Order of the State Council of the People's Republic of China
No. 522
The Regulation on Supervision and Administration of Securities Firms was passed in the sixth standing meeting of the State Council on April 23, 2008, which is now published and will take effect as of June 1st, 2008.
Premier Wen Jiabao
April 23, 2008
Regulation on Supervision and Administration of Securities Firms
Chapter 1 General Provisions
Article 1 This Regulation is formulated with the purpose of strengthening supervision and administration of securities firms, standardize their behaviors, prevent their risks, protect legal rights and interests of customers, and promote healthy development of the securities industry according to the Company Law of People's Republic of China （hereinafter referred to as the Company Law） and the Securities Law of People's Republic of China （hereinafter referred to as the Securities Law）.
Article 2 Securities firms should follow the law, administrative regulation and prescription of the securities regulatory agency under the State Council, run business prudently, and perform fiduciary duties to customers.
Article 3 Shareholders and actual controllers of securities firms shall not abuse their rights, occupy assets of the securities firm or customers, or impair the legal rights of the securities firm or its customers.
Article 4 Securities firms are encouraged by the country to carry out innovations of operation approach, business, product, organization as well as stimulating and restraining mechanism in the premise of controlling risk properly.
The securities regulatory agency under the State Council and related departments of the State Council should take effective measures for facilitating the standardization and orderly proceed of innovative activities of securities firms.
Article 5 By obeying national regulations, securities firms can issue, trade and sell securities financial products.
Article 6 The securities regulatory agency under the State Council should perform supervision and administration roles and responsibilities of securities firm within the law. The agency appointed by securities regulatory agency under the State Council should perform supervision and administration roles and responsibilities within the scope of authorization from the securities regulatory agency under the State Council.
Article 7 The securities regulatory agency under the State Council, the People's Bank of China and other financial regulatory authorities under the State Council should establish information sharing mechanism of supervision and administration over securities firms.
A reporting mechanism about securities firms relating status between securities regulatory agency under the State Council and local people's government should be established.
Chapter 2 Establishment and Change
Article 8 Setting up a securities firm requires meeting the conditions prescribed in the Company Law, the Securities Law as well as this Regulation, and approval from securities regulatory agency under the State Council.
Article 9 Shareholders of securities firms shall make capital contribution by monetary property or non-monetary property necessary for the operation of the securities firms. The non-monetary property amount shall not exceed 30% of registered capital of securities firms.
Capital contribution from shareholder of securities firms should be verified with evidence by accounting firm with related qualification of securities and futures; the nonmonetary property should be evaluated by assets evaluation agency with securities related qualification.
Creditor's right transferred to a securities firm from its creditor during business operation of the securities firm is not subject to the provision of item 1 of this Article.
Article 10 Any unit or individual in any of the following circumstances cannot be a shareholder or an actual controller with 5% equity or more of a securities firm:
（1）Sentenced with penalty due to deliberate crime and completion of penalty is still less than three years;
（2）Net assets is less than 50% of the paid-in capital or contingent liability reaches 50%;
（3）failure to discharge due liability; or
（4）Other circumstances recognized by securities regulatory agency under the State Council.
Other shareholders of securities firms should comply with the related requirements of the securities regulatory agency under the State Council.
Article 11 A securities firm should have three officers or more, who should have held management position in the securities industry for at least two years.
Article 12 When a securities firm is set up, its business scope should align with its financial performance, internal control system, regulatory compliance system and human resources; during business operation of the securities firm, it can apply to the securities regulatory agency under the State Council for adjustment of its business scope based on the financial performance, internal control level, regulatory compliance degree, business management capability of officers and quantity of professionals.
Article 13 If a securities firm changes registered capital, business scope, company form or key terms in company regulation, merger, divide, set up, acquire or revoke domestic branch, relocate domestic branch, set up, acquire, hold equity of domestic securities agency, it should get approval from the securities regulatory agency under the State Council.
The key terms in company regulation mentioned in the previous term refer to the following prescriptions:
（1）Name and location of the securities firm;
（2）Organization, forming method, roles and responsibilities, rule of procedure of the securities firm;
（3）Type, amount and internal approving procedure of external investment and guarantee of the securities firm;
（4）Disbandment reason and liquidation approach of the securities firm; and
（5）Other items required by the securities regulatory agency under the State Council to prescribe in company regulation.
A securities firm mentioned in item 1 of this Article refers to an unincorporated entity with business operation under the securities firm such as branch company and securities business outlet.
Article 14 Any unit or individual in any of the following circumstances shall inform the securities firm in advance and the securities firm shall apply to the securities regulatory agency under the State Council for approval:
（1）Hold no less than 5% of the registered capital of the securities firm upon subscription or acquisition of the equity of the securities firm; or
（2）Actually control 5% equity or more of the securities firm by holding equity of the shareholders of the securities firm or by any other means.
No unit or individual can entrust others or being entrusted to hold or manage equity of the securities firm without approval of the securities regulatory agency under the State Council. Shareholders of the securities firm shall not violate national prescription by agreeing to exercise voting rights in violation of investment proportion.
Article 15 If a securities firm is to be merged or divided, its major assets transfer that relates to customer's interests should be evaluated by assets evaluation agency with securities related qualification.
Closing of business, disbandment or bankruptcy of the securities firm should be approved by the securities regulatory agency under the State Council. Settling of customers and handling unfinished business should follow the related rule.
Article 16 The securities regulatory agency under the State Council should audit the following application and make a decision on approving or not approving in written within the prescribed period:
（1）For application of setting up a securities firm at home, or set up, acquire or hold equity of securities agencies abroad, decision should be made within 6 months of handling;
（2）For application of changing registered capital, merging, dividing or requiring audit of shareholders or actual controllers' qualifications, decision should be made within 3 months of handling;
（3）For application of changing business scope, company form, key terms in company regulation or requiring auditing of officer's qualification, decision should be made within 45 working days of handling;
（4）For application of setting up, acquiring, revoking domestic branch, changing location of the branch, closing business, disbanding or going bankruptcy, decision should be made within 30 working days of handling;
（5）For application of requiring audit of qualifications of board director, supervisor or principal of domestic branch, decision should be made within 20 working days.
While the securities regulatory agency under the State Council approving setting up application of securities firm and its branch, it should consider the needs of development as well as fair competition of the securities market.
Article 17 With approval document of the securities regulatory agency under the State Council, the corporate registration agency should handle setting up, changing and deregistration of the securities firm as well as its branch according to law.
After a securities firm acquiring business license for the securities or domestic branch issued or changed by the corporate registration agency, it should apply to the securities regulatory agency under the State Council for issuing or changing license for securities business. The securities business license should be written with business scope of such securities firm or its domestic branch.
Without securities business license, the securities firm and its domestic branch shall not run securities business.
If the securities firm closes all securities business, disbands, goes bankruptcy or revokes domestic branch, it should publicize in newspaper appointed by the securities regulatory agency under the State Council and submit securities business license to the securities regulatory agency under the State Council for deregistration based on regulation.
Chapter 3 Organization Structure
Article 18 The securities firm should establish and complete organization structure, and clearly state roles and responsibilities of decision-making, execution or supervision agencies according to the Company Law and the Securities Law.
Article 19 The securities firm can set up independent board directors, who shall not take positions outside of board of the securities firm or have such relationship with the securities firm that hinders his independent and objective judgment.
Article 20 If a securities firm has two or more kinds of securities brokerage business, securities assets management business, financing with capital and securities, securities underwriting, securities sponsors, its board should set up remuneration and nomination committee, auditing committee and risk control committee to perform rights prescribed in company regulation.
If the board of the securities firm is set up with remuneration and nomination committee, audit committee, the principals of these committees should be undertaken by independent board director.
Article 21 The board secretary of the securities firm is responsible for preparing for the shareholder's meeting and the BOD meeting, document keeping as well as management of shareholder materials, and according to the relevant provisions and the requirements of the relevant units or individuals including the securities regulatory agency under the State Council, shareholders or individuals, providing the related materials according to law, and handling information reporting or disclosure. The board secretary is an officer of the securities firm.
Article 22 If a securities firm sets up an agency that performs business management rights of the securities firm, it should clearly states it name, constitution, roles, responsibilities and rule of procedure in the company regulation. Members of such agency are officers of the securities firm.
Article 23 The securities firm should set up responsible person for regulatory compliance to audit, supervise or check legal and regulatory compliance of management behavior of securities firm. The person in charge of regulatory compliance is an officer of the securities firm, which shall be hired by the board. He should be recognized by the securities regulatory agency under the State Council. This responsible person shall not take management position of the securities firm in the same time.
Once the responsible person for regulatory compliance finds behavior of law and regulation violation, he should report to agency prescribed in company regulation, and also report to the securities regulatory agency under the State Council or concerning self-discipline organization according to the regulation.
The securities firm should have appropriate reasons for dismissing responsible person for regulatory compliance and report to the securities regulatory agency under the State Council in written within 3 working days.
Article 24 Directors, supervisors and officers of the securities firm and principals of its domestic branches should get approval for their qualifications by the securities regulatory agency under the State Council before holding the post.
The securities firm shall not hire or select someone, who has not got qualification, to take position prescribed in the previous term; for those, who are already hired or selected, resolution or decision of hiring or selecting them is invalid.
Article 25 The legal representative or an officer of the securities firm who leaves his or her post should be audited by the securities firm. The audit report should be submitted to the securities regulatory agency under the State Council within 2 months of his leaving; if the legal representative or principal of business management of the securities firm leaves his post, an accounting firm with securities and futures related business should be hired to conduct auditing.
If the auditing report prescribed in the previous term has not been submitted to the securities regulatory agency under the State Council, the person to leave his post shall not take position in any other securities firm.
Chapter 4 Business Rule and Risk Control
Section 1 General Provisions
Article 26 If a securities firm and its domestic branch are engaged in securities business prescribed in Article 125 of the Securities Law, they should follow the Securities Law and provisions of this Regulation.
Businesses run by the securities firm and its domestic branch should be approved by the securities regulatory agency under the State Council. No business without approval is allowed.
If two or more securities firms are controlled by one agency or person, or have controlling relationship with each other, they shall not run the same securities business, except for otherwise prescribed by the securities regulatory agency under the State Council.
Article 27 A securities firm should establish and complete risk management and internal control system to prevent and control the risk in the principle of prudent operation.
All branches should be centralized and administrated by the securities firm and their administration shall not adopt joint venture or cooperation with another party, or contracting, leasing or entrusting to others.
Article 28 When the securities firm is entrusted by securities registration settlement agency to open securities account for customers, it should audit name and identity authenticity declared by customers according to management rule of securities account. Names in capital account and securities account of the same customer should be the same.
Securities account opened by the securities firm for securities assets management customer should be submitted to stock exchange for filing within 3 trading days.
The securities firm shall not provide customer's capital account and securities account to others.
Article 29 The securities firm that is engaged in securities assets management business, capital and securities financing business, securities-related finance product sales should get knowledge of identity, property, income status, securities investment experience and risk preference of customers according to prescribed procedure, and record as well as keep the information in written or electronic form. The securities firm should recommend appropriate product or service to customer based on their status. Detailed rules should be formulated by the Securities Association of China.
Article 30 Before the securities firm signs securities dealing entrustment, securities assets management, capital and securities financing contracts with customers, it should appoint specialist to introduce business rule and contract content to customers and let customer sign and confirm on risk disclosure letter. The standard format of necessary term of business contract and risk disclosure letter is formulated by Securities Association of China and filed by the securities regulatory agency under the State Council.
Article 31 If a securities firm is engaged in such businesses as securities assets management and capital and securities financing, it should develop reconciliation statement and send it to customers on monthly basis. If there's other agreement on delivery time or approach of reconciliation statement between the securities firm and customers, the other agreement should be followed.
Article 32 A securities firm should establish information inquiring system to ensure customers inquiring entrustment record, trading record, securities and balance during business hours of the securities firm, as well as other information such as name, practice license of the business operator and securities broker of the securities firm, certificate number of securities broker, etc.
If customers find incompliance between related information record and the fact, he can claim to the securities firm or the securities regulatory agency under the State Council. The securities firm should appoint specialized department to handle customer claims. The securities regulatory agency under the State Council should take corresponding measures to deal with customer's claim.
Article 33 A securities firm shall not entrust other agency or individual to attract customer, or hold customer service or product sales that are violating regulations.
Article 34 While a securities firm is putting forward investment advice to customers, it shall not make decisive judgment on rising or dropping of securities price or market tendency.
The securities firm and its staff shall not seek for undue interests by providing investment advice to customers.
Article 35 A securities firm should establish and implement effective management system to prevent staff holding or trading stocks directly or in either false name or other's name, or receiving gifted stocks from others.
Article 36 A securities firm should draw general risk provisions according to regulation to make up operation loss.
Section 2 Securities Brokerage Business
Article 37 If a securities firm is engaged in securities brokerage business, it should audit whether capital and securities in customer's account are sufficient or not. If capital in customer's capital account is insufficient, it cannot accept buying entrustment; if securities in customer's securities account are insufficient, it cannot accept selling entrustment.
Article 38 If a securities firm is engaged in securities brokerage business, it can entrust staff outside of the securities firm as securities broker, engaging in attracting and providing service for customers as agent. The securities broker should have securities working qualification.
The securities firm should sign entrustment contracts with securities brokers who accept such entrustment, issue securities broker certificate, define authorized scope of securities broker and supervise working behavior of securities broker.
Securities brokers should work within authorized scope of the securities firm and show securities broker certificates to customer.
Article 39 Securities brokers should obey administration rules of working staff in the securities firm. The legal responsibility of his behavior within authorized scope of the securities firm should be taken by the securities firm; and the legal responsibility of any behavior outside authorized scope should be taken by securities brokers.
Securities brokers can only accept entrustment of one securities firm for customer attracting and service activities.
Securities brokers shall not handle securities subscription or trading for customers.
Article 40 Securities trading cost charged by securities from customer should comply with related national prescription. The charging items as well as standards should be publicized in noticeable place of business area.
Section 3 Securities Self Service Business
Article 41 A securities firm engaged in securities business for its own account is limited to trading of legally issued stocks, bonds, warrants, securities investment funds or other securities recognized by the securities regulatory agency under the State Council.
Article 42 When a securities firm is engaged in self-run business, it should use self-run securities accounts with its true name.
Self-run securities accounts of the securities firm should be submitted to the stock exchange for filing within 3 trading days of account opening.
Article 43 The securities firm shall not have the following behavior while being engaged in self-run securities business:
（1）Illegally buying securities issued by shareholder of the securities firm or other issuer with major relationship to securities firm against regulation;
（2）Illegally entrust others to buy or sell securities;
（3）Trade securities or maneuver securities market with insider information;
（4）Other behaviors prohibited by law, administrative regulation or the securities regulatory agency under the State Council.
Article 44 If a securities firm is engaged in self-run securities business, its risk controlling indicators such as ratio of total securities value and company net capital, ratio of value of one type of securities and net corporate capital, and ratio of quantity of one type of securities and total issuing quantity of this type of securities should comply with prescription of the securities regulatory agency under the State Council.
Section 4 Securities Assets Management Business
Article 45 A securities firm can be engaged in securities assets management business by accepting customer's entrustment or using customer's assets according to the Securities Law and this Regulation. Income generated from investment should be enjoyed by customers and loss also borne by customers. The securities firm can charge management cost according to agreement.
If a securities firm is engaged in securities assets management business, it should sign securities assets management contract with customers, defining investment scope, investment ratio, management period, management cost and so on.
Article 46 A securities firm engaged in securities assets management business shall not have the following act:
（1）Promise to customer on guarantee of no loss of his assets or minimum income;
（2）Assets value entrusted by customer in single transaction is lower than minimum level prescribed by the securities regulatory agency under the State Council;
（3）Engage in unnecessary securities trade by using customer's assets;
（4）Trade between self-run securities account and securities assets management account, or among different securities assets management accounts, and has no sufficient evidence proving that it has legally realized effective separation;
（5）Other behaviors prohibited by law, administrative regulation or the securities regulatory agency under the State Council.
Article 47 If a securities firm is engaged in collective investment by using assets of multiple customers or specially invests customer's assets into particular target products, it should comply with related prescription of the securities regulatory agency under the State Council and report to the securities regulatory agency under the State Council for approval.
The securities regulatory agency under the State Council should make approving or not approving decisions of items in the previous term in written within 2 months of application handling.
Section 5 Securities Lending and Borrowing Business
Article 48 Securities lending and borrowing referred to in this Article means that in the securities trading at the stock exchange or other securities trading places that have been approved by the State Council, securities firms lend capital or securities to customers for them to buy or sell securities based on the corresponding collaterals provided by the customers.
Article 49 A securities firm intending to start securities lending and borrowing business shall meet the following requirements:
（1）Having healthy corporate governance and effective internal control;
（2）The risk control indicators comply with the relevant stipulations and the financial status and compliance status are sound;
（3）Having professionals, technical conditions, funds and securities required for carrying out securities lending and borrowing business;
（4）Having good management system and implementation scheme for securities lending and borrowing business;
（5）Having other conditions that are stipulated by the securities regulatory agency under the State Council.
Article 50 A securities firm that carries out securities lending and borrowing business shall sign a securities lending and borrowing contract with the customer, and shall open a customer securities guarantee account with the securities registration and settlement organs, and a customer funds guarantee account with the designated commercial bank in the name of the securities firm in accordance with the provisions of the securities regulatory agency under the State Council. Funds in the customer funds guarantee account shall be managed according to the stipulation of Article 57 of this Regulation.
Inside the customer securities guarantee account and customer funds guarantee account opened in the name of the securities firm, a separate credit granting account shall be opened for each customer.
Article 51 A securities firm shall use its own funds or funds that have been raised according to the law when lending funds to the customer; it shall use its own securities or securities whose right of disposal has been legally obtained by it when lending securities to the customer.
Article 52 When a securities firm lends funds or securities to the customer, the customer shall give a certain percentage of deposit. Securities can be used as the deposit.
The deposit given by the customer, all the securities that have been purchased through securities lending and borrowing, and all the funds from the sales of securities are collaterals to the securities firm, and shall be deposit to the customer securities guarantee account or the customer funds guarantee account and credited to the customer's credit granting account.
Article 53 Securities in the customer securities guarantee account and fund in the customer fund guarantee account are trust assets. The securities firm shall not breach the trustee obligation and misappropriate the securities or fund in the customer guarantee accounts. Except for circumstances prescribed in Article 54 of this Regulation or other agreements reached by the securities firm and customers according to law, the securities firm shall not use the securities or fund in the customer guarantee accounts.
Article 54 The securities firm shall calculate day by day the ratio of the value of the customer's collaterals and its debts. When the ratio is lower than the stipulated minimum guarantee maintenance ratio, the securities firm shall notify the customer to make up the difference within a certain time period. If the customer fails to make up the difference within the prescribed period, or fails to pay back the due debts of the securities lending and borrowing, the securities firm shall immediately dispose of its collaterals according to the agreement.
Article 55 The percentage of the deposit to be paid by the customer according to Item 1 of Article 52 of this Regulation shall be determined by units that are authorized by the securities regulatory agency under the State Council.
The types of securities that can be lent to the customer by the securities firm and can be bought with the funds lent to the customer by the securities firm, the types and coefficient of the securities that can be used as deposit, the time limit for securities lending and borrowing, the minimum guarantee maintenance ratio and the time limit for making up the difference shall be determined by the stock exchange.
Relevant provisions of the authorized units or the stock exchange as stipulated in Items 1 and 2 of this Article shall be submitted to the securities regulatory agency under the State Council for the record and shall not violate the state's monetary policy.
Article 56 Where a securities firm carries out securities lending and borrowing but does not have sufficient funds or securities, it can borrow from the securities financial companies. The establishment and dismissal of securities financial companies shall be determined by the State Council.
Chapter 5 Protection of the Customer's Assets
Article 57 Where a securities firm carries out securities brokerage business, its customer's trading settlement funds shall be deposit in the designated commercial bank, and shall be managed separately in the name of each customer.
The designated commercial bank shall sign a customer trading settlement funds custody contract with the securities firm and its customer, setting forth matters such as the deposit and withdrawal, transfer and enquiries of the trading settlement funds, and shall open a general account of customer trading settlement funds for the securities firm according to the requirements of net amount settlement and delivery versus payment of securities trading.
The deposit and withdrawal of the customer's trading settlement funds shall be handled through the designated commercial bank. The designated commercial bank shall ensure that the customer can enquire at any time about the balance and changes of the customer's trading settlement funds.
The list of the designated commercial banks shall be determined and publicly announced by the securities regulatory agency under the State Council jointly with the banking supervision and management organs of the State Council.
Article 58 A securities firm that carries out securities assets management business shall hand the customer' trust assets over to the custody of the designated bank as stipulated in Item 4 of Article 57 of this Regulation or other assets custodian organs recognized by the securities regulatory agency under the State Council.
The assets custodian organs shall perform duties of safeguarding the customer's trust assets, handling the collection and payment of the funds and supervising the investment activities of the securities firm according to the provisions of the securities regulatory agency under the State Council and the securities assets management contract.
Article 59 The customer's trading settlement funds and the trusted funds of the customer of the securities assets management companies belong to the customer and shall be independent from the own funds of the securities firm, the designated commercial bank and the assets custodian organ, and shall be separately managed. Other than for the debts of the customers themselves or for other circumstances stipulated by the law, no units or individuals can apply to seal up, freeze or enforce the customer's trading settlement funds and trusted funds.
Article 60 Except for the following circumstances, customer's trading settlement funds or trusted funds shall not be used:
（1）Customers' purchase of securities, settlement of securities trading or customers' withdrawal;
（2）Customers' payment of commission, expenses or taxes related to the securities trading;
（3）Other circumstances that are stipulated by the law.
Article 61 The securities firm shall not provide financing or warranty to other people using the assets of the securities brokerage customers or securities assets management customers. No units or individuals shall force, incite, assist or accept the securities firm to provide financing or warranty with the assets of the securities brokerage customers or securities assets management customers.
Article 62 The designated banks, assets custodian organs and the securities registration and settlement organs shall supervise the use of the customer's trading settlement funds, the trusted funds and the funds and securities in the customer guarantee accounts deposit in their organs, and regularly provide relevant data to the securities regulatory agency under the State Council on the custody and use of the customer's trading settlement funds, the trusted funds and the funds and securities in the customer's guarantee accounts according to relevant provisions.
The designated banks, assets custodian organs and the securities registration and settlement organs shall refuse application or instruction to use the customer's trading settlement funds, the trusted funds and the funds and securities in the customer's guarantee accounts which exceeds the scope stipulated by Articles 53, 54 and 60 of this Regulation; if they find that the customer's trading settlement funds, the trusted funds and the funds and securities in the customer's guarantee accounts have been illegally used or other abnormal situations, they shall immediately report to the securities regulatory agency under the State Council and send copies to relevant supervision and management organs.
Chapter 6 Supervision and Management Measures
Article 63 The securities firm shall submit annual report to the securities regulatory agency under the State Council within four months from the last day of each fiscal year; monthly report shall be submitted within seven workdays from the last day of each month.
Where major events occur that affect or may affect the business operation, financial status and risk control indicators of the securities firm or the safety of the customer's assets, the securities firm shall immediately submit interim report to the securities regulatory agency under the State Council, stating the cause of the events, the current status, possible consequences and corresponding measures to be taken.
Article 64 The financial report and risk control indicator report in the annual report of the securities firm and the other special reports required by the securities regulatory agency under the State Council shall be audited by the accounting firm with qualification for securities and futures business. The annual report of the securities firm shall include the internal control review report issued by the accounting firm.
The directors and senior managers of the securities firm shall sign the annual report of the securities firm for confirmation; key personnel in charge of operations and finance shall sign the monthly report for confirmation. Those who sign in the annual report and the monthly report of the securities firm shall guarantee the authenticity, accuracy and integrity of the content of the reports; those who have objection to the content of the reports shall indicate their opinions and reasons.
Article 65 The securities regulatory agency under the State Council shall assign dedicated people to examine and verify the annual report and monthly report submitted by the securities firm and make examination and verification report. People responsible for examining and verifying shall sign in the report. If issues are found in the examination and verification, the securities regulatory agency under the State Council shall take corresponding measures in a timely manner.
The securities regulatory agency under the State Council shall compare and verify relevant data submitted by relevant organs on the customer's trading settlement funds, the trusted funds and the funds and securities in the customer's guarantee accounts to timely detect the illegal use of the funds or securities.
Article 66 The securities firm shall disclose to the public according to the law its basic information, share holding and share controlling status, liabilities status, operations, business income and expenditure, compensation of senior managers and other relevant information. Specific measures shall be formulated by the securities regulatory agency under the State Council.
Article 67 The securities regulatory agency under the State Council can require the following entities or individuals to provide materials and information concerning operating management and financial status of a securities firm:
（1） A securities firm and its directors, supervisors and workers;
（2） Shareholders and actual controllers of a securities firm;
（3） Enterprises controlled or actually controlled by a securities firm;
（4） Deposit banks, designated commercial banks, asset management agencies, security exchanges, securities registration and clearing agencies of a securities firm;
（5） Securities service agencies provided services for a securities firm.
Article 68 The securities regulatory agency under the State Council is authorized to take the following measures to undertake inspections on business activities, financial status, operating management of a securities firm:
（1） To inquire directors, supervisors and workers of a securities firm, requiring them to make explanations of issues concerned;
（2） To enter workplaces or business sites of a securities firm to undertake inspections;
（3） To read and copy documents and materials concerned with inspection, and keep documents, materials and electronic equipment which may be transferred, hidden or damaged;
（4） To inspect computer information management system of a securities firm and copy relevant data materials.
The securities regulatory agency under the State Council can enquire the bank accounts of a securities firm and enterprises controlled or actually controlled by the securities firm with approval of a person responsible of the securities regulatory agency under the State Council with a view to make a thorough investigation of business and financial status of the securities firm.
Article 69 The materials and information disclosed, reported or provided by a securities firm and the relevant entities and individuals shall be true, accurate and complete, without any false record, misleading statement or major omission.
Article 70 Where a securities firm has an unsound governance structure, an imperfect inner control, a confused operating management and concealed accounts, refuses to execute supervising and administrative decisions, and violates laws and regulations, the securities regulatory agency under the State Council shall order it to correct within a certain period and can take the following measures:
（1） To order it to increase inner compliance inspections and submit compliance inspection reports;
（2） To condemn the securities firm and its directors, supervisors, senior managers and persons responsible of inbound branches who are concerned;
（3） To order it to give punishment to relevant persons responsible and report results;
（4） To order it to change directors, supervisors and senior managers or restrict their rights;
（5） To take over the securities firm temporally and undertake an overall inspection;
（6） To suspend businesses, partly or wholly, of the securities firm or its inbound branches and order it to cancel its inbound branches within a certain period.
The securities firm whose business is suspended and who is ordered to cancel its inbound branches within a certain period shall arrange its clients and handle its unfinished businesses according to relevant provisions.
Where the head of compliance fulfills his/her responsibilities of determent and report for any illegal and irregular acts of the securities firm, he/she shall be exempted from bearing any responsibility.
Article 71 Where any unit or individual holds or actually holds 5% shares or more of a securities firm without approval, it shall be ordered to correct within a certain period by the securities regulatory agency under the State Council; before the correction, corresponding stock rights have no right to vote.
Article 72 Where anyone executes the rights of a director, a supervisor, a senior managers or a person responsible of an inbound branch of a securities firm without post-holding qualification, the securities regulatory agency under the State Council shall order he/she to stop execution of his/her rights, make an announcement, and can forbid he/she to participate in any security market according to provisions.
Article 73 Where any director, supervisor, senior manager or person responsible of any inbound branch does not meet post qualification requirements, a securities firm shall remove him/her from his/her post and report to the securities regulatory agency under the State Council. Where the securities firm does not remove him/her from his/her post, the securities regulatory agency under the State Council shall order it to do.
Article 74 Where a securities firm hires or dismisses an accounting firm, it shall report to the securities regulatory agency under the State Council for file within 3 workdays upon the making of the decision; where it dismisses an accounting firm, it shall explain reasons.
Article 75 An accounting firm can read and copy client information concerned with audit issues or other documents and materials of a securities firm, and can acquire relevant data materials from the computer information management system of the securities firm.
The accounting firm shall keep secret of the information it knows, except as otherwise stipulated by laws and administrative regulations.
Article 76 A securities firm shall undertake real-time monitoring on trading behaviors of its self-operation accounts and portfolio management accounts. It shall make disposals according to trading rules and member management rules in a timely manner when it finds any abnormality, and report to the securities regulatory agency under the State Council.
Chapter 7 Legal Responsibilities
Article 77 Where a securities firm is in any of the following circumstances, it shall be punished according to the provisions prescribed in Article 198 of the Securities Law of the People's Republic of China:
（1） Where any person without post-holding qualifications serves as a person responsible of an inbound branch;
（2） Where the securities firm does not conform to decisions made by the securities regulatory agency under the State Council according to laws to remove any director, supervisor, senior manger and person responsible of any inbound branch from his/her post.
Article 78 Where a securities firm that engaging in security broker business accepts a buy order of a client whose account without enough capital, or sell order of a client whose account without enough securities, it shall be punished according to the provisions prescribed in Article 205 of the Securities Law of the People's Republic of China.
Article 79 Where a securities firm provides capital accounts and security accounts of its clients for others' use, it shall be punished according to the provisions prescribed in Article 208 of the Securities Law of the People's Republic of China.
Article 80 Where a securities firm entices its clients to conduct unnecessary security trading or uses assets of its clients to take unnecessary security trading in its dealing with portfolio management business, it shall be punished according to the provisions prescribed in Article 210 of the Securities Law of the People's Republic of China.
Article 81 Where a securities firm is in any of the following circumstances, it shall be punished according to the provisions prescribed in Article 219 of the Securities Law of the People's Republic of China:
（1） Where a securities firm or its inbound branch engages in businesses out of scope approved by the securities regulatory agency under the State Council;
（2） Where a securities firm undertakes collective investments with assets of several clients or invests its client's assets in specific targeting products without any approval.
Article 82 Where a securities firm conducts trading between its security self-operation accounts and portfolio management accounts, or between different portfolio management accounts, and has no sufficient evidences to prove effective separation of these accounts is realized according to laws, it shall be punished according to the provisions prescribed in Article 220 of the Securities Law of the People's Republic of China.
Article 83 Where a securities firm is in any of the following circumstances in violation of the provisions hereof, it shall be ordered to correct and given a warning. The illegal proceeds shall be confiscated and a fine of 1-5 times of the illegal proceeds shall be imposed. Where there are no illegal proceeds or the illegal proceeds are less than RMB100,000, a fine of RMB100,000 up to RMB300,000 shall be imposed. Under any serious circumstances, the relevant business license thereof shall be revoked. The person-in-charge and any other person directly responsible shall be given a warning and imposed a fine of RMB30,000 up to RMB100,000 and the relevant post-holding qualification or securities practice qualification thereof shall be revoked.
（1） Where a securities firm violates provisions to entrust other unit or individual to undertake activities of client solicitation, client service or product sale.
（2） Where a securities firm offers investment suggestions to its client, making certainty judgment on highs and lows of security prices or market trends;
（3） Where a securities firm violates provisions to entrust others to buy and sell securities;
（4） Where the investment scopes or investment proportions of the security self-operation business and portfolio management business of a securities firm are not conformed to provisions;
（5） Where a securities firm engaging in portfolio management business accepts a single entrustment of its client with the value less than the minimal value prescribed.
Article 84 Where a securities firm is in any of the following circumstances in violation of provisions hereof, it shall be ordered to correct and given a warning. The illegal proceeds shall be confiscated and a fine of 1-5 times of the illegal proceeds shall be imposed. Where there are no illegal proceeds or the illegal proceeds are less than RMB30,000, a fine of RMB30,000 up to RMB300,000 shall be imposed. The person-in-charge and any other person directly responsible shall be given a warning and imposed a fine of RMB30,000 up to RMB100,000 and the relevant post-holding qualification or securities practice qualification thereof shall be revoked under any serious circumstances.
（1） Where a securities firm does not undertake audit on the departure of its legal representative or senior manager and submit audit reports according to provisions;
（2） Where a securities firm manages its branch with others in forms of joint capital or joint operation, or contracts, leases or entrusts others to manage its branch;
（3） Where a securities firm does not report its security self-operation accounts or portfolio accounts of its clients to a security exchange for file according to provisions;
（4） Where a securities firm does not acquaint with its client's status, financial and income status, portfolio investment experience and risk preference according to prescribed procedures;
（5） Where the products or services recommended by a securities firm are inconsistent with known situations of a client;
（6） Where a securities firm does not designate a specific person to illustrate relevant rules and contents of contracts and disclose investment risks in written form to its client according to provisions;
（7） Where a securities firm does not conclude business contract with its client or write down necessary terms and conditions as prescribed in the business contract concluded with its client according to provisions;
（8） Where a securities firm does not send statement to its client according to prescribed compilation, or does not establish or effectively execute information inquiry system according to provisions;
（9） Where a securities firm does not designated a division to handle client's complaints according to provisions;
（10） Where a securities firm does not draw general risk reserve according to provisions;
（11） Where a securities firm does not deposit or manage trading settlement funds, trust funds and funds and securities in secured accounts of clients according to provisions;
（12） Where a securities firm does not report to the securities regulatory agency under the State Council for file about its hiring and dismissal of an accounting firm, or does not explain reasons for its dismissal of an accounting firm.
Article 85 Where a securities firm does not open an account for its client according to provisions, it shall be ordered to correct; under any serious circumstances, a fine of RMB200,000 up to RMB500,000 shall be imposed. The directors and senior managers directly responsible and any other person directly responsible shall be imposed a fine of RMB10,000 up to RMB50,000.
Article 86 Where a securities firm is in any of the following circumstances in violation of provisions hereof, it shall be ordered to correct and given a warning. The illegal proceeds shall be confiscated and a fine of 1-5 times of the illegal proceeds shall be imposed. Where there are no illegal proceeds or the illegal proceeds are less than RMB100,000, a fine of RMB100,000 up to RMB600,000 shall be imposed. Under any serious circumstances, the relevant business license thereof shall be revoked. The person-in-charge and any other person directly responsible shall be given a warning and imposed a fine of RMB30,000 up to RMB300,000 and the relevant post-holding qualification or securities practice qualification thereof shall be revoked.
（1） Where a securities firm entrusts others or accepts others' entrustments to hold or manage the stock right of the securities firm, or subscribe for, assign or actually hold the stock right of the securities firm;
（2） Where any shareholder and actual holder of a securities firm force, incite, assist or accept the securities firm to provide financing or warranty with assets of stock brokerage clients or stock-asset management clients;
（3） Where a securities firm, an asset management agency, a securities registration and clearing agency use trading settlement funds, trust funds and funds and securities in secured accounts of clients in violation of provisions;
（4） Where an asset management agency and a securities registration and clearing agency approves and executes applications and instructions which use trust funds and assets and securities in secured accounts of clients in violation of provisions;
（5） Where an asset management agency and a securities registration and clearing agency does not report to the securities regulatory agency of the State Council when it finds trust funds and assets and securities in secured accounts of clients are used in violation of provisions.
Article 87 Where a designated bank is in any of the following circumstances, it shall be ordered to correct and given a warning by the securities regulatory agency of the State Council. The illegal proceeds shall be confiscated and a fine of 1-5 times of the illegal proceeds shall be imposed. Where there are no illegal proceeds or the illegal proceeds are less than RMB100,000, a fine of RMB100,000 up to RMB600,000 shall be imposed. Under any serious circumstances, the relevant business license thereof shall be revoked. The person-in-charge and any other person directly responsible shall be given a warning and imposed a fine of RMB30,000 up to RMB300,000;
（1） Using trading settlement funds of its clients in violation of provisions;
（2） Approving and executing applications and instructions which use trust funds and assets and securities in secured accounts of clients in violation of provisions;
（3） Failing to report to the securities regulatory agency of the State Council when it finds trading settlement funds of its clients are used illegally.
Where any designated commercial bank has any of the above acts and is under any serious circumstances, its businesses of trading, clearing and capital management shall be ordered to be suspended or terminated by banking regulatory agencies of the State Council. The securities regulatory agency under the State Council can suggest the banking regulatory agencies of the State Council to give penalties to the person-in-charge and any other person directly responsible according to laws.
Article 88 Where a securities firm is in any of the following circumstances in violation of provisions hereof, it shall be ordered to correct and given a warning. A fine of RMB30,000 up to RMB200,000 shall be imposed. The person-in-charge and any other person directly responsible shall be given a warning and imposed a fine less than RMB30,000:
（1） Where a securities firm does not disclose information publicly according to provisions of Article 66 hereof, or where there is any false record, misleading statement or major omission in the publicly disclosed information;
（2） Where enterprises, asset management agencies and securities service agencies hold or actually hold by a securities firm do not file and provide relevant information and materials to the securities regulatory agency under the State Council according to laws, or where there is any false record, misleading statement or major omission in the information and materials filed and provided.
Article 89 Where any person is in any of the following circumstances in violation of provisions hereof, he/she shall be ordered to correct and given a warning. The illegal proceeds shall be confiscated and a fine equaled to the illegal proceeds shall be imposed. Where there are no illegal proceeds or the illegal proceeds are less than RMB30,000, a fine less than RMB30,000 shall be imposed. Under any serious circumstances, the relevant post-holding qualification or securities practice qualification thereof shall be revoked.
（1） Where any head of compliance do not report to the securities regulatory agency of the State Council or relevant self-discipline organizations about illegal or irregular acts;
（2） Where any securities broker who engaging in businesses does not present his/her certificate of securities broker to his/her client;
（3） Where any securities broker accepts entrustments of many securities firms at the same time and undertakes activities including client solicitation and client service;
（4） Where any securities broker accepts entrustments of clients to handle such issues as securities subscription and trading.
Article 90 Where a securities firm collects charges in violation of provisions, it shall be punished by the competent authority according to law.
Chapter 8 Supplementary Provisions
Article 91 Where securities businesses operated by a securities firm are not in accordance with provisions prescribed in Item 3 of Article 26 hereof, it shall meet requirements within the period prescribed by the securities regulatory agency under the State Council.
Article 92 Where a custody manner of trading clearing funds of clients of a securities firm is not in accordance with provisions prescribed in Article 57 hereof, the securities firm shall be ordered to made adjustment within certain period by the securities regulatory agency of the State Council.
The custody manner of trading clearing funds of clients of a securities firm shall meet requirements within 1 year since the implementation of provisions hereof.
Article 93 A securities firm can borrow debts, which may be repaid after general debts from shareholders or other entities with approval of the securities regulatory agency under the State Council. Specific measures for administration shall be formulated by the securities regulatory agency under the State Council.
Article 94 Business scopes, qualified conditions of overseas shareholders and their contributive proportions of a foreign-invested securities firm shall be formulated by the securities regulatory agency of the State Council and reported to the State Council for approval.
Article 95 Where an overseas securities operation agency operates securities businesses or sets up a representative agency in the boundary of China, it shall be approved by the securities regulatory agency under the State Council. Specific measures shall be formulated by the securities regulatory agency under the State Council.
Article 96 The securities registration and clearing agency hereof refers to the securities registration and clearing agency prescribed in Article 155 of the Securities Law of the People's Republic of China.
Article 97 This Regulation takes effect as of June 1, 2008.
