Securities Investment Fund Law of the People's Republic of China (2015 Amendment)

Securities Investment Fund Law of the People's Republic of China (2015 Amendment) Securities Investment Fund Law of the People's Republic of China (Adopted at the 5th Session of the Standing Committee of the Tenth National People's Congress on October 28, 2003 and revised at the 30th Session of the Standing Committee of the Eleventh National People's Congress on December 28, 2012; and amended in accordance with the Decision on Amending the Seven Laws Including the Law of the People's Republic of China on Ports adopted at the Third Session of the Twelfth National People's Congress on April 24, 2015) Table of Contents Chapter I General Provisions Chapter II Fund Management Institutions Chapter III Fund Custodians Chapter IV Operating Mode and Organization of a Fund Chapter V Public Offering of a Fund Chapter VI Fund Share Trading, Subscription and Redemption of a Publicly Offered Fund Chapter VII Investment of a Publicly Offered Fund and Information Disclosure Chapter VIII Modification and Termination of the Fund Contract on a Publicly Offered Fund and Liquidation of Fund Assets Chapter IX Exercise of Rights by Fund Share Holders of a Publicly Offered Fund Chapter X Non-Publicly Offered Funds Chapter XI Fund Service Institutions Chapter XII Fund Associations Chapter XIII Supervision and Administration Chapter XIV Legal Liability Chapter XV Supplementary Provisions Chapter I General Provisions Article 1 This Law is enacted to regulate securities investment fund activities, protect the lawful rights and interests of investors and relevant parties, and promote the sound development of securities investment funds and the capital market. Article 2 This Law shall apply to the formation of a securities investment fund (hereinafter referred to as a “fund”) through the public or non-public raising of capital, the management of the fund by a fund management institution, the custody of the fund by a fund custodian, and the securities investment activities conducted for the benefit of the fund share holders, within the territory of the People's Republic of China; and matters not included in this Law shall be governed by 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. Article 3 The rights and obligations of a fund management institution, a fund custodian and the fund share holders shall be agreed upon in a fund contract in accordance with this Law. The fund management institution and the fund custodian shall perform their fiduciary duties in accordance with this Law and the fund contract. The fund share holders of a fund formed through the public raising of capital (hereinafter referred to as a “publicly offered fund”) shall enjoy income and assume risks to the extent of the fund shares held respectively, and the distribution of income and assumption of risks for a fund formed through the non-public raising of capital (hereinafter referred to as a “non-publicly offered fund”) shall be agreed upon in the fund contract. Article 4 Securities investment fund activities shall be conducted under the principles of free will, fairness and good faith, without any infringement upon the national interest or public interest. Article 5 The debts incurred by fund assets shall be repaid with fund assets only, and the fund share holders shall be liable for the debts incurred by fund assets only to the extent of their respective capital contributions, except as otherwise agreed upon in the fund contract in accordance with this Law. Fund assets shall be independent from a fund management institution's or a fund custodian's own assets. The fund management institution or fund custodian shall not incorporate any fund assets into its own assets. All property and income obtained by the fund management institution or fund custodian from managing, utilizing or otherwise disposing of fund assets shall be incorporated into fund assets. Where the fund management institution or fund custodian is liquidated for being dissolved, administratively dissolved or declared bankrupt in accordance with law or any other reason, fund assets are not liquidating property. Article 6 The claims enjoyed by fund assets shall not be used to offset the debts incurred by a fund management institution's or a fund custodian's own assets; and the claims enjoyed and debts incurred by the assets of different funds shall not be offset mutually. Article 7 No enforcement may be conducted against fund assets, except for the debts incurred by fund assets. Article 8 Taxes related to the holdings of a fund shall be assumed by the fund share holders, and the fund management institution or any other withholding agent shall withhold taxes in accordance with the relevant tax collection provisions of the state. Article 9 Fund management institutions and fund custodians in managing and utilizing fund assets and fund service institutions in conducting fund service activities shall devote themselves to their duties and perform their obligations of good faith, prudence and diligence. Fund management institutions shall, when investing fund assets in securities, comply with the rules on prudential business operations and develop methodical and rational investment strategies and risk management rules to effectively prevent and control risks. Fund employees shall be qualified for engaging in the fund business and comply with laws, administrative regulations, professional ethics, and the code of conduct. Article 10 Fund management institutions, fund custodians and fund service institutions shall, in accordance with this Law, form associations of the securities investment fund sector (hereinafter referred to as the “fund associations”) to strengthen industry self-regulation, coordinate industry relationships, provide services for the industry, and promote industry development. Article 11 The securities regulatory authority of the State Council shall, in accordance with law, supervise and administer securities investment fund activities, and its local offices shall perform duties as authorized. Chapter II Fund Management Institutions Article 12 A fund management institution shall be a company or partnership legally formed. The fund management institution of a publicly offered fund shall be a fund management company or any other institution confirmed by the securities regulatory authority of the State Council in accordance with the relevant provisions. Article 13 The formation of a fund management company managing publicly offered funds shall meet the following conditions and be subject to the approval of the securities regulatory authority of the State Council: (1) The fund management company's bylaws comply with this Law and the Company Law of the People's Republic of China . (2) The registered capital of the fund management company, which must be paid-in monetary capital, is not less than 100 million yuan. (3) The major shareholder of the fund management company has good performance, financial condition and social reputation in conducting financial business or managing financial institutions, has assets reaching the standards prescribed by the State Council, and has no record of any violation of law in the last three years. (4) The number of employees qualified for engaging in the fund business of the fund management company satisfies the statutory requirement. (5) The directors, supervisors and senior executives of the fund management company meet the corresponding office conditions. (6) The fund management company has business premises and security protection facilities satisfying the relevant requirements and other facilities related to its fund management business. (7) The fund management company has a sound internal governance structure and adequate and effective internal auditing and monitoring rules and risk control rules. (8) Other conditions prescribed by laws and administrative regulations and by the securities regulatory authority of the State Council with the approval of the State Council. Article 14 The securities regulatory authority of the State Council shall, within six months after accepting an application for the formation of a fund management company, conduct examination according to the conditions set out in Article 13 of this Law and under the principle of prudent supervision, make an approval or disapproval decision, and notify the applicant of the decision; and, in the case of disapproval, shall explain the reasons for the disapproval. Where a fund management company intends to modify a shareholder holding 5% or more equity in the company, modify its actual controller or modify any other major matter, the fund management company shall apply to the securities regulatory authority of the State Council for approval. The securities regulatory authority of the State Council shall, within 60 days after accepting the application, make an approval or disapproval decision and notify the applicant of the decision; and, in the case of disapproval, shall explain the reasons for the disapproval. Article 15 Under any of the following circumstances, a person shall not serve as a director, supervisor, senior executive or any other employee of a fund management institution for a publicly offered fund: (1) The person has received a criminal penalty for embezzlement, bribery, malfeasance, property encroachment, or disruption of the order of the socialist market economy. (2) The person is personally liable for the bankruptcy liquidation of a company or enterprise due to poor business management or for the forfeiture of the business license of a company or enterprise due to any violation of law, in which the person served as a director, supervisor, factory director, or senior executive, and it has not been five years since the date of completion of bankruptcy liquidation or the date of forfeiture of business license. (3) The person fails to repay a large amount of personal debts upon maturity. (4) The person is an employee of a fund management institution, a fund custodian, a stock exchange, a securities company, a securities depository and clearing institution, a futures exchange, a futures company or any other institution or an employee of a government agency from which the person has been dismissed for any violation of law. (5) The person is a lawyer, a certified public accountant, an employee of an asset appraisal or verification institution, or an investment advisory employee who has forfeited his or her practicing license or who has been disqualified for any violation of law. (6) The person is otherwise prohibited by any law or administrative regulation from engaging in the fund business. Article 16 A director, supervisor or senior executive of a fund management institution for a publicly offered fund shall be familiar with securities investment laws and administrative regulations and have three or more years of work experience relevant to the position held, and a senior executive shall also be qualified for engaging in the fund business. Article 17 The directors, supervisors, senior executives and other employees of a fund management institution for a publicly offered fund shall declare to the fund management institution in advance any securities investment to be made by them, their spouses or any interested parties, without any conflicts of interest with the fund share holders. The fund management institution for a publicly offered fund shall develop management rules for the declaration, registration, examination and disposition, among others, of the securities investment made by the persons prescribed in the preceding paragraph and file such rules with the securities regulatory authority of the State Council for recordation. Article 18 The directors, supervisors, senior executives and other employees of a fund management institution for a publicly offered fund shall not hold any positions in a fund custodian or another fund management institution and shall not conduct any securities trading or other activities that cause damage to fund assets and the interests of the fund share holders. Article 19 A fund management institution for a publicly offered fund shall perform the following functions: (1) Raising capital in accordance with law and handling the sale and registration of fund shares. (2) Undergoing recordation procedures for the fund. (3) Applying separate management and separate accounts to the assets of different funds under management and making securities investment. (4) Determining the income distribution of the fund according to the provisions of the fund contract and distributing income to the fund share holders in a timely manner. (5) Conducting fund accounting and preparing the fund's financial accounting reports. (6) Preparing the fund's semi-annual and annual reports. (7) Calculating and publishing the net asset value of the fund and determining the subscription and redemption prices for fund shares. (8) Handling information disclosure regarding the management of fund assets. (9) Convening the fund share holders' meeting according to the relevant provisions. (10) Preserving records, account books, statements and other materials regarding the management of fund assets. (11) Exercising litigation rights or taking other legal actions in the name of the fund management institution for the benefit of the fund share holders. (12) Other functions prescribed by the securities regulatory authority of the State Council. Article 20 A fund management institution for a publicly offered fund and the directors, supervisors, senior executives and other employees of the fund management institution shall not: (1) mix the institution's or such a person's own assets or the assets of others with fund assets to engage in securities investment; (2) unfairly treat the assets of different funds under management; (3) seek any benefit for any party other than the fund share holders by using fund assets or taking advantage of his or her position; (4) illegally promise the fund share holders any income or assumption of losses; (5) embezzle or misappropriate fund assets; (6) divulge any undisclosed information obtained by taking advantage of his or her position or use such information to engage or explicitly or implicitly advise any other person to engage in the relevant trading activities; (7) neglect duties or fail to perform duties as required; and (8) act otherwise as prohibited by any law or administrative regulation or the provisions of the securities regulatory authority of the State Council. Article 21 A fund management institution for a publicly offered fund shall establish a sound internal governance structure and specify the functions and powers of the shareholders' meeting, board of directors, board of supervisors and senior executives to ensure the independent operation of the fund management institution. A fund management institution for a publicly offered fund may implement professional stock ownership plans and establish a long-term effective incentives and restraints mechanism. The shareholders, directors, supervisors and senior executives of a fund management institution for a publicly offered fund shall exercise rights or perform duties under the principle of giving priority to the interests of the fund share holders. Article 22 A fund management institution for a publicly offered fund shall set aside a risk reserve from the fund management remuneration. Where the fund management institution for a publicly offered fund has caused any loss to fund assets or the lawful rights and interests of the fund share holders for its violation of any law or regulation or violation of the fund contract or otherwise and shall assume compensatory liability, it may first use the risk reserve to make compensation. Article 23 The shareholders and actual controller of a fund management institution for a publicly offered fund shall perform their obligations to report major events in a timely manner in accordance with the provisions of the securities regulatory authority of the State Council and shall not: (1) make any false capital contribution or illegally withdraw any capital contribution; (2) intervene in the fund business of the fund management institution without authorization by a resolution of the shareholders' meeting or board of directors of the fund management institution; (3) require the fund management institution to seek any benefits for them or any other person by using fund assets, damaging the interests of the fund share holders; and (4) act otherwise as prohibited by the provisions of the securities regulatory authority of the State Council. Where any shareholder or the actual controller of a fund management institution for a publicly offered fund commits any act prescribed in the preceding paragraph or any shareholder of the fund management institution no longer meets the statutory conditions, the securities regulatory authority of the State Council shall order the shareholder or actual controller to make correction during a prescribed period and may, according to the circumstances, order the shareholder or actual controller to transfer the equity or controlling equity held in the fund management institution. Before the shareholder or actual controller prescribed in the preceding paragraph corrects the relevant violation or transfers the equity or controlling equity held in the fund management institution as required, the securities regulatory authority of the State Council may restrict the relevant shareholder from exercising the shareholder's rights. Article 24 Where a fund management institution for a publicly offered fund violates any law or regulation or there is any noncompliance in its internal governance structure, auditing and monitoring or risk control management, the securities regulatory authority of the State Council shall order the fund management institution to make correction during a prescribed period; and if the fund management institution fails to do so, or its conduct seriously endangers its robust operation or infringes upon the lawful rights and interests of the fund share holders, the securities regulatory authority of the State Council may, as the case may be, take the following measures against the fund management institution: (1) Restricting its business activities and ordering suspension of a part or all of its business. (2) Restricting its dividend distribution and restricting its payment of remuneration and provision of welfare to its directors, supervisors and senior executives. (3) Restricting it from transferring its own assets or creating any other right in its own assets. (4) Ordering it to replace any of its directors, supervisors and senior executives or restricting their rights. (5) Ordering the relevant shareholder to transfer the equity held or restricting the relevant shareholder from exercising the shareholder's rights. The fund management institution for a publicly offered fund shall, after making rectification, submit a report to the securities regulatory authority of the State Council. The securities regulatory authority of the State Council shall, after verifying that the fund management institution satisfies the relevant requirements, remove the relevant measures taken against the institution within three days from the date of completion of the verification. Article 25 Where any director, supervisor or senior executive of a fund management institution for a publicly offered fund fails to diligently perform his or her duties, thus causing the fund management institution to incur any material violation of any law or regulation or any material risk, the securities regulatory authority of the State Council may order replacement of him or her. Article 26 Where a fund management institution for a publicly offered fund engages in any illegal business operation or has incurred any material risk, seriously disturbing the order of the securities market or infringing upon the interests of the fund share holders, the securities regulatory authority of the State Council may take regulatory measures against the fund management institution, such as ordering it to cease business suspension for rectification, designating a custodial or receivership institution for it, disqualifying it for fund management, and administratively dissolving it. Article 27 During the period when a fund management institution for a publicly offered fund is ordered to cease business operation for rectification, a custodial or receivership institution is legally designated for it or it is liquidated, or where it incurs any material risk, the following measures may be taken against the directly responsible directors, supervisors and senior executives and other directly liable persons of the fund management institution with the approval of the securities regulatory authority of the State Council: (1) Notifying the exit administrative authority to prevent them from exiting China in accordance with law. (2) Requesting the judicial authority to prohibit them from displacing, transferring or otherwise disposing of their respective assets or creating any other right in their respective assets. Article 28 Under any of the following circumstances, the functions of a fund management institution for a publicly offered fund shall terminate: (1) Being disqualified for fund management in accordance with law. (2) Being dismissed by the fund share holders' meeting. (3) Being dissolved, administratively dissolved, or declared bankrupt in accordance with law. (4) Any other circumstances as agreed upon in the fund contract. Article 29 Where the functions of a fund management institution for a publicly offered fund terminate, the fund share holders' meeting shall appoint another fund management institution within six months; and before the appointment of the new fund management institution, the securities regulatory authority of the State Council shall designate a temporary fund management institution. The fund management institution for a publicly offered fund shall, after its functions terminate, properly preserve all the fund management business data and undergo the handover formalities for the fund management business in a timely manner, and the new or temporary fund management institution shall receive the business in a timely manner. Article 30 A fund management institution for a publicly offered fund shall, after its functions terminate, employ an accounting firm to audit fund assets according to the relevant provisions, publish the auditing results, and, at the same time, file such results with the securities regulatory authority of the State Council for recordation. Article 31 The specific measures for regulating fund management institutions for non-publicly offered funds shall be developed by the financial regulatory authorities of the State Council in accordance with the principles in this Chapter. Chapter III Fund Custodians Article 32 A fund custodian shall be a commercial bank or any other financial institution legally formed. To serve as a fund custodian, a commercial bank shall obtain a confirmation from the securities regulatory authority and the banking regulatory authorities of the State Council; and to serve as a fund custodian, any other financial institution shall obtain a confirmation from the securities regulatory authority of the State Council. Article 33 To serve as a fund custodian, a commercial bank or any other financial institution shall meet the following conditions: (1) Its net assets and risk control indicators comply with the relevant provisions. (2) It has specially set up a fund custody department. (3) The number of its full-time personnel qualified for the fund business satisfies the statutory requirement. (4) It meets the conditions for the safekeeping of fund assets. (5) It has safe and efficient clearing and settlement systems. (6) It has business premises and security protection facilities satisfying the relevant requirements and other facilities related to its fund custody business. (7) It has adequate and effective internal auditing and monitoring rules and risk control rules. (8) Other conditions prescribed by laws and administrative regulations and by the securities regulatory authority and the banking regulatory authorities of the State Council with the approval of the State Council. Article 34 The provisions of Articles 15, 18 and 19 of this Law shall apply to the senior executives and other employees of the specialized fund custody department of a fund custodian. The provisions of Article 16 of this Law shall apply to the senior executives of the specialized fund custody department of a fund custodian. Article 35 The fund custodian and the fund management institution for a fund shall not be the same institution and shall not make capital contribution to each other or hold shares in each other. Article 36 A fund custodian shall perform the following functions: (1) The safekeeping of fund assets. (2) Opening the capital accounts and securities accounts for fund assets according to the relevant provisions. (3) Maintaining separate accounts for the assets of different funds under custody and ensuring the integrity and independence of fund assets. (4) Preserving records, account books, statements and other relevant materials regarding the fund custody business. (5) Handling clearing and settlement matters in a timely manner according to the investment orders of the fund management institution as agreed upon in the fund contract. (6) Handling information disclosure matters related to the fund custody business. (7) Offering opinions on the fund's financial accounting reports and semi-annual and annual reports. (8) Reviewing and examining the net asset value of the fund and the subscription and redemption prices for fund shares as calculated by the fund management institution. (9) Convening the fund share holders' meeting according to the relevant provisions. (10) Overseeing the investment operations of the fund management institution according to the relevant provisions. (11) Other functions prescribed by the securities regulatory authority of the State Council. Article 37 Where a fund custodian discovers that any investment order of a fund management institution violates any law, administrative regulation or other relevant provisions or the fund contract, it shall refuse to execute the order, immediately notify the fund management institution, and report to the securities regulatory authority of the State Council in a timely manner. Where a fund custodian discovers that any investment order of a fund management institution which has been executed under the trading procedures violates any law, administrative regulation or other relevant provisions or the fund contract, it shall immediately notify the fund management institution and report to the securities regulatory authority of the State Council in a timely manner. Article 38 ......