An introduction to the QFII program regulations
Existing QFII List and Quotas
Provisional Measures on Administration of Domestic Securities Investments of Qualified Foreign Institutional Investors (QFII)
An introduction to the QFII program regulations :
What is QFII?
On November 5, 2002 the China Securities Regulatory Commission (CSRC) and the People¡¯s Bank of China (PBOC) introduced the QFII (Qualified Foreign Institutional Investor) program as a provision for foreign capital to access China¡¯s financial markets.
Chinese QFII regulations relax some capital controls and allow foreign institutions to invest in RMB-denominated equity and bond markets. Indeed, QFII is a Chinese brokerage business, which allows qualified foreign institutions to trade Chinese A-shares via special accounts opened at designated custodian banks, for their clients.
The QFII mechanism not only further opens China¡¯s securities markets ?C but also gives foreign investors an opportunity to take position on those markets and buy stakes in Chinese companies, thus sharing in China¡¯s phenomenal growth. QFIIs can provide their clients with added opportunities to share in the growth of the Chinese Market.
As of October 14, 2004 a total of 25 foreign institutions have received QFII licenses with quotas ranging from $50 million to $800 million, amounting to more than $2.8 billion authorized for investment in the Chinese markets. China¡¯s market capitalization of $500 billion is increasingly attracting foreign investors and around 10 other foreign institutions have submitted applications and CSRC approval is pending.
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What financial instruments can a QFII invest in?
Shares listed on China¡¯s stock exchanges (excluding B shares);
Treasuries listed on China¡¯s stock exchanges;
Convertible bonds and enterprise bonds listed on China¡¯s stock exchanges;
Other financial instruments approved by the CSRC
Shares held by each QFII in one listed company should not exceed 10% of total outstanding shared of the company (a rule also enforced for domestic investors)
Total Shares held by all QFIIs in one listed company should not exceed 20% of total outstanding shares of the company.
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Who can become a QFII?
Overseas fund management institutions
Insurance companies
Securities companies
Other assets management institutions which have been approved by the CSRC
In order to encourage medium and long-term investments, the CSRC stated that it will give preference to institutions managing closed-end Chinese-focused funds, or pension funds, insurance funds and mutual funds with good investment records in other markets
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Who Oversees the QFII Program?
The China Securities Regulatory Commission (CSRC) and State Administration of Foreign Exchange (SAFE) are the regulators of the securities investment activities conducted by QFIIs. They are responsible for overseeing all transactions and conducting annual inspections on QFIIs.
SAFE is responsible overseeing business tied with foreign exchange operations, such as the approval of the QFII investment quotas, issuance of the foreign exchange certificate, supervision of account management and foreign exchange settlements (as specified in Foreign Exchange Control on Securities Investments in China by Qualified Foreign Institutional Investors Tentative Provisions)
The CSRC is the approval authority for QFII status. It interprets the rules regarding QFII and takes the role of a general regulator.
The QFII applicant must meet the following criteria:
Sound financial and credit status
Risk control indicators meet the requirements set by laws and securities authorities under applicant¡¯s home jurisdiction
Sound management structure and internal control system
If a fund management institution:
It must have operated its fund business for over 5 years with the most recent accounting year managing assets of not less than $10 billion
If an insurance company:
It must have operated its insurance business for over 30 years with paid-in capital of not less than $1 billion and manage securities of not less that $10 billion in the most recent accounting year.
If a securities company:
Must have operated securities business for over 30 years with paid-in capital of not less than $1 billion and manage securities assets of not less than $10 billion in the most recent accounting year.
If a commercial bank:
It must rank among the top 100 of the world in terms of total assets for the most recent accounting year and manage securities assets of not less than $10 billion.
Under new regulations, currently waiting approval by the CSRC, requirements on investor¡¯s qualifications, border securities and investment percentage, capital remittance and sub-account opening will be downgraded?C allowing more QFII¡¯s to enter the market.
Type of Institution |
Operating Year |
Paid-in Capital |
Securities Assets underManagement |
Fund Management Institutions |
>5 years |
- |
¡İUSD 1 billion |
Insurance Companies |
>30years |
¡İUSD 1 billion |
¡İUSD 1 0 billion |
Securities Companies |
>30years |
¡İUSD 1 billion |
¡İUSD 10 billion |
Commercial Banks |
- |
Total assets ranked among top 100 globally |
¡İUSD 1 billion |
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Application Process
The applicant must mandate a custodian and a broker for their securities trading.
The elected custodian files the application for QFII qualification and investment quota to the CSRC and SAFE respectively. The current QFII investment quotas range from $50 million to $800 million.
There are currently 11 banks in China that are qualified for the custodian business:
7 Domestic Qualified Custodians:
Bank of China
China Construction Bank
Industrial and Commercial Bank of China
Agricultural Bank of China
Bank of Communications
China Merchants Bank
China Everbright Bank
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4 Foreign Qualified Custodians
Standard Chartered Bank
HSBC
Citibank
Deutsche Bank
The custodian bank offers securities and cash clearing services to QFIIs that have received authorization from Chinese regulators. A custodian acts as the primary communication channel between the QFII and the Chinese authorities. They service foreign exchange and cash settlement needs of the QFIIs and are in charge of the safekeeping of securities, receiving of dividend and interest payments, and reporting to the CSRC and SAFE about the status of the account and compiling the QFII¡¯s annual report.
After obtaining approval from the CSRC and the investment quota from SAFE, the QFII must remit into China within 3 months the full amount of its initial investment in foreign currency in accordance with the quota set my SAFE. This capital is then converted into RMB and deposited with the custodian.
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Existing QFII List and Quotas
Last update: July 2007
|
QFII |
QUOTA (billion USD) |
1 |
UBS Limited |
0.8 |
2 |
Nomura Securities co,Ltd. |
0.35 |
3 |
Citigroup Global Markets Limited |
0.55 |
4 |
Morgan Stanley & Co. International Limited |
0.4 |
5 |
Goldman, Sachs &Co |
0.3 |
6 |
Deutsche Bank Aktiengesellschaft |
0.4 |
7 |
The Hongkong and Shanghai Banking Corporation Limited |
0.4 |
8 |
ING Bank N. V. |
0.3 |
9 |
JPMorgan Chase Bank |
0.15 |
10 |
Credit Suisse First Boston? (Hong Kong) Limited |
0.5 |
11 |
Nikko Asset Management Co.,Ltd. |
0.45 |
12 |
Standard Chartered Bank (Hong Kong) Limited |
0.075 |
13 |
Merrill Lynch International |
0.3 |
14 |
Hang Seng Bank |
0.15 |
15 |
Daiwa Securities SMBC CO.Ltd. |
0.05 |
16 |
Lehman Brothers International (Europe) |
0.2 |
17 |
Bill & Melinda Gates Foundation |
0.1 |
18 |
INVESCO Asset Management Limited |
0.25 |
19 |
Soci¨¦t¨¦ G¨¦n¨¦rale |
0.05 |
20 |
ABN AMRO Bank N.V. |
0.175 |
21 |
Templeton Asset Management Ltd |
0 |
22 |
Barclays bank PLC |
0.075 |
23 |
Dresdner Bank Aktiengesellschaft |
0.075 |
24 |
Fortis Bank SA/NV |
0.5 |
25 |
BNP Paribas |
0.2 |
26 |
Cr¨¦ditAgricole |
0.075 |
27 |
Power Corporation of Canada |
0.05 |
28 |
Goldman Sachs Asset Management International |
0.2 |
29 |
GIC |
0.1 |
30 |
Martin Currie |
0.12 |
31 |
Temasek Fullerton Alpha Pte Ltd |
0.1 |
32 |
AIG Global Investment Corp |
0.05 |
33 |
JF Asset Management |
0.15 |
34 |
Dai-Ichi MutualLife |
0.1 |
35 |
DBS Bank |
0.1 |
36 |
AMP Capital Investors Limited |
0.2 |
37 |
Bank of Nova Scotia |
0.15 |
38 |
KBC Financial Products UK Limited |
0.1 |
39 |
LCF Edmond de Rothschild Banque |
0.1 |
40 |
Yale University |
0.05 |
41 |
Morgan Stanley Investment Management Inc. |
0.2 |
42 |
Prudential Asset Management |
0.2 |
43 |
Stanford University |
0.05 |
44 |
GE Asset Management |
0.2 |
45 |
United Overseas Bank |
0.05 |
46 |
Schroders |
0.2 |
47 |
HSBC Investment Management |
0.2 |
48 |
Shinko Securities |
0.05 |
49 |
UBS Global Asset Management (Singapore) |
0.2 |
50 |
Sumitomo Mitsui Asset Management |
0.2 |
51 |
Norges Bank |
0 |
52 |
Pictet & Cie |
0 |
53 |
BNP Paribas Asset Management Co Ltd |
0 |
|
TOTAL |
9.995 |
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Provisional Measures on Administration of Domestic Securities Investments of Qualified Foreign Institutional Investors (QFII)
2006-06-04
China Securities Regulatory Commission
People's Bank of China
Decree No. 12
The "Provisional Measures on Administration of Domestic Securities Investments of Qualified Foreign Institutional Investors (QFII)", which will come into effect from 1 December 2002, is hereby promulgated.
CSRC Chairman: Zhou Xiaochuan
PBOC Governor: Dai Xianglong
Nov. 5th 2002
Provisional Measures on Administration of Domestic Securities
Investments of Qualified Foreign Institutional Investors (QFII)
Chapter 1. General Provisions
Article 1. Based upon China's relevant laws and administrative regulations, this Regulation was promulgated for the purpose of governing Qualified Foreign Institutional Investors' investments in China's securities market and promoting developments of China's securities market.
Article 2. Qualified Foreign Institutional Investors (hereinafter referred to as "QFII" which can be a single or a plural, as the case may be) are defined in this Regulation as overseas fund management institutions, insurance companies, securities companies and other assets management institutions which have been approved by China Securities Regulatory Commission (hereinafter referred to as "CSRC") to invest in China's securities market and granted investment quota by State Administration of Foreign Exchange (hereinafter referred to as "SAFE").
Article 3. QFII should mandate domestic commercial banks as custodians and domestic securities companies as brokers for their domestic securities trading.
Article 4. QFII should comply with laws, regulations and other relevant rules in China.
Article 5. CSRC and SAFE shall, in accordance with the laws, supervise and govern the securities investing activities undertaken by QFII within the jurisdiction of China.
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Chapter 2. Qualifications, Criteria and Approval Procedures
Article 6. A QFII applicant should fall within the following criteria:
(1) The applicant should be in sound financial and credit status, should meet the requirements set by CSRC on assets size and other factors; and its risk control indicators should meet the requirements set by laws and securities authorities under its home jurisdiction;
(2) Employees of the applicant should meet the requirements on professional qualifications set by its home country/region;
(3) The applicant should have sound management structure and internal control system, should conduct business in accordance with the relevant regulations and should not have received any substantial penalties by regulators in its home country/region over the last three years prior to application;
(4) The home country/region of the applicant should have sound legal and regulatory system, and its securities regulator has signed Memorandum of Understanding with CSRC and has maintained an efficient regulatory and co-operative relationship;
(5) Other criteria as stipulated by CSRC based on prudent regulatory principles.
Article 7. The criteria of assets scale and other factors as referred to in the aforesaid article are:
For fund management institutions: Having operated fund business for over 5 years with the most recent accounting year managing assets of not less than US$10 billion;
For insurance companies: Having operated insurance business for over 30 years with
paid-in capital of not less than US$1 billion and managing securities assets of not less than US$10 billion in the most recent accounting year;
For securities companies: Having operated securities business for over 30 years with
paid-in capital of not less than US$1 billion and managing securities assets of not less than US$10 billion in the most recent accounting year;
For commercial banks: Ranking among the top 100 of the world in the total assets for
the most recent accounting year and managing securities assets of not less than US$10 billion.
CSRC may adjust the aforesaid requirements subject to the developments of securities market.
Article 8. To apply for QFII qualification and investment quota, an applicant should submit the following documents to CSRC and SAFE respectively through its custodian:
1. Application Forms (including basic information on the applicant, investment quota applied for and investment plan, etc.);
2. Documents to verify that the applicant meets requirements set in Article 6;
3. Draft Custody Agreement signed with its expected custodian;
4. Audited financial reports for the most recent 3 years;
5. Statement on sources of the funds, and Letter of Undertaking promising not to withdraw funds during the approved period;
6. Letter of authorisation by the applicant;
7. Other documents as required by CSRC and SAFE.
All the aforesaid documents, if written in languages other than Chinese, must be accompanied by their Chinese translations or Chinese extracts.
Article 9. The CSRC shall, within 15 working days from the date the full set of application documents are received, determine whether to grant approval or not. Securities Investment Licences will be issued to those applicants whose applications have been approved whereas written notices will be given to those applicants whose applications have been rejected.
Article 10. Applicants shall apply to the SAFE through their custodians for investment quotas after obtaining the Securities Investment Licences.
SAFE shall, within 15 working days from the date full set of application documents are received, determine whether to grant approval or not. Applicants whose applications have been approved will be notified in writing their permitted investment quotas and Foreign Exchange Registration Certificates will be issued. Written notices will be given to those applicants whose applications have been rejected.
The Securities Investment Licence will automatically become void if an applicant is unable to obtain the Foreign Exchange Registration Certificate within one year after the Securities Investment Licence is granted.
Article 11. In order to encourage medium and long-term investments, preference will be given to the institutions managing closed-end Chinese funds subject to the requirements of Article 6 or pension funds, insurance funds and mutual funds with good investment records in other markets.
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Chapter 3. Custody, Registration and Settlement
Article 12. A custodian should meet the following requirements:
(1) Has a specific fund custody department;
(2) With paid-in capital of no less than RMB 8 billion;
(3) Has sufficient professionals who are familiar with custody business;
(4) Can manage the entire assets of the fund safely;
(5) Has qualifications to conduct foreign exchange and RMB business;
(6) No material breach of foreign exchange regulations for the recent three years.
Domestic branches of foreign-invested commercial banks with more than three years of continual operation are eligible to apply for the custodian qualification. Their paid-in capital eligibility shall be based on their overseas headquarters' capital.
Article 13. Approvals from CSRC, People's Bank of China (hereinafter referred to as "PBOC") and SAFE are required for custodian status.
Article 14. Domestic commercial banks should submit the following documents to CSRC, PBOC and SAFE to apply for custodian status:
1. Application Forms;
2. Copy of its financial business licence;
3. Management system in relation to its custody business;
4. Documents verifying that it has efficient information and technology system;
5. Other documents as required by CSRC, PBOC and SAFE.
CSRC, together with PBOC and SAFE, will review application documents and decide whether to approve the applications or not.
Article 15. A custodian shall perform the following duties:
1. Safekeeping all the assets that QFII put under its custody;
2. Conducting all QFII related foreign exchange settlement, sales, receipt, payment and RMB settlement businesses;
3. Supervising investment activities of QFII, and reporting to CSRC and SAFE in case QFII investment orders are found to have violated laws or regulations;
4. Reporting to SAFE about foreign exchange remittance and repatriation of QFII, in two working days after QFII remits/repatriates its principal/proceeds ;
5. Reporting to CSRC and SAFE about the status of QFII's RMB special account, in five working days after the end of each month;
6. Compiling an annual financial report on QFII's domestic securities investment activities in the previous year and sending it to CSRC and SAFE in three months after the end of each accounting year;
7. Keep the records and other related materials on QFII's fund remittance, repatriation, conversion, receipt and payment for no less than 15 years;
8. Other responsibilities as defined by CSRC, PBOC and SAFE based on prudent
supervision principles.
Article 16. A custodian should strictly separate its own assets from those under its custody.
A custodian should set up different accounts for different QFII, and manage those accounts separately.
Each QFII can only mandate one custodian.
Article 17. QFII should mandate its custodian to apply for a securities account on its behalf with securities registration and settlement institution. When applying for a securities account on behalf of the QFII, a custodian should bring the QFII' mandate and its Securities Investment Licence and other valid documents, and file with CSRC the relevant situation within five working days after opening a securities account.
QFII should mandate its custodian to open a RMB settlement account on its behalf with securities registration and settlement institution. The custodian shall be responsible for the settlement of QFII's domestic securities investment, and shall file with CSRC and SAFE the relevant situation within five working days after opening a RMB settlement account.
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Chapter 4. Investment Operations
Article 18. Subject to the approved investment quota, QFII can invest on the following RMB financial instruments:
1. Shares listed in China's stock exchanges (excluding B shares);
2. Treasuries listed in China's stock exchanges;
3. Convertible bonds and enterprise bonds listed in China's stock exchanges;
4. Other financial instruments as approved by CSRC.
Article 19. QFII may mandate domestically registered securities companies to manage their domestic securities investments.
Each QFII can only mandate one investment institution.
Article 20. For domestic securities investments, QFII should observe the following requirements:
1. Shares held by each QFII in one listed company should not exceed 10% of total outstanding shares of the company;
2. Total shares held by all QFII in one listed company should not exceed 20% of total outstanding shares of the company.
CSRC may adjust the above percentages based on the developments of securities market.
Article 21. QFII's domestic securities investment activities should comply with the requirements as set out in the Guidance for Foreign Investments in Various Industries.
Article 22. Securities firms should preserve the trading and transaction records of QFII for at least 15 years.
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Chapter 5. Fund Management
Article 23. Upon the approval of SAFE, a QFII should open a RMB special account with its custodian.
Within five working days after the opening of the RMB special account, the custodian should report to CSRC and SAFE for filing.
Article 24. Revenue articles in the RMB special account shall include: settlement of funds (foreign exchange funds from overseas, and accumulated settlement of foreign exchange should not exceed the approved investment quota), proceeds from the disposal of securities, cash dividends, interests from current deposits and bonds. Expense articles in the RMB special account shall include: cost of purchasing securities (including stamp tax and commission charges), domestic custodian fee and management fee, and payment for purchasing foreign exchange (to be used to repatriate principals and proceeds).
The capital of special RMB account shall not be used for money lending or guarantee.
Article 25. Within three months after receiving Securities Investment Licence from CSRC, QFII should remit principals from outside into China and directly transfer them into RMB special accounts after full settlement of foreign exchange. The currency of the principals from QFII should be exchangeable currency approved by SAFE and the amount of the principal should not exceed the approved quota.
If QFII has not fully remitted the principals within three months after receiving Foreign Exchange Registration Certificate, the actual amount remitted will be deemed as the approved quota; thereafter the difference between approved quota and the actual amount shall not be remitted inward prior to the obtaining of a newly approved investment quota.
Article 26. In the case that a QFII is a closed-end Chinese fund management company, it can mandate its custodian, with the submission of required documents to SAFE to apply for purchase of foreign exchange for the repatriation of principals by stages and by batches three years after its remittance of the principals. The amount of each batch of principal repatriation should not exceed 20% of the total principals, and the interval between two repatriations should not be shorter than one month.
Other types of QFII can mandate their custodians, with the submission of required documents, to apply to SAFE to repatriate the principals by stages and by batches one years after their remittance of the principals. The amount of each batch of principal repatriation should not exceed 20% of the total principals, and the interval between two repatriations should not be shorter than three months.
The overseas receivers of the above-mentioned repatriation should be the QFII themselves.
Article 27. QFII whose principal of approved investment quota is remitted to China for less than one year but over three months, after the submission of transfer application form & transfer contract and upon approval of CSRC and SAFE, may transfer the approved investment quota to other QFII or other applicants who have fulfilled the requirements of Article 6.
After getting Securities Investment Licence from CSRC and investment quota from SAFE, the transferee can remit the difference as its principals if the value of the transferred assets is lower than the investment quota approved by SAFE.
Article 28. If QFII intends to remit principals inwards again after it partially or fully repatriates its principals, it should re-apply for investment quota.
Article 29. If QFII needs to purchase foreign exchange to repatriate their post-tax profits of the previous accounting year which have been audited by Chinese CPA, the QFII should mandate its custodian to apply to SAFE fifteen days prior to repatriation, together with the following documents:
1. Repatriation Application Form;
2. Financial reports of the accounting year in which the profits are generated;
3. Auditor's report issued by Chinese CPA;
4. Profits distribution resolutions or other effective legal documents;
5. Tax payment certificates;
6. Other documents as required by SAFE.
The overseas receivers of the above-mentioned repatriation should be the QFII themselves.
Article 30. SAFE may adjust the timeframe required for QFII to repatriate its principal and proceeds, subject to the needs of China's foreign exchange balance.
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Chapter 6. Regulatory Issues
Article 31. CSRC and SAFE should annually review QFII's Securities Investment Licence and Foreign Exchange Registration Certificate.
Article 32. CSRC, PBOC and SAFE may require QFII, custodians, securities companies, stock exchanges, and securities registration and settlement institutions to provide information on QFII's domestic investment activities, and may conduct on-site inspections if necessary.
Article 33. Stock exchanges and securities registration and settlement institutions may enact new operation rules or revise previous operation rules on QFII's domestic securities investments, the implementation of which will be effective upon approval of the CSRC.
Article 34. In the event of any of the followings, QFII should file with CSRC, PBOC and SAFE in five working days:
1. Change of custodians;
2. Change of legal representatives;
3. Change of controlling shareholders;
4. Adjustment of registered capital;
5. Litigations and other material events;
6. Being imposed substantial penalties overseas;
7. Other circumstances as stipulated by CSRC and SAFE.
Article 35. In the event of any of the followings, QFII should re-apply for its Securities Investment Licence:
1. Change of business name;
2. Acquired by or merged with other institution(s);
3. Other circumstances as stipulated by CSRC and SAFE.
Article 36. In the event of any of the followings, QFII should surrender its Securities Investment Licence and Foreign Exchange Registration Certificate to CSRC and SAFE respectively:
1. Having repatriated all its principals;
2. Having transferred its investment quota;
3. Dispersion of authorised entities, entering into bankruptcy procedures, or assets being taken over by receivers;
4. Other circumstances as stipulated by CSRC and SAFE.
If QFII fail to pass the annual review on Securities Investment Licences and Foreign Exchange Registration Certificates, as mentioned in Article 31, the Licences/Certificates will automatically be invalid. And the QFII should return these Licences/Certificates as required by the aforesaid Article.
Article 37. In accordance with their respective authorities, CSRC, PBOC and SAFE will give warnings or penalties to QFII, custodians and securities companies, etc. who violate this Regulation. The same breach, however, should not be subject to two administrative penalties or more. Back Top
Chapter 7. Supplementary Provisions
Article 38. This Regulation is also applicable to institutional investors from Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan Region, who conduct securities investment businesses in Mainland China.
Article 39. This Regulation will come into effect from 1 December 2002.
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