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Decree No. 38 of China Securities Regulatory Commission
The Interim Measures for the Administration of Futures Investor Safeguard Funds have been deliberated and adopted by the China Securities Regulatory Commission and the Ministry of Finance. They are hereby promulgated and shall enter into force as of August 1, 2007.
Chairman of the China Securities Regulatory Commission: Shang Fulin
Minister of the Ministry of Finance of the People’s Republic of China: Jin Renqing
April 19, 2007
Interim Measures on Administration of Futures Investors Safeguard Fund
Chapter I: General Principles
Article 1: In accordance with the Regulation on the Administration of Futures Trading, the Measures are formulated in order to protect the legitimate rights and interests of future investors.
Article 2: Futures investor safeguard fund (hereinafter referred to as safeguard fund) is a fund exclusively intended for compensating the investors’ losses of guaranty money when futures companies are in serious violation of related laws or rules, or fail to do well in risk control, which may lead to a shortfall of guaranty money and severely endangers social stability and the safety of the future market.
Article 3: Performing futures trading activities shall observe the principles of openness, fairness, justice and the investors shall make investment decisions independently and assume responsibility for investment risks on their own.
In case any investor suffers losses from the fluctuation of the futures market or the change of the value of the product he/it invests in, he shall assume the losses independently.
Article 4: Safeguard funds shall be raised according to the principle of taking from the market and being used for the market.
Article 5: Safeguard funds shall be uniformly managed and planned as a whole by the China Securities Regulatory Commission (hereinafter referred to as the CSRC).
Article 6: Management and operation of safeguard funds shall be implemented by observing the principles of openness, reasonableness and effectiveness.
Article 7: The use of safeguard funds shall be performed by observing the principles of ensuring the legitimate rights and interests of investors, fair aid and making compensations on a pro ratio basis.
Chapter II: Raising of Safeguard Funds
Article 8: The administrative organ of safeguard funds shall set up an exclusive account in the name of safeguard fund, and this account shall be exclusively used for depositing safeguard funds.
Article 9: The start-up capital of safeguard funds shall be formed by a futures exchange with 15% of the total amount of risk reserves as accumulated up to December 31st, 2006. The follow-up capital of a safeguard fund shall include:
(1) Payment of 3% of the transaction commission charges as collected by the futures exchange against the futures company members;
(2) Payment of 0.0005% to 0.0010% of the vicegerent trading volume made by the futures companies out of their transaction commission charges;
(3) Other legal property recovered or accepted by the administrative organ of safeguard funds.
As for a futures company that has higher risks because of the deterioration of financial condition thereof or its failure to do well in risk control, it shall pay the safeguard funds at a proportion whichever is higher, and the specific payment proportion of each futures company shall be determined by the CSRC according to the risk statue of the company respectively. All futures exchanges or futures companies shall list the safeguard funds as paid by themselves under its business cost.
Article 10: A futures exchange shall transfer the start-up capital that it shall pay into the exclusive account of safeguard funds within one month as of the implementation of the Measures.
Futures exchanges and futures companies shall pay follow-up capital on quarterly manner. A futures exchange shall pay its due safeguard funds of the previous season within 15 workdays as of the end of each season, and withhold and remit the safeguard funds that shall be paid by futures companies at the proportion as prescribed in Article 9 herein.
Article 11: In the case of any of the following circumstances, futures exchanges or futures companies may temporarily suspend the payment of safeguard funds upon the approval of the CSRC and the Ministry of Finance (hereinafter referred to as the MOF):
(1) The total amount of safeguard funds reaches RMB 800 million;
(2) It is suffering from a gross unexpected market risk or force majeure;
The scale, payment proportion and payment mode of safeguard funds shall be determined and adjusted by the CSRC according to the statue of the futures market development and the market risk level, etc.
Article 12: Sources of safeguard funds may be diversified. Safeguard funds may accept private donations or any other legal property. The interests as incurred from the safeguard funds and various kinds of incomes gained from operations thereof as well as other yields incurred shall fall into the safeguard fund.
Chapter III: Management and Supervision of Safeguard Funds
Article 13: The CSRC and the MOF may designate a related organ to serve as the administrative organ of safeguard funds, which manage safeguard funds on their behalf.
Article 14: The management of safeguard funds shall be performed in light of the principles of safety, stability and soundness to ensure the safety of safeguard funds.
Safeguard funds may only be used for bank deposit, purchasing national bonds, bonds of the central bank (including instruments of the central bank) and financial bonds as issued by central banking institutions, and in any other methods as approved by the CSRC and the MOF.
Article 15: Safeguard funds shall be used under independent management and separate accounts and be effectively isolated from other assets that are under the management of the administrative organs of safeguard funds.
The administrative organ of safeguard fund shall prepare reports relating to the raising, management and use of safeguard funds on regular manner, and shall submit the said reports to the CSRC and the MOF after audited by an accounting firm.
Article 16: The administrative organ of safeguard funds, futures exchanges and futures companies shall appropriately keep the accounting vouchers, account books, financial statements and others materials concerning the safeguard funds and ensure the integrity and genuineness of the related accounting records and files.
Article 17: The MOF shall take the responsibility of supervising the financial affairs of safeguard funds. The annual revenue and expenditure plan and final settlement of the account of safeguard funds shall be reported to the MOF for approval.
Article 18: The CSRC shall take the responsibility of supervising the business operations of safeguard funds, and shall make examination and inspection concerning the raising, management and use of safeguard funds regularly. The CSRC shall regularly report the general risk status of futures companies to the administrative organ of safeguard funds. A futures company with moderately high risks shall submit its financial surveillance statements to the administrative organ of safeguard funds on a monthly basis.
Chapter IV: Use of Safeguard funds
Article 19: In case a futures company is in serious violation of related laws and rules or fails to do well in risk control leading to shortfall of any guarantee money, the CSRC may make a decision on using the safeguard funds thereof to compensate for the un-discharged losses of guarantee money suffered by the investor in accordance with the present measures.
Article 20: With respect to the losses of guarantee money as suffered by a futures investor, it shall be compensated with the safeguard funds thereof subject to the principles as follows:
(1) As for the losses suffered by an individual investor, the part below RMB 100, 000 (including RMB 100,000) shall be compensated in full amount, while the part exceeding RMB 100, 000 shall be compensated at the rate of 90%.
(2) As for losses suffered by an institutional investor, the part below RMB 100, 000 shall be compensated in full amount, while the part exceeding RMB 100, 000 shall be compensated at the rate of 80%.
If the current safeguard fund is not enough to make the compensation, the follow-up capital of safeguard funds shall be used to make the compensation.
Article 21: The CSRC and the administrative organ of safeguard funds shall supervise the related futures company to verify the investors’ rights and interests as well as losses of guarantee money, actively liquidate its assets and convert them into cash, and shall compensate for the shortfall of guarantee money firstly with its self-owned capital and the cash as converted from assets liquidation before using any safeguard fund. It may make a decision of using the safeguard funds only when its own capital is not enough to make up the shortfall or in the case of any emergency.
Article 22: As for the losses of guarantee money as suffered by an investor for his/its participation in illegal futures trading, it may not be compensated with safeguard funds. In the case of any participation of an institutional investor in futures trading in the name of an individual, the losses it suffered shall be compensated in accordance with the rules relating to compensation for institutional investors.
Article 23: The administrative organ of safeguard fund shall acquire the right to be compensated accordingly after any safeguard fund is used for compensating the losses of guarantee money as suffered by a futures investor, and may participate in the liquidation of futures companies in accordance with related laws.
Article 24: The administrative organ of safeguard fund shall timely report the circumstances concerning the use, compensation and recovery of safeguard funds to the CSRC and the MOF.
Chapter V: Penalty Provisions
Article 25: In case any futures company is in serious violation of relevant laws or fails to do well in risk control leading to any shortfall of guarantee money, the CSRC shall impose a punishment on it and revoke its futures business license in accordance with Articles 70 and 71 of the Regulation on the Administration of Futures Trading. In case of any suspected crime, the futures company concerned shall be transferred to the judicial authorities according to law.
Article 26: In case any futures exchange or futures company is in violation of the Measures by way of deferring the payment or refusing to make payment of its safeguard funds or failing to keep and file the related information and materials as requested, it shall be punished by the CSRC in accordance with Articles 68 and 70 of the Regulation on the Administration of Futures Trading.
Article 27: As for any individual or entity found to have misappropriated, encroached or defrauded the safeguard funds or committed any other illegal behaviors, the related personnel neglecting their duties shall be subject to legal liabilities in accordance with related laws, and anyone as suspected of being involved in any crime shall be transferred to the judicial authorities.
Chapter VI: Supplementary Provisions
Article 28: The Measures shall come into force as of August 1, 2007.
(This English version by Shenzhen Securities Information Co., Ltd. is for your reference only. In case any discrepancy exists between the Chinese and English context, the Chinese version shall prevail.)
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