which shall correspond to the respective foreign exchange accounts. |
A QFII shall only open one foreign exchange account for its clients’ funds, and shall open no more than six dedicated RMB deposit accounts. |
The New Regulation stipulates the formulas of basic quota as follows:
For applicants whose assets owned or managed by it or its corporate group are primarily outside China, the formula is: USD 100 million + the average asset scale in the last three years * 0.2% – the obtained quota of the RMB Qualified Foreign Institutional Investors (“RQFII”) (after being converted into USD); however, the investment quota for foreign sovereign wealth funds, central banks, monetary authorities and other similar institutions will not be restricted by the above asset scale ratio.
For applicants whose assets owned or managed by it or its corporate group are primarily within China, the formula is: RMB 5 billion + the asset scale of the preceding year * 80% – the obtained quota of RQFII (after being converted into USD).
The filing and approval requirements stipulated in the New Regulation are also applicable to those QFIIs that have obtained the investment quotas before the promulgation of the New Regulation when such QFIIs apply for increase of their investment quotas.
It is worth noting that the New Regulation draws on certain more relaxed provisions of the Pilot Measures on the Domestic Securities Investment by RQFIIs (promulgated in 2013) especially in terms of the increase of quota and time frame for inbound remittance as well as reemphasizes that QFIIs shall not sell or transfer their investment quotas to other institutions or individuals in any form.
For further information, please contact:
Natasha (Qing) Xie, Partner, Jun He
xieq@junhe.com
