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Law of the
People's Republic of China on Funds for Investment in Securities
(Order of the
President No.9)
(Adopted at
the 5th Meeting of the Standing Committee of the Tenth National People's
Congress on October28, 2003)
Contents
Chapter I General Provisions
Chapter II Fund Managers
Chapter III Fund Custodians
Chapter IV Raising of Capital
Chapter V Trading of Fund Units
Chapter VI Subscription and Redemption of Fund Units
Chapter VII Operation of Funds and Disclosure of Information
Chapter VIII Modification and Termination of a Fund Contract and
Liquidation of Fund Assets
Chapter IX Rights of the Holders of Fund Units and Exercise of the
Rights
Chapter X Supervision and Regulation
Chapter XI Legal Responsibility
Chapter XII Supplementary Provisions
Chapter I General Provisions
Article 1
This Law is enacted in order to regulate the activities in respect of
investment of funds in securities,
protect the lawful rights and interests of investors and related
parties, and promote the healthy development of
investment of funds in securities and the securities market.
Article 2
This Law is applicable to the raising of capital for investment in
securities by openly selling fund units
within the territory of the People's Republic of China (hereinafter
referred to as funds, for short), which are
managed by fund managers, placed in the custody of fund custodians, and
used, in the interest of the holders of fund
units, for investment in securities in the form of portfolio.
With respect to matters which are not covered by the provisions of this
Law, the provisions of the Trust Law of the
People's Republic of China, the Securities Law of the People's Republic
of China and other relevant laws and administrative
regulations shall apply.
Article 3
The rights and obligations of fund managers, fund custodians and holders
of fund units shall be agreed on in the
fund contracts concluded in accordance with this Law.
Fund managers and fund custodians shall perform their entrusted duties
in accordance with this Law and the
provisions of the fund contracts. Holders of fund units shall share
benefits and risks in proportion to the number of units
they hold.
Article 4 In
investment of funds in securities the
principles of voluntariness, fairness, honesty and good faith
shall be adhered to, and the interests of the State and the
public shall not be harmed.
Article 5 In a fund contract the mode of operation of the
fund shall be specified. There may be closed-end funding,
open-end funding and other modes.
A fund that is operated in the closed-end mode (hereinafter
referred to as closed-end fund, for short) means that during
the term of the fund contract the approved total sum of the
fund units is fixed and shall remain unchanged and that the
fund units may be traded on any stock exchange established in
accordance with law, but that the holders of the fund units
shall not apply for redemption of the units.
A fund that is operated in the open-end mode (hereinafter
referred to as open-end fund, for short) means that the total
sum of the fund units is not fixed and that the units may be
subscribed for or redeemed at the time and place prescribed in
the fund contract.
The measures for selling, trading, subscribing for and
redeeming the units of the funds that are operated in other
modes shall be formulated by the State Council separately.
Article 6 The assets of a fund shall be made independent of
the assets owned by the fund manager or the fund custodian.
The fund manager and the fund custodian shall not include the
assets of the fund in their own assets.
The property or returns obtained by fund managers or fund
custodians through managing or using the fund assets or by
other means shall be included in the fund assets.
Where a fund manager or a fund custodian goes into
liquidation as a result of being dissolved, or being closed
down or declared bankrupt according to law, or for other
reasons, the assets of the fund shall not be deemed to be part
of his assets for liquidation.
Article 7 The creditor's rights of a fund shall not be used
to offset the debts incurred by the fund manager's or the fund
custodian's own assets; and the creditor's rights of one fund
may not be used to offset the debts of another fund.
Article 8 No compulsory measures shall be taken against the
assets of a fund where debts are not incurred because of the
assets of the fund themselves.
Article 9 In managing and using fund assets, fund managers
and fund custodians shall conscientiously fulfill their duties
and perform their obligations to be honest, keep good faith,
and be prudent and diligent.
Persons engaged in the fund business shall, in accordance
with law, obtain professional qualifications in this field,
abide by laws and administrative regulations, and strictly
observe professional ethics and the code of conduct.
Article 10 Fund managers, fund custodians and institutions
selling fund units may establish trade associations in order
to maintain strict self-discipline and co-ordinate
relationship in the trade, provide services for the trade and
promote development of the trade.
Article 11 The securities regulatory authority under the
State Council shall, in accordance with law, regulate the
activities in respect of investment of funds in securities.
Chapter II
Fund Managers
Article 12 A fund manager shall be a fund management company
established in accordance with law.
A fund manager shall be subject to examination and approval
by the securities regulatory authority under the State
Council.
Article 13 For establishment, a fund management company
shall meet the following requirements and be subject to
approval by the securities regulatory authority under the
State Council:
(l) it has articles of association which comply with the
provisions of this Law and of the Company Law of the People's
Republic of China;
(2) its registered capital is not less than RMB100 million
yuan and is paid up in cash;
(3) the major shareholders have good managerial achievements
to their credit and enjoy popular reputation in the securities
business, securities investment consultancy, the management of
trust assets, or the management of other financial assets,
have no law-breaking record in the three preceding years, and
have each a registered capital not less than 300 million yuan
;
(4) the number of staff who have obtained the professional
qualifications for the fund business reaches the quorum;
(5) it has the business premises, security facilities and
other facilities relating to the fund management business
which satisfy the relevant requirements;
(6) it has a perfect internal auditing and monitoring system
and a perfect risk control system; and
(7) other requirements prescribed by laws and administrative
regulations and requirements prescribed by the securities
regulatory authority under the State Council with the approval
of the State Council.
Article 14 The securities regulatory authority under the
State Council shall ,within six months counted from the date
it accepts an application for the establishment of a fund
management company, examine the application in accordance with
the requirements specified in Article 13 of this Law and the
principle of prudent regulation, make a decision on whether to
approve or disapprove the application, and notify the
applicant accordingly; and if it disapproves the application,
it shall explain the reasons why.
Where a fund management company intends to establish a
branch, amend its articles of association, or make other vital
changes, it shall submit an application to the securities
regulatory authority under the State Council for approval. The
securities regulatory authority under the State Council shall,
within sixty days from the date it accepts the application,
make a decision on whether to approve or disapprove the
application and notify the applicant accordingly; and if it
disapproves the application, it shall explain the reasons why.
Article 15 None of the following persons shall serve in the
fund business under any fund manager:
(1) persons who have been subjected to criminal punishment
for the crime of embezzlement, bribery, dereliction of duty or
property violation or for the crime of undermining the order
of the socialist market economy;
(2) directors, supervisors, factory directors, managers and
other senior managerial persons who, due to their
mismanagement, are personally responsible for the bankruptcy
liquidation of the companies or enterprises for which he
worked, or who, due to their violation of law, are personally
responsible for the revocation of the business licenses of the
companies or enterprises for which they worked, where no more
than five years have elapsed since the date the bankruptcy
liquidation of such companies or enterprises is completed or
the date the business licenses are revoked;
(3) persons who are encumbered with a relatively large
amount of personal debts that are overdue;
(4) employees of fund managers, fund custodians, stock
exchanges, securities companies, securities registration and
settlement institutions, futures exchanges, futures brokerage
firms or other institutions and State functionaries, who have
been dismissed because of illegal conduct;
(5) lawyers, certified public accountants, employees of
assets evaluation institutions and verification institutions
and investment consultancy professionals who have been
disqualified or whose licenses have been revoked because of
illegal conduct; and
(6) other persons who are prohibited from engaging in the
fund business under relevant laws and administrative
regulations.
Article 16 The managers and other senior managers of a fund
manager shall be well-versed in laws and administrative
regulations concerning investment in securities and shall
possess the qualifications for the fund business and have at
least three years' working experience related to the positions
they are holding.
Article 17 The appointment and replacement of a manager or
other senior manager of a fund manager shall be reported to
the securities regulatory authority under the State Council
for examination and approval in accordance with the
qualifications for the post as prescribed by this Law and
other relevant laws and administrative regulations.
Article 18 The director, supervisor, manager or other
employee of a fund manager shall not take up any post in a
fund custodian or another fund manager and shall not engage in
any securities trading or other activities to the detriment of
the fund assets or the interests of the holders of fund units.
Article 19 A fund manager shall perform the following
duties:
(l) raising capital in accordance with law; and selling,
subscribing for, redeeming and registering fund units, or
entrusting another institution approved by the securities
regulatory authority under the State Council to do the same on
its behalf;
(2) completing procedures for the registration of funds;
(3) separately managing and keeping separate accounts of the
assets of different funds under its management, and investing
in securities;
(4) in accordance with the provisions in the fund contract,
deciding on plans for distributing returns of the fund and
distributing the same among the holders of fund units
promptly;
(5) auditing fund accounts and preparing financial and
accounting reports of the fund;
(6) preparing interim and annual fund reports;
(7) calculating and announcing the net value of the fund
assets and deciding on the subscription and redemption prices
of fund units;
(8) handling matters of disclosure of information in
relation to the management of fund assets;
(9) convening general meetings of the holders of fund units;
(10) maintaining records, account books, statements and
other related materials concerning the management of fund
assets;
(11) exercising, in the name of the fund manager, the right
of litigation or taking other legal actions on behalf of the
holders of fund units; and
(12) other duties prescribed by the securities regulatory
authority under the State Council.
Article 20 A fund manager shall not commit the following
acts:
(1) mixing its own assets or another person's assets with
the fund assets to invest in securities;
(2) unfairly treating the assets of different funds under
its management;
(3) making use of fund assets to seek benefit for a third
party other than the holders of fund units;
(4) in breach of relevant regulations, committing itself to
make profits for the holders of fund units and bear their
losses; and
(5) other acts prohibited by the securities regulatory
authority under the State Council in accordance with the
relevant laws and administrative regulations.
Article 21 The securities regulatory authority under the
State Council shall, on the strength of its authority,
instruct the fund manager to make rectification or disqualify
it for the fund management if:
(1) it grossly violates laws or regulations;
(2) it ceases to meet the requirements specified in Article
13 of this Law; or
(3) it is found in other circumstances as prescribed by laws
and administrative regulations.
Article 22 The duties of a fund manager shall be terminated
if:
(1) it is disqualified for fund management according to law;
(2) it is discharged by the holders of fund units at a
general meeting;
(3) it closes down in accordance with law or is dissolved or
declared bankrupt according to law; or
(4) it is found in other circumstances as prescribed by the
fund contract.
Article 23 Where the duties of a fund manager is terminated,
a new fund manager shall, within six months, be selected and
appointed by the holders of fund units at a general meeting;
and before the appointment of a new fund manager, the
securities regulatory authority under the State Council shall
appoint a provisional fund manager.
Where the duties of a fund manager is terminated, the fund
manager shall properly keep the materials regarding fund
management and shall complete the procedures for the transfer
of fund management without delay, and the new or provisional
fund manager shall likewise take over fund management.
Article 24 Where the duties of a fund manager is terminated,
a public accounting firm shall, in accordance with relevant
regulations, be appointed to audit the fund assets, and it
shall announce the audit results and, at the same time, submit
them to the securities regulatory authority under the State
Council for the record.
Chapter III
Fund Custodians
Article 25 A fund custodian shall be a commercial bank which
has been established in accordance with law and has obtained
the qualifications for fund custody.
Article 26 To apply for fund custodian qualifications, the
applicant shall meet the following requirements and shall be
subject to examination and approval by the securities
regulatory authority under the State Council and the banking
regulatory authority under the State Council:
(1) its net assets and its capital adequacy ratio are in
conformity with relevant regulations;
(2) it has a department specially established for fund
custody;
(3) the number of staff who have obtained professional
qualifications for the fund business reaches the quorum;
(4) it meets the requirements for the safe custody of fund
assets;
(5) it has a safe and efficient system for clearance and
settlement;
(6) it has the business premises, security facilities and
other facilities relating to the business of fund custody
which satisfy the relevant requirements;
(7) it has a perfect internal auditing and monitoring system
and a perfect risk control system; and
(8) other requirements prescribed by laws and administrative
regulations or prescribed by the securities regulatory
authority under the State Council or the banking regulatory
authority under the State Council with the approval of the
State Council.
Article 27 The provisions of Articles 15 and 18 of this Law
shall be applicable to the employees of the department
specially established for fund custody under the fund
custodian.
The provisions of Articles 16 and 17 of this Law shall be
applicable to the manager and other senior managers of the
specially established fund custody department under the fund
custodian.
Article 28 The fund custodian and the fund manager shall not
be served by the same entity and they shall not make capital
contribution to each other or hold each other's shares.
Article 29 A fund custodian shall perform the following
duties:
(1) keeping safe custody of fund assets;
(2) establishing capital accounts and securities accounts
for fund assets in accordance with relevant regulations;
(3) establishing separate accounts for the assets of
different funds under its custody to ensure integrity and
independence of the fund assets;
(4) maintaining records, account books, statements and other
related materials concerning the business of fund custody;
(5) handling clearance and settlement matters without delay
in accordance with the provisions in the fund contract and the
investment instructions of the fund manager;
(6) handling matters of disclosure of information in
relation to the business of fund custody;
(7) presenting comments and suggestions on financial and
accounting reports of the fund and interim and annual reports
of the fund;
(8) verifying and reviewing the net value of fund assets and
the subscription and redemption prices of the fund units
calculated by the fund manager;
(9) convening general meetings of the holders of fund units
in accordance with relevant regulations;
(10) supervising the investment operation of the fund
manager in accordance with relevant regulations; and
(11) other duties prescribed by the securities regulatory
authority under the State Council.
Article 30 Where a fund custodian discovers that the
investment instructions given by a fund manager contravene
laws, administrative regulations or other relevant regulations
or the provisions in the fund contract, it shall refuse to
carry them out, immediately notify the fund manager of the
matter and report to the securities regulatory authority under
the State Council without delay.
Where a fund custodian discovers that the investment
instructions given by a fund manager, which are already
effective according to the procedures of trading, contravene
laws, administrative regulations or other relevant regulations
or the provisions in the fund contract, it shall immediately
notify the fund manager of the fact and report to the
securities regulatory authority under the State Council
without delay.
Article 31 The provisions of Article 20 of this Law shall be
applicable to fund custodians.
Article 32 The securities regulatory authority under the
State Council and the banking regulatory authority under the
State Council shall, on the strength of their functions and
powers, instruct the fund custodian to make rectification or
disqualify it for fund custody if:
(1) it grossly violates any law or regulation;
(2) it ceases to meet the requirements prescribed by Article
26 of this Law; or
(3) it is found in other circumstances as prescribed by
relevant laws and administrative regulations.
Article 33 The duties of a fund custodian shall be
terminated if:
(1) it is disqualified for fund custody according to law;
(2) it is discharged by the holders of fund units at a
general meeting;
(3) it closes down according to law or is dissolved or
declared bankrupt according to law; or
(4) it is found in other circumstances as prescribed by the
fund contract.
Article 34 Where the duties of a fund custodian is
terminated, a new fund custodian shall, within six months, be
selected and appointed by the holders of fund units at a
general meeting; and before a new fund custodian is selected,
the securities regulatory authority under the State Council
shall appoint a provisional fund custodian.
Where the duties of a fund custodian is terminated, the fund
custodian shall properly keep the fund assets and materials
regarding fund custody and shall complete the procedures for
the transfer of the fund assets and fund custody without
delay, and the new or provisional fund custodian shall
likewise take over the fund assets and fund custody.
Article 35 Where the duties of a fund custodian is
terminated, a public accounting firm shall, in accordance with
relevant regulations, be appointed to audit the fund assets,
and the audit results shall be announced and, at the same
time, submitted to the securities regulatory authority under
the State Council for the record.
Chapter IV
Raising of Capital
Article 36 To sell fund units for capital raising in
accordance with this Law, a fund manager shall submit the
following documents to the securities regulatory authority
under the State Council and shall be subject to approval by
the said authority:
(l) an application report;
(2) a draft fund contract;
(3) a draft fund custodian agreement;
(4) a draft prospectus;
(5) documents certifying the qualifications of the fund
manager and the fund custodian;
(6) the financial and accounting reports of the fund manager
and the fund custodian for the three preceding years or for
the period since their establishment, which have been audited
by a public accounting firm;
(7) the legal opinion produced by a law firm; and
(8) other documents prescribed by the securities regulatory
authority under the State Council.
Article 37 A fund contract shall include the following
information:
(1) the purpose and name of the fund for which capital is to
be raised;
(2) the names and addresses of the fund manager and the fund
custodian;
(3) the mode of operation of the fund;
(4) the total sum of the units of a closed-end fund and the
term of the fund contract, or the minimum amount of capital to
be raised for an open-end fund;
(5) the principles for determining the date of sale and the
price of the fund units and the fees;
(6) the rights and obligations of the holders of fund units,
the fund manager and the fund custodian;
(7) the procedures and rules for the convening of general
meetings of the holders of fund units, for discussion of
business and for voting;
(8) the procedures, time and place of the sale, trading,
subscription and redemption of fund units, the ways for
calculation of fees, and the time and ways for payment of
redemption monies;
(9) the principles for distribution of fund returns and the
means of implementation;
(10) the charging of management fees and custodian fees by
the fund manager and the fund custodian as their remuneration
and the means of payment and the percentage of such fees;
(11) the charging of other fees relating to the management
and use of the fund assets and the means of payment of such
fees;
(12) the objectives of investment with the fund assets and
restrictions on such investment;
(13) the ways for calculation of the net value of the fund
assets and for announcement of the net value;
(14) the ways for resolution of the situation where the
capital raised fails to reach the statutory amount;
(15) circumstances giving rise to the revocation and
termination of the fund contract and the procedures for the
revocation and termination, and the ways for liquidation of
fund assets;
(16) mechanism for resolution of disputes; and
(17) other matters agreed upon by the parties.
Article 38 The prospectus of a fund shall include the
following information:
(1) the name of the document approving the application for
capital raising and the date of approval;
(2) basic facts of the fund manager and the fund custodian;
(3) a summary of the contents of the fund contract and of
the fund custodian agreement;
(4) the date, the price, the fees and the period for the
sale of fund units;
(5) the mode of sale of fund units and the names of the
institutions which sell the fund units and of the registration
authority;
(6) the names and addresses of the law firm which produces
the legal opinion and the public accounting firm which audits
the fund assets;
(7) the charging of remuneration and other related fees by
the fund manager and the fund custodian, and the means of
payment and the percentage of such remuneration and fees;
(8) risk warning statements; and
(9) other information specified by the securities regulatory
authority of the State Council.
Article 39 The securities regulatory authority under the
State Council shall, within six months from the date it
accepts an application for capital raising, examine the
application in accordance with relevant laws and
administrative regulations and the regulations prescribed by
the securities regulatory authority under the State Council as
well as the principle of prudent regulation, and decide
whether to approve or disapprove the application and notify
the applicant of its decision accordingly; and if it
disapproves the application, it shall explain the reasons why.
Article 40 The units of a fund may only be sold after the
application for capital raising has been approved.
Article 41 The fund manager shall be responsible for the
sale of fund units; and it may entrust another institution
approved by the securities regulatory authority under the
State Council to sell the same on its behalf.
Article 42 The fund manager shall arrange for the
prospectus, the fund contract and other relevant documents to
be published three days prior to the sale of the fund units.
The documents specified in the preceding paragraph shall be
truthful, accurate and complete.
The promotion in connection with the capital raising shall
be conducted in compliance with relevant laws and
administrative regulations, and no acts specified in Article
64 of this Law shall be committed.
Article 43 The fund manager shall, within six months from
the date it receives the approval document, raise capital. If
it begins to do so after the elapse of the six-month period
and there is no substantive change in the matters that have
been approved, it shall report the fact to the securities
regulatory authority under the State Council for the record.
If there are substantive changes, it shall submit a new
application to the securities regulatory authority under the
State Council.
Capital raising shall not exceed the period approved by the
securities regulatory authority under the State Council. The
period for the raising of capital of a fund shall be counted
from the date the fund units begin to be sold.
Article 44 If, at the expiration of the period for capital
raising, the total sum of the fund units sold for a closed-end
fund is more than 80 percent of the approved amount of the
fund or the total sum of the fund units sold for an open-end
fund exceeds the minimum amount of the capital approved to be
raised, and in each case the number of holders of the fund
units tallies with the number specified by the securities
regulatory authority under the State Council, the fund manager
shall, within 10 days from the date the period for the capital
raising expires, appoint a statutory capital verification
institution to verify the capital raised and, within 10 days
from the date it receives the report on capital verification,
it shall submit the report to the securities regulatory
authority under the State Council, complete the procedures for
registration of the fund and make an announcement thereof.
Article 45 The capital raised during the period of capital
raising shall be deposited into a special account, and before
completion of capital raising, no person may make use of the
capital.
Article 46 A fund contract shall be established upon the
payment of the subscription monies for the fund units by
investors; the fund contract shall become effective once the
fund manager, in accordance with the provisions of Article 44
of this Law, completes the procedures for registration of the
fund with the securities regulatory authority under the State
Council.
Where, at the expiration of the period for capital raising,
the fund manager fails to fulfill the requirements specified
in Article 44 of this Law, it shall bear the following
responsibilities:
(1) to repay, with its own assets, the liabilities and
expenses incurred in capital raising; and
(2) to refund, within 30 days after the expiration of the
period for capital raising, the subscription monies already
paid by investors, plus the interest on bank deposit for the
same period.
Chapter V
Trading of Fund Units
Article 47 The units of a closed-end fund may be listed for
trading on a stock exchange after the fund manager submits an
application and obtains approval by the securities
regulatory authority under the State Council.
The securities regulatory authority under the State Council
may authorise a stock exchange to approve, in accordance with
the statutory conditions and procedures, the listing of fund
units for exchange on the stock exchange.
Article 48 The fund units to be listed shall satisfy the
following conditions:
(1) the capital is raised in compliance with the provisions
of this Law;
(2) the term of the fund contract is more than five years;
(3) the minimum amount of capital raised is not less than
200 million yuan;
(4) the number of holders of fund units is not less than
1,000; and
(5) other conditions prescribed by the rules for listing of
fund units for trading.
Article 49 The rules for listing of fund units shall be
formulated by the stock exchange and submitted to the
securities regulatory authority under the State Council for
approval.
Article 50 Under any of the following circumstances after
the listing of the fund units, a stock exchange shall
terminate the listing of the fund units and report such
termination to the securities regulatory authority under the
State Council for the record:
(l) the conditions for listing prescribed in Article 48 of
this Law are no longer satisfied;
(2) the term of the fund contract expires;
(3) a general meeting of the holders of fund units decides
to terminate the listing of the fund units ahead of schedule;
and
(4) other circumstances giving rise to termination of the
listing of fund units as prescribed by the fund contract or by
the rules for listing of fund units.
Chapter VI
Subscription and Redemption of Fund Units
Article 51 The fund manager of an open-end fund shall be
responsible for the subscription and redemption and
registration of the units of the fund; and it may entrust such
matters to another institution approved by the securities
regulatory authority under the State Council.
Article 52 Except otherwise provided for by the fund
contract, the fund manager shall handle the business of
subscription and redemption of fund units on every working
day.
Article 53 Except for the following circumstances, the fund
manager shall pay redemption monies on a timely basis:
(1) it is unable to pay the redemption monies due to force
majeure;
(2) a stock exchange has, in according with law, decided to
suspend trading on a temporary basis, and as a result the fund
manager is unable to calculate the net value of the fund
assets on that very day; and
(3) other special circumstances prescribed in the fund
contract.
The fund manager shall, on the very day any of the
circumstances mentioned above occurs, report the matter to the
securities regulatory authority under the State Council for
the record.
When any of the circumstances specified in the first
paragraph of this Article ceases to exist, the fund manager
shall promptly pay the redemption monies.
Article 54 For an open-end fund, a sufficient amount of cash
or government bonds shall be maintained in order to make
payment of redemption monies to the holders of fund units. The
specific percentage of the fund assets to be held in cash or
government bonds shall be prescribed by the securities
regulatory authority under the State Council.
Article 55 The subscription price and the redemption price
of a fund unit shall be calculated on the basis of the net
value of the fund unit on the day of subscription or
redemption plus or minus relevant charges.
Article 56 Where there is an error in the calculation of the
net value of a fund unit, the fund manager shall rectify the
error immediately and take reasonable measures to prevent the
incurring of further losses. If the error in the price
calculation amounts to 0.5 percent of the net value of the
fund unit, the fund manager shall make an announcement of the
fact and report the same to the securities regulatory
authority under the State Council for the record.
Where the holders of fund units sustain losses as a result
of an error in the calculation of the net value of the fund
unit, they shall have the right to claim compensation from the
fund manager and the fund custodian.
Chapter VII
Operation of Funds and Disclosure of Information
Article 57 A fund manager that invests in securities with
fund assets shall do so in the form of a portfolio.
The specific form and the investment percentages of a
portfolio shall be prescribed in the fund contract in
accordance with this Law and the regulations of the securities
regulatory authority under the State Council.
Article 58 Fund assets shall be used for investment in the
following:
(1) listed stocks and bonds; and
(2) other types of securities prescribed by the securities
regulatory authority under the State Council.
Article 59 The assets of a fund shall not be used for the
following investments or activities:
(1) securities underwriting;
(2) provision of loans or security to another person;
(3) engaging in investments which may give rise to unlimited
liability;
(4) dealing in the units of other funds, except otherwise
prescribed by the State Council;
(5) making capital contributions to the fund manager or the
fund custodian or dealing in the shares or bonds which are
issued by the fund manager or the fund custodian;
(6) dealing in the securities issued by a shareholder which
has a controlling shareholding relationship with the fund
manager or the fund custodian, the securities issued by a
company which has other vital connection with the fund manager
or the fund custodian, or the securities underwritten by such
shareholder or company during the underwriting period;
(7) engaging in insider trading, manipulation of securities
prices or other illegitimate securities trading activities; or
(8) other activities prohibited by the securities regulatory
authority under the State Council pursuant to the provisions
of relevant laws and administrative regulations.
Article 60 The fund manager, the fund custodian and other
persons who have the obligation to disclose information
relating to a fund shall disclose such information according
to law, and shall ensure the truthfulness, accuracy and
completeness of such information.
Article 61 Those who are under the obligation to disclose
information relating to a fund shall ensure that the
disclosure of such information which is required to be
disclosed is
made within the period specified by the securities
regulatory authority under the State Council and shall ensure
that investors may check or make copies of the publicly
disclosed information
at such time and in such manner as prescribed in the fund
contract.
Article 62 Information concerning a fund to be publicly
disclosed shall include:
(1) the prospectus, the fund contract and the custodian
agreement of the fund;
(2) the status of capital raising;
(3) the announcement in respect of the listing of the fund
units;
(4) the net value of the fund assets and the net value of a
fund unit;
(5) the subscription price and the redemption price of the
fund units;
(6) quarterly portfolio reports of the fund assets,
financial and accounting reports of the fund, and the interim
and annual reports of the fund;
(7) provisional reports;
(8) resolutions adopted at the general meetings of the
holders of fund units;
(9) major changes of personnel of the fund manager and the
fund custodian department of the fund custodian;
(10) legal actions involving the fund manager, the fund
assets or the business of fund custody; and
(11) other information which is required to be disclosed as
prescribed by the securities regulatory authority under the
State Council pursuant to the provisions of relevant laws and
administrative regulations.
Article 63 The public accounting firm that produces an audit
report, and the law firm that produces a legal opinion, in
respect of the publicly disclosed information concerning a
fund shall ensure the truthfulness, accuracy and completeness
of the contents of the documents they produce.
Article 64 The following acts in connection with any public
disclosure of information concerning a fund shall be
prohibited:
(1) making false records, misleading statements, or grave
omissions;
(2) making forecast of the performance of securities
investment;
(3) guaranteeing to make profits or bear losses in breach of
relevant regulations;
(4) defaming other fund managers, fund custodians or
institutions selling fund units; and
(5) other acts prohibited by the securities regulatory
authority under the State Council pursuant to the provisions
of relevant laws and administrative regulations.
Chapter VIII
Modification and Termination of a Fund Contract and
Liquidation of Fund Assets
Article 65 The mode of operation of a fund may be changed
pursuant to the provisions of the fund contract or the
resolution adopted at a general meeting of the holders of fund
units and with the approval of the securities regulatory
authority under the State Council.
Article 66 A closed-end fund may expand its fund size or
extend the term of its fund contract provided that the
following requirements are met and approval by the securities
regulatory authority under the State Council is obtained:
(1) the fund has good performance;
(2) no administrative or criminal penalty has been imposed
on the fund manager for a breach of any law or regulation in
the two preceding years;
(3) a resolution to such an effect is adopted at a general
meeting of the holders of fund units; and
(4) other requirements prescribed by this Law.
Article 67 A fund contract shall be terminated in any of the
following circumstances:
(1) the term of the fund contract expires and is not
extended;
(2) the termination is decided on at a general meeting of
the holders of fund units;
(3) the duties of the fund manager and the fund custodian
are terminated and are not assumed by a new fund manager or a
new fund custodian within six months; and
(4) other circumstances prescribed in the fund contract.
Article 68 Upon termination of a fund contract, the fund
manager shall have a liquidation team formed to liquidate the
fund assets.
The liquidation team shall be composed of the fund manager,
the fund custodian and related intermediary agencies.
After the liquidation report prepared by the liquidation
team is audited by a public accounting firm and a legal
opinion on the liquidation report is produced by a law firm,
the report shall be submitted to the securities regulatory
authority under the State Council for the record and shall be
made known to the public.
Article 69 The fund assets remaining after completion of the
liquidation shall be distributed among the holders of fund
units in proportion to the number of fund units they hold
respectively.
Chapter IX
Rights of the Holders of Fund Units and Exercise of the
Rights
Article 70 Holders of fund units shall have the following
rights:
(1) to share returns from the fund assets;
(2) to receive distribution of the fund assets remaining
after completion of liquidation;
(3) to transfer fund units or apply for redemption of fund
units according to law;
(4) to request, in accordance with relevant regulations, the
convening of a general meeting of the holders of fund units;
(5) to exercise the right to vote in respect of matters
submitted to the general meeting of the holders of fund units
for approval;
(6) to check or make copies of publicly disclosed
information concerning the fund;
(7) in accordance with the law, to bring an action against
any infringement of their legitimate rights and interests by
any fund manager, any fund custodian or any institution
selling fund units; and
(8) other rights prescribed in the fund contract.
Article 71 The following matters shall be submitted for
approval and decision by a general meeting of the holders of
fund units:
(1) termination of the fund contract ahead of schedule;
(2) expansion of the size of the fund or extension of the
term of the fund contract;
(3) change of the mode of operation of the fund;
(4) increase of remuneration to the fund manager and the
fund custodian;
(5) change of the fund manager and the fund custodian; and
(6) other matters prescribed in the fund contract.
Article 72 A general meeting of the holders of fund units
shall be convened by the fund manager. In the event that the
fund manager fails to convene the general meeting according to
relevant regulations or is unable to convene the meeting, the
fund custodian shall convene the meeting.
In the event that the holders representing more than 10
percent of the fund units request the convening of a general
meeting of the holders of fund units in respect of the same
matter, and that the fund manager and the fund custodian fail
to convene the meeting, the holders representing more than 10
percent of the fund units shall have the right to proceed to
convene the meeting on their own and shall submit the matter
to the securities regulatory authority under the State Council
for the record.
Article 73 To convene a general meeting of the holders of
fund units, the convener shall, at least 30 days ahead of the
meeting, announce the time and the form of the meeting, the
matters to be deliberated, the procedure of discussion, the
voting formula, etc.
A general meeting of the holders of fund units shall not put
to the vote any matter which is not covered in the
announcement.
Article 74 A general meeting of the holders of fund units
may be held on the spot, through communication, or by other
means.
Each fund unit carries one vote. A holder of fund units may
entrust a proxy to attend a general meeting of the holders of
fund units and exercise his right to vote thereat.
Article 75 No meeting of the holders of fund units shall be
convened unless holders representing at least 50 percent of
the fund units are present at the meeting, and decisions on
matters under deliberation at the meeting shall be adopted
only by the holders of fund units with more than 50 percent of
the right to vote who are present at the meeting; but a change
of the mode of operation of the fund, a change of the fund
manager or the fund custodian and termination of the fund
contract ahead of schedule shall be subject to approval by the
holders of fund units with more than two-thirds of the right
to vote who are present at the meeting.
Matters decided on at a general meeting of the holders of
fund units shall, in accordance with law, be submitted to the
securities regulatory authority under the State Council for
approval or for the record, and shall be made known to the
public.
Chapter X
Supervision and Regulation
Article 76 The securities regulatory authority under the
State Council shall perform the following duties in accordance
with law:
(1) in accordance with law, formulating rules and
regulations relating to supervision and regulation of the
activities in respect of investment of funds in securities and
exercising the power of approval or verification;
(2) handling registration of funds;
(3) supervising and regulating the activities carried out by
fund managers, fund custodians and other institutions in
investing funds in securities, and investigating, and imposing
penalties on, violations of law and making the violations
known to the public;
(4) formulating professional qualifications and code of
conduct for fund employees and supervising the implementation
thereof;
(5) supervising and inspecting disclosure of fund-related
information;
(6) providing guidance to and supervising the activities of
fund industry associations; and
(7) other duties prescibed by laws and administrative
regulations.
Article 77 When performing its duties in accordance with
law, the securities regulatory authority under the State
Council shall have the power to take the following measures:
(1) entering the premises where illegal activities take
place in order to conduct investigation and collect evidence;
(2) questioning the parties concerned and the entities and
individuals who are involved in the matter under
investigation, and requiring them to provide explanations in
respect of the matter under investigation;
(3) checking and making copies of the records of securities
transactions, records of securities registrations and
transfers, financial and accounting information and other
related documents and information of the parties concerned and
the entities and individuals that are involved in the matter
under investigation, and sealing up the documents and
information which are likely to be transferred or concealed;
(4) checking the capital accounts, securities accounts or
fund accounts of the parties concerned and the entities and
individuals that are involved in the matter under
investigation, and where there is evidence to show signs of
transfer or concealment of illegal funds and securities,
applying to a judicial organ for the freezing of the accounts
in question; and
(5) taking other measures prescribed by laws and
administrative regulations.
Article 78 When carrying out their duties of investigation
or inspection in accordance with law, no less than two staff
members of the securities regulatory authority under the State
Council shall be present, and they shall produce their legal
identification documents and shall keep confidential the
commercial secrets which they come to know during the course
of investigation or inspection.
Article 79 Staff members of the securities regulatory
authority under the State Council shall be devoted to their
duties, carry out their work in accordance with law, be fair
and honest, and subject themselves to supervision, and they
shall not take advantage of their positions to seek personal
gain.
Article 80 When staff members of the securities regulatory
authority under the State Council perform their duties in
accordance with law, the entities and individuals under
investigation and inspection shall co-operate with them, and
shall truthfully provide relevant documents and information,
and they shall not refuse to co-operate with them, hinder them
in their work, or conceal documents and information.
Article 81 When staff member of the securities regulatory
authority under the State Council, while performing their
duties, discover any illegal conduct and suspect it as a
crime, they shall transfer the case to a judicial organ for
handling.
Article 82 Staff members of the securities regulatory
authority under the State Council shall not concurrently hold
any position in any institution under supervision and
regulation of the authority.
Chapter XI
Legal Responsibility
Article 83 Where, in the course of performing their
respective duties, the fund managers or fund custodians
violate any provision of this Law or any provision in the fund
contracts, thus causing losses to the fund assets or the
holders of fund units, they shall bear their respective
responsibilities for their own acts and pay compensation in
accordance with law; and where losses are caused to the fund
assets or the holders of fund units as a result of the joint
acts of the fund managers and the fund custodians, they shall
bear joint and several responsibility to pay compensation.
Article 84 Anyone who, in violation of the provisions of
Article 45 of this Law, makes use of the capital raised shall
be instructed to return the money and his unlawful gains shall
be confiscated; if such gains exceed 500,000 yuan, he shall,
in addition, be fined not less than the amount of such gains
but not more than five times such gains; and if there are no
unlawful gains or such gains are less than 500,000 yuan, he
shall, in addition, be fined not less than 50,000 yuan but not
more than 500,000 yuan. The persons who are directly in charge
and the other persons who are directly responsible shall be
given a disciplinary warning and shall, in addition, be fined
not less than 30,000 yuan but not more than 300,000 yuan.
Where losses are caused to the investors, he shall, in
accordance with law, bear the responsibility to pay
compensation. If the violation constitutes a crime, he shall
be investigated for criminal responsibility in accordance with
law.
Article 85 Anyone who, without approval by the securities
regulatory authority under the State Council, raises capital
shall be instructed to stop capital raising and return all the
money, plus interest calculated at the bank deposit rate for
the corresponding period; and his unlawful gains shall be
confiscated, and he shall, in addition, be fined not less than
one percent but not more than five percent of the amount of
the capital raised. If the violation constitutes a crime, he
shall be investigated for criminal responsibility in
accordance with law.
Article 86 Where a fund management company is established in
violation of the provisions of this Law and without approval,
it shall be banned by the securities regulatory authority and
shall, in addition, be fined not less than 50,000 yuan but not
more than 500,000 yuan. If the violation constitutes a crime,
criminal responsibility shall be investigated in accordance
with law.
Article 87 Where an entity, without approval of the
securities regulatory authority under the State Council,
engages in the business of fund management or the business of
fund custody, it shall be instructed to cease such business
and its unlawful gains shall be confiscated; if such gains
exceed one million yuan, it shall, in addition, be fined not
less than the amount of the unlawful gains but not more than
five times the amount of such gains; and if there are no
unlawful gains or such gains are less than one million yuan,
it shall, in addition, be fined not less than 100,000 yuan but
not more than one million yuan. Where losses are caused to the
fund assets or to the holders of fund units, it shall, in
accordance with law, bear the responsibility to pay
compensation. The person who are directly in charge and the
other persons who are directly responsible shall be given a
disciplinary warning and shall, in addition, be fined not less
than 30,000 yuan but not more than 300,000 yuan. If a crime is
constituted, criminal responsibility shall be investigated in
accordance with law.
Article 88 Where a fund manager or a fund custodian, in
violation of the provisions of this Law, fails to place the
assets of a fund under separate management or custody in
separate accounts or misappropriates the fund assets, it shall
be instructed to rectify and shall be fined not less than
50,000 yuan but not more than 500,000 yuan. Where losses are
caused to the fund assets or to the holders of fund units, it
shall, in accordance with law, bear the responsibility to pay
compensation. The persons who are directly in charge and other
persons who are directly responsible shall be given a
discipline warning, or be suspended or disqualified from
engaging in the fund business and, in addition, be fined not
less than 30,000 yuan but not more than 300,000 yuan. If the
violation constitutes a crime, it shall be investigated for
criminal responsibility in accordance with law.
The asset and returns derived by the fund manager or the
fund custodian from its misappropriation of the fund assets
shall be included in the assets of the fund, except where
otherwise provided for by laws and administrative regulations.
Article 89 Where a fund manager or a fund custodian engages
in any of the activities specified in Article 20 of this Law,
it shall be instructed to rectify and its unlawful gains shall
be confiscated. If the unlawful gains exceeds one million
yuan, it shall, in addition, be fined not less than the amount
of the unlawful gains but not more than five times the amount
of such gains; and if there are no unlawful gains or such
gains are less than one million yuan, it shall, in addition,
be fined not less than 100,000 yuan but not more than one
million yuan. Where losses are caused to the assets of a fund
or to the holders of fund units, it shall, in accordance with
law, bear the responsibility to pay compensation. The persons
who are directly in charge and the other persons who are
directly responsible shall be given a disciplinary warning, or
be suspended or disqualified from engaging in the fund
business and, in addition, be fined not less than 30,000 yuan
but not more than 300,000 yuan. If the violation constitutes a
crime, criminal responsibility shall be investigated in
accordance with law.
Article 90 Where a fund manager or a fund custodian engages
in any of the activities specified in Subparagraphs 1, 2, 3,
4, 5, 6 and 8 of Article 59 of this Law, it shall be
instructed to rectify and shall be fined not less than 100,000
yuan but not more than one million yuan. Where losses are
caused to the fund assets or to the holders of fund units, it
shall, in accordance with law, bear the responsibility to pay
compensation. The persons who are directly in charge and the
other persons who are directly responsible shall be given a
disciplinary warning, or be suspended or disqualified from
engaging in the fund business and, in addition, be fined not
less than 30,000 yuan but not more than 300,000 yuan. If the
violation constitutes a crime, criminal responsibility shall
be investigated in accordance with law.
The assets and returns derived by the fund manager or the
fund custodian from the use of fund assets for any of the
activities mentioned in the preceding paragraph shall be
included in the fund assets, except where otherwise provided
for by laws and administrative regulations.
Article 91 Where a fund manager or a fund custodian engages
in any of the activities specified in Subparagraph 7 of
Article 59 of this Law, the persons who are directly in charge
and the other persons who are directly responsible shall, in
addition to the penalties prescribed in the relevant
provisions of the Securities Law of the People's Republic of
China, be given a disciplinary warning, or be suspended or
disqualified from engaging in the fund business and, at the
same time, be fined not less than 30,000 yuan but not more
than 300,000 yuan. Where losses are caused to the fund assets
or to the holders of fund units, it shall, in accordance with
law, bear the responsibility to pay compensation.
Article 92 Where a fund manager and a fund custodian, in
violation of the provisions of this Law, make capital
contributions to each other or hold each other's shares, they
shall be instructed to rectify and may be fined not more than
100,000 yuan.
Article 93 Where persons who have the obligation to disclose
information concerning a fund fail to disclose such
information in accordance with law or the information
disclosed contains false accounts , misleading statements or
grave omissions, they shall be instructed to rectify; and
their unlawful gains shall be confiscated and they shall, in
addition, be fined not less than 100,000 yuan but not more
than one million yuan. Where losses are caused to the holders
of fund units, they shall, in accordance with law, bear the
responsibility to pay compensation. The persons who are
directly in charge and the other persons who are directly
responsible shall be given a disciplinary warning, or be
suspended or disqualified from engaging in the fund business
and, in addition, be fined not less than 30,000 yuan but not
more than 300,000 yuan. If the violation constitutes a crime,
criminal responsibility shall be investigated in accordance
with law.
Article 94 Where a professional institution that produces an
auditor's report, a legal opinion or other documents in
respect of information concerning a fund that is publicly
disclosed by persons who have the obligation to disclose such
information makes fraudulent statements in respect of the
matters for which it is responsible, it shall be instructed to
rectify, its unlawful gains shall be confiscated, and it
shall, in addition, be fined not less than the amount of the
unlawful gains but not more than five times that amount. If
the circumstances are serious, it shall be instructed to close
down and the relevant professional qualifications of the
persons who are directly responsible shall be suspended or
rescinded. Where losses are caused to the holders of fund
units, it shall, in accordance with law, bear the
responsibility to pay compensation. If a crime is constituted,
it shall be investigated for criminal responsibility in
accordance with law.
Article 95 Where a fund manager or a fund custodian fails to
convene a general meeting of the holders of fund units in
accordance with relevant regulations, it shall be instructed
to rectify and it may be fined not more than 50,000 yuan. The
persons who are directly in charge and the other persons who
are directly responsible shall be given a disciplinary
warning, or be suspended or disqualified from engaging in the
fund business.
Article 96 Where a fund manager or a fund custodian violates
the provisions of this Law, if the circumstances are serious,
it shall be disqualified from engaging in the business of fund
management or fund custody.
Article 97 Where an employee of a fund manager or the
special fund custodian department of a fund custodian violates
the provisions of Article 18 of this Law and losses are thus
caused to the fund assets or to the holders of fund units, he
shall, in accordance with law, bear the responsibility to pay
compensation; and if the circumstances are serious, he shall
be disqualified from engaging in the fund business. If the
violation constitutes a crime, he shall be investigated for
criminal responsibility in accordance with law.
Article 98 Where a staff member of the securities regulatory
authority neglects his duty, abuses his power, or engages in
irregularities for personal gains, or seek or receive money or
things of value from another person by taking advantage of his
position, he shall be given an administrative sanction in
accordance with law. If a crime is constituted, he shall be
investigated for criminal responsibility in accordance with
law.
Article 99 If a person, for his violation of the provisions
of this Law, is liable to bear the responsibility to pay civil
compensation and to pay fines and penalties and if his assets
are not sufficient to pay all at the same time, he shall bear
the responsibility to pay civil compensation first.
Article 100 If, in accordance with the provisions of this
Law, a fund manager or a fund custodian bears the
responsibility to pay civil compensation and pay fines and
penalties, it shall use its own assets to discharge such
responsibility.
All the fines and penalties collected and all the unlawful
gains confiscated pursuant to Law shall be turned over to the
State Treasury.
Chapter XII
Supplementary Provisions
Article 101
Specific regulations governing the securities
investment activities engaged in by fund management companies
or other institutions approved by the State Council to gather
capital through private placements or accept property
entrustment from specific entities shall separately be
formulated by the State Council on the basis of the principles
laid down in this Law.
Article 102
Regulations governing the establishment of a
securities investment company to engage in securities
investment and other related activities by raising capital
through public offering of shares shall separately be
formulated by the State Council.
Article 103
This Law shall go into effect as of June 1, 2004.
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