3. Securities Company
“Foreign-invested Securities Companies” refer to:
- securities companies that are jointly financed and established by foreign and domestic shareholders; and
- securities companies converted from domestic securities companies following the transfer and subscription to the equity of the domestic securities companies by foreign investors.
B. Applicable Laws and Regulations
The key regulations governing securities companies are the Companies Law of the People’s Republic of China (中华人民共和国公司法), effective since July 1994 and last amended in January 2006 (“Companies Law”), the Securities Law (中华人民共和国证券法), effective since December 1998 and last amended in January 2006, the Regulations on Supervision and Management of Securities Companies (证券公司监督管理条例), which came into effect on June 2008) and the Rules for Establishment of Foreign-invested Securities Companies (外资参股证券公司设立规则), which was implemented in July 2012 and last amended in October 2012 (“Foreign-invested Securities Companies Rules”).
C. The primary regulator
The CSRC is the primary regulator of the securities and futures market in the PRC and is responsible for approving foreign investment and the establishment of securities companies in China. The CSRC’s website is http://www.csrc.gov.cn.
D. Restrictions on foreign investment
The Foreign-invested Securities Companies Rules provide that:
- the total equity owned or controlled, directly or indirectly, by foreign investors in a Foreign-invested Securities Company must not exceed 49%;
- except in the case of listed securities companies, at least 49% of the equity in Foreign-invested Securities Companies must be owned by a domestic securities company. When a domestic securities company is converted into a foreign-funded securities company, at least 49% of the shares must be owned by a domestic shareholder;
- the total equity held or controlled, directly or indirectly, by a single foreign investor in a listed domestic securities company must not exceed 20% and the total equity held or controlled, directly or indirectly, by all foreign investors in a listed domestic securities company must not exceed 25%; and
- CSRC approval is required for the entering of any agreements or arrangements by foreign investors to jointly acquire and hold 5% or more of the equity in domestic securities companies.
E. Requirements for Foreign-Invested Securities Companies
- The registered capital must meet the requirements of the Securities Law (see below);
- The shareholders must have the qualifications prescribed in the Rules, and the proportion and form of their capital contributions must comply with the Rules;
- There must be at least 30 staff members who are qualified to conduct securities dealing in accordance with the CSRC’s requirements and the company must have accounting, legal and computer professionals;
- The company must have sound internal management and risk control systems and a system that separately manages the businesses of underwriting, brokerage and self-operation in terms of staff, information and business implementation etc.) and must have appropriate internal controls;
- Its premises must meet the applicable requirements for business facilities; and
- Other requirements as may be prescribed by the CSRC.
F. Conditions in relation to foreign investors in a Foreign-Invested Securities Company
- The home country/region of a foreign investor must have a sound legal and regulatory system for securities, and the securities regulatory body of such jurisdiction must have signed a memorandum of understanding (“MOU”) on securities regulation with the CSRC and maintain an effective cooperative relationship with the CSRC. (Note: We understand that the CSRC signed a MOU regarding Securities and Futures Regulatory Cooperation with the Russian Federal Financial Markets Service (FFMS) in Beijing on 8 August 2008).
- A foreign investor must have been lawfully established in its home country/region and at least one foreign investor must be an institution that has financial business qualifications. A foreign investor cannot transfer its equity in a Foreign-Invested Securities Company within 3 years after its acquisition;
- The foreign investor must have conducted financial business for at least 5 years and must not have had any substantial penalty imposed on it by the securities regulatory body or by any administrative or judicial body in its home country/region in the previous 3 years;
- The foreign investor’s financial indicators for the previous 3 years must be in compliance with the laws of its home country/region and the requirements of the relevant securities regulatory body;
- It must have a sound internal controls system;
- It must have a good reputation and business performance; and
- Other conditions as may be prescribed by the CSRC.
G. Scope of business
Foreign-Invested Securities Companies may engage in the following types business:
- underwriting and sponsoring the issue of shares (including ordinary RMB-denominated common shares and foreign currency shares) and bonds (including government and corporate bonds);
- brokerage of foreign currency shares;
- brokerage and proprietary trading of bonds (including government bonds and corporate bonds); and
- any other business as may be approved by the CSRC.
H. Capital requirements
The capital requirement for a Foreign-Invested Securities Company varies depending on the business which will be conducted:
- minimum registered capital of RMB 50 million is required for the conduct of securities brokerage, securities investment consultation and financial advisory business in relation to securities trading and securities investment activities;
- minimum registered capital of RMB 100 million is required for the conduct of any one of the following business: underwriting and sponsoring share issues; proprietary securities trading; and securities asset management; and
- minimum registered capital of RMB 500 million is required for the conduct of any two or more of the following businesses: securities underwriting and sponsorship, proprietary trading, securities asset management and other securities businesses.
I. Time frame for approval
On receipt and acceptance of an application for incorporation of a Foreign-Invested Securities Company, the CSRC will examine the application and decide whether or not to approve the application. The decision will normally be reached within six months of acceptance of the application and the applicant will be notified of the outcome in writing. Unsuccessful applicants will also be informed of the reasons why approval was refused.
Upon approval of an application for incorporation of a securities company, the applicant must register incorporation with the company registration authorities and obtain a business licence (Enterprise Legal Person Business Licence) within 6 months from the date of issue of the CSRC’s approval.
A securities company with foreign shareholders is then required to apply to the CSRC for a securities business permit within 15 days of obtaining its business licence. The securities company must not start or conduct any securities business before obtaining a securities business permit.