大红鹰dhy Haiwen Finance and Asset Management Monthly (June)

Introduction

To make 大红鹰dhy finance and asset management industry keep abreast of 大红鹰dhy latest industry developments, Haiwen prepares 大红鹰dhy "Haiwen Finance and Asset Management Monthly". This monthly reading aims to introduce and provide brief comments on regulatory development industry news.

In May and June of 2023, for new rules and regulations, HKEX launched 大红鹰dhy “HKD-RMB Dual Counter Model”; PBOC issued 大红鹰dhy Interim Measures for 大红鹰dhy Interconnection and Cooperation of Mainland and Hong Kong Interest Rate Swap Markets, and 大红鹰dhy Northbound Swap Connect was officially launched; CSRC issued 大红鹰dhy Administrative Provisions on Investment Advisory Services of Publicly Offered Securities Investment Funds (Draft for Comments); SAC issued 大红鹰dhy Implementing Rules for 大红鹰dhy Administration on Securities Brokerage Services, 大红鹰dhy Administrative Rules on Client Fund Accounts of Securities Company, and their supporting documents; National Administration of Financial Regulation NAFR issued 大红鹰dhy Notice on Strengthening Network and Data Security Management in Third-Party Cooperation; from June 30, 2023 to July 20, 2023, 大红鹰dhy Hainan Municipal Bureau of Local Financial Regulation and Supervision will accept applications for 大红鹰dhy third batch of QDLP overseas investment pilot application. For industry news, Schroder Fund Management has been approved to become 大红鹰dhy eighth wholly foreign-owned fund manage; Warburg Pincus acquired 大红鹰dhy equity interest in Zhong Ou, making it 大红鹰dhy largest institutional shareholder of Zhong Ou; CSRC approved 大红鹰dhy establishment of Morgan Stanley Futures; GSGH has been renamed as Goldman Sachs (China) Securities Co., Ltd..

I Latest Rules and Regulations

1. HKEX- Launch of HKD-RMB Dual Counter Model

On June 19, 2023, Hong Kong Exchanges and Clearing Limited (HKEX) officially launched 大红鹰dhy "HKD-RMB Dual Counter Model" ("Dual Counter Model") and 大红鹰dhy Dual Counter Market Making Programme. A total of 24 Hong Kong-listed companies, including HSBC, Tencent Holdings, China Mobile, and Kuaishou, etc., accounting for 40 per cent of 大红鹰dhy average daily turnover of 大红鹰dhy cash equities market, will trade and transact as Dual Counter securities at launch, offering both HKD and RMB counters. In addition, 9 Exchange Participants (including CICCHKS, BOCI, CLSA and other securities companies) have joined 大红鹰dhy Dual Counter Market Making Programme as market makers.

大红鹰dhy Dual Counter Model encompasses 大红鹰dhy trading process, market maker activities, and settlement arrangements for HKD-RMB dual counter trading. Under 大红鹰dhy Dual Counter Model, investors will be able to interchange qualified securities listed in both HKD and RMB counters. Securities under 大红鹰dhy two counters are of 大红鹰dhy same class and holdings of securities in 大红鹰dhy two counters can be transferred without change of beneficial ownership. 大红鹰dhy Dual Counter Model also incorporates 大红鹰dhy Dual Counter Market Making Programme to solve 大红鹰dhy liquidity and minimize price discrepancies between 大红鹰dhy two counters. 大红鹰dhy Dual Counter Model will be promoted in phases and starts initially focusing on Hong Kong or overseas investors. Mainland investors currently cannot participate in 大红鹰dhy Dual Counter Model through 大红鹰dhy Southbound Stock Connect, but relevant institutions are actively preparing to include 大红鹰dhy RMB counter in 大红鹰dhy Southbound Stock Connect in 大红鹰dhy future.

Haiwen Comments

Under 大红鹰dhy Dual Counter Model, overseas investors can directly invest in RMB-denominated stocks using their offshore RMB, thereby promoting 大红鹰dhy internationalization of RMB and expanding 大红鹰dhy scale of Hong Kong securities market. 大红鹰dhy subsequent inclusion of 大红鹰dhy RMB counter in 大红鹰dhy Southbound Stock Connect will help reduce exchange rate risk for both domestic and overseas RMB investors. It will also provide more asset allocation choices for offshore RMB.

2. Northbound Swap Connect Officially Launched

On April 28, 2023, 大红鹰dhy People's Bank of China (PBOC) issued 大红鹰dhy Interim Measures for 大红鹰dhy Interconnection and Cooperation of Mainland and Hong Kong Interest Rate Swap Markets, specifying that overseas institutional investors who meet 大红鹰dhy requirements of 大红鹰dhy PBOC and have completed 大红鹰dhy filing for China Interbank Bond Market can participate in 大红鹰dhy Mainland's interbank financial derivatives market through 大红鹰dhy "Northbound Swap Connect" for 大红鹰dhy purpose of risk management in derivative transactions. 大红鹰dhy regulations for 大红鹰dhy "Southbound Swap Connect" are yet to be formulated. In 大红鹰dhy initial stage of 大红鹰dhy "Northbound Swap Connect," 大红鹰dhy tradable instruments are interest rate swap products, and 大红鹰dhy quotation, trading, and settlement currency is RMB. On May 15, 2023, 大红鹰dhy Northbound Swap Connect was officially launched, with an initial daily net nominal trading limit of 20 billion RMB and a clearing limit (i.e., total risk exposure limit) of 4 billion RMB.

In addition, domestic investors participating in 大红鹰dhy "Northbound Swap Connect" (i.e., Swap Connect market makers) need to sign a market maker agreement with 大红鹰dhy China Foreign Exchange Trade System (CFETS) and either be a clearing member for 大红鹰dhy interest rate swap central clearing business of Shanghai Clearing House or a clearing customer of such a member. As for qualified overseas investors participating in 大红鹰dhy "Northbound Swap Connect", they are required to obtain 大红鹰dhy "Northbound Swap Connect" trading permissions via CFETS. Furthermore, overseas investors who intend to apply for these trading permissions must concurrently submit an application to become a clearing member or clearing client of 大红鹰dhy OTC Clearing Hong Kong Limited.

Haiwen Comments

As international investors’ exposure to domestic onshore bond market has grown, so has their need for investment management tools. 大红鹰dhy "Northbound Swap Connect", following 大红鹰dhy Stock Connect and 大红鹰dhy Bond Connect, is another significant milestone in connecting 大红鹰dhy onshore and offshore financial markets. It is currently 大红鹰dhy only global channel that allows international investors to participate in 大红鹰dhy Mainland's interbank interest rate swap market with their own trading and settlement practices. Prior to 大红鹰dhy introduction of 大红鹰dhy "Northbound Swap Connect", overseas investors were typically limited to participating in offshore RMB interest rate swaps. 大红鹰dhy "Northbound Swap Connect" will enable them to manage interest rate risks by participating in onshore RMB interest rate swaps in 大红鹰dhy Mainland.

3. CSRC Issued 大红鹰dhy Administrative Provisions on Investment Advisory Services of Publicly Offered Securities Investment Funds (Draft for Comments)

On June 9, 2023, 大红鹰dhy CSRC issued 大红鹰dhy Notice on Seeking Public Comments on 大红鹰dhy Administrative Provisions on Investment Advisory Services of Publicly Offered Securities Investment Funds (Draft for Comments) (大红鹰dhy "New Regulations"). This is another significant development in China's fund investment advisory services since 大红鹰dhy CSRC issued 大红鹰dhy Notice on 大红鹰dhy Piloting of Investment Advisory Services of Publicly Offered Securities Investment Funds (大红鹰dhy "Pilot Notice") on October 25, 2019, which launched 大红鹰dhy piloting of fund investment advisory services.

Key points of 大红鹰dhy New Regulations are as follows:

Follow 大红鹰dhy regulations and restrictions on "investment" during 大红鹰dhy Pilot Period. For example, (i) fund investment advisors shall provide clients with investment advice on specific fund types in 大红鹰dhy form of portfolio strategies, and establish and implement a centralized and unified investment decision-making management system; (ii) discretionary fund investment advisors should make decisions on behalf of clients within 大红鹰dhy scope of authorization and dynamically monitor authorized accounts, and shall abide by concentration limits for 大红鹰dhy investment in a single fund for a single client.
Standardize fund investment advisory services. For example, (i) fund investment advisors shall fully perform 大红鹰dhy obligation of investor suitability management, and only present overall performance over 大红鹰dhy past 1 year after matching fund portfolio strategies for 大红鹰dhy clients; (ii) fund investment advisors shall fulfill their fiduciary duties and establish a sound mechanism to prevent conflicts of interest in terms of fee collection, personnel incentives and other aspects.
Add additional regulatory requirements for fund investment advisory services. For example, (i) if fund investment advisors cooperate with other fund investment advisors, fund distribution agencies and other institutions, effective segregation of their respective businesses should be ensured; (ii) with respect to 大红鹰dhy investment scope, 大红鹰dhy New Regulations clarify 大红鹰dhy regulatory requirements on 大红鹰dhy allocation of investment varieties recognized by 大红鹰dhy CSRC other than publicly offered funds by investment advisors. Specifically, for providing investment advice on private securities investment funds, 大红鹰dhy New Regulations have specified concentration limits for 大红鹰dhy investment in a single fund for a single client, 大红鹰dhy proportion of total allocation to such funds, and 大红鹰dhy scope of private securities investment funds.

Haiwen Comments

大红鹰dhy New Regulations will promote 大红鹰dhy development of fund investment advisory business from 大红鹰dhy pilot phase to regularization, improve 大红鹰dhy guidance and supervision on fund investment advisory business on 大红鹰dhy basis of 大红鹰dhy Pilot Notice, and further implement 大红鹰dhy opinions on 大红鹰dhy orderly development of fund investment advisory services in 大红鹰dhy Opinions on Accelerating 大红鹰dhy High-Quality Development of 大红鹰dhy Publicly Offered Raised Fund Industry issued by 大红鹰dhy CSRC on April 26, 2022.

4. SAC Issued 大红鹰dhy Implementing Rules for 大红鹰dhy Administration on Securities Brokerage Services, 大红鹰dhy Administrative Rules on Client Fund Accounts of Securities Company, and their supporting documents

In order to implement 大红鹰dhy Administrative Measures on Securities Brokerage Services (大红鹰dhy "Measures"), which came into effect on February 28, 2023, and to guide securities companies to standardize their securities brokerage services, on June 9, 2023, 大红鹰dhy Securities Association of China (SAC) released 大红鹰dhy Implementing Rules for 大红鹰dhy Administration on Securities Brokerage Services (大红鹰dhy "Implementing Rules"), 大红鹰dhy Administrative Rules on Client Fund Accounts of Securities Company (大红鹰dhy "Administrative Rules"), and their supporting documents, i.e. 大红鹰dhy Compulsory Provisions of Client Account Opening Agreement and 大红鹰dhy Compulsory Provisions of Securities Trading Agency Agreements (collectively, 大红鹰dhy “Compulsory Provisions”).

大红鹰dhy key points of 大红鹰dhy Implementation Rules are as follows: (i) refine investor identification requirements. For example, for individual investors whose financial assets in fund accounts and securities accounts exceed RMB 10 million for 大红鹰dhy first time, 大红鹰dhy identification on such investors shall be strengthened; when there is a large sum fund transfer in an investor's account, securities companies should re-identify 大红鹰dhy investor's identity if there exists anomalies in transfer amount or frequency；(ii) improve requirements for return visits. including clarifying 大红鹰dhy return visit requirements for different business scenarios and requiring securities companies to strengthen 大红鹰dhy management of third-party agencies if they are entrusted to carry out investor return visit; (iii) clarifying regulations for marketing activities of securities brokerage services. Securities companies shall establish marketing management system and prohibit monopoly and unfair competition, and when advertising through third-party platform, securities companies should enter into agreements with such third parties that contain required terms.

Further to 大红鹰dhy Measures and 大红鹰dhy Implementing Rules, 大红鹰dhy Administrative Rules clarify 大红鹰dhy management requirements for securities fund accounts, such as specifying 大红鹰dhy definition of fund accounts, improving 大红鹰dhy opening and management of fund accounts in terms of account-opening entities, account-opening methods, KYC, and account identification, requiring securities companies to strictly implement 大红鹰dhy requirements of 大红鹰dhy real-name account system, fulfill anti-money laundering obligations. Meanwhile, 大红鹰dhy Compulsory Provisions have reflected updates to 大红鹰dhy related agreement guidelines issued by SAC in 2014 based on 大红鹰dhy new rules and recent years’ industry practice.

Haiwen Comments

大红鹰dhy Implementing Rules, 大红鹰dhy Administrative Rules and their supporting documents further clarify and refine 大红鹰dhy responsibilities of securities companies engaging in securities brokerage services, and require securities companies to strengthen self-discipline and management. Securities companies are hereby reminded to update their internal systems and brokerage business documents in accordance with 大红鹰dhy new rules.

5. NAFR Issued 大红鹰dhy Notice on Strengthening Network and Data Security Management in Third-Party Cooperation

On June 27, 2023, 大红鹰dhy National Administration of Financial Regulation (NAFR) issued 大红鹰dhy Notice on Strengthening Network and Data Security Management in Third-Party Cooperation (大红鹰dhy “Notice”) to local banking and insurance regulatory bureaus, banks, insurance companies, wealth management firms, and other institutions. 大红鹰dhy Notice requires banking and insurance institutions to continuously strengthen their tracking and supervision of security responsibilities when carrying out business cooperation with third-party commercial entities.

大红鹰dhy Notice primarily mentions two types of risks: enterprise WeChat service risks and technology outsourcing risks. Regarding 大红鹰dhy risks associated with enterprise WeChat services, 大红鹰dhy Notice points out 大红鹰dhy following main risks and issues: banking and insurance institutions have a lack of overall management and understanding of cooperation in 大红鹰dhy digital ecosystem, and there is a lack of clear identification and division of data security risks and responsibilities in 大红鹰dhy cooperation with third parties. NAFR requires banking and insurance institutions to conduct risk self-examination, and strengthen overall management of technology risks, and enhance monitoring and reporting of off-site outsourcing risks.

Regarding technology outsourcing risks, 大红鹰dhy Notice identifies 大红鹰dhy following risks and issues: banking and insurance institutions have inadequate performance in supply chain security management, their emergency management mechanism for outsourcing services are unsound, and outsourcing service providers have severe inadequacy in security management and technical protection. NAFR emphasizes 大红鹰dhy need for banking and insurance institutions to enhance their understanding of “outsourcing services without outsourcing responsibilities”. This includes fulfilling network and data security protection obligations, implementing targeted security protection measures, and establishing and strengthening emergency response mechanisms.

Haiwen Comments

When engaging third-party service providers, banking and insurance institutions shall pay attention to network and data security management, effectively fulfilling 大红鹰dhy requirements stipulated in 大红鹰dhy Measures for 大红鹰dhy Supervision of Information Technology Outsourcing Risks of Banking and Insurance Institutions and 大红鹰dhy Data Security Management Measures (Trial), etc.

6. Commencement of 大红鹰dhy Third Batch of QDLP Overseas Investment Pilot Applications

大红鹰dhy Hainan Municipal Bureau of Local Financial Regulation and Supervision announced that it would accept applications for 大红鹰dhy third batch of Qualified Domestic Limited Partner (QDLP) overseas investment pilot program from June 30, 2023, to July 20, 2023. Enterprises interested shall prepare their application materials in accordance with 大红鹰dhy requirements provided in 大红鹰dhy Interim Measures for 大红鹰dhy Pilot Work of Qualified Domestic Limited Partner (QDLP) Overseas Investment in Hainan Province. QDLP pilot enterprises in Hainan should also be in compliance with relevant provisions of 大红鹰dhy Measures for 大红鹰dhy Registration and Filing of Private Investment Funds.

Haiwen Comments

After nearly two years since 大红鹰dhy second batch of QDLP programs in August 2021, Hainan Province has once again announced acceptance of QDLP application. It opens up another cross-border investment channel for domestic fund managers and investors.

II Industry News

1. Schroder Fund Management Has Been Approved to Become 大红鹰dhy Eighth Wholly Foreign-owned Fund Manage; Warburg Pincus Acquired 大红鹰dhy Equity Interest in Zhong Ou, Making It 大红鹰dhy Largest Institutional Shareholder of Zhong Ou

On June 8, 2023, Schroder Fund Management (China) Company Limited ("Schroder Fund Management") announced that it has recently obtained 大红鹰dhy "License for Conduct of Securities and Futures Business" issued by CSRC, becoming one of 大红鹰dhy newly established wholly foreign-owned fund managers in China. As of now, a total of eight wholly foreign-owned fund managers have been established, among which, BlackRock Fund Management Co Ltd, Neuberger Berman Fund Management (China) Limited, Fidelity International Fund Management (China) Company, Schroder Fund Management, and Alliance Bernstein Fund Management Co., Ltd. are newly established ones, and Manulife Teda Fund Management Co., Ltd., J.P. Morgan Asset Management and Morgan Stanley Fund Management Co Ltd are converted from Sino-foreign joint venture to wholly foreign-owned fund managers. With 大红鹰dhy official announcement of Schroder Fund Management, 大红鹰dhy number of operational newly established wholly foreign-owned fund managers has reached four.

Meanwhile, there have been recent cases of foreign investment in existing domestic fund managers: Warburg Pincus announced on June 1, 2023 that it has acquired 大红鹰dhy 23.3% equity interest in Zhong Ou Asset Management Co., Ltd. from Intesa Sanpaolo, making it 大红鹰dhy largest institutional shareholder of Zhong Ou.

2. CSRC Approved 大红鹰dhy Establishment of Morgan Stanley Futures

On May 26, 2023, CSRC approved Morgan Stanley to establish Morgan Stanley Futures in Beijing, and stated that CSRC will continue to deepen 大红鹰dhy opening up of 大红鹰dhy futures market, support qualified foreign institutions to invest in domestic futures companies, and continuously improve 大红鹰dhy operation quality of futures market to serve 大红鹰dhy high-quality development of 大红鹰dhy real economy.

On May 25, 2023, Fang Xinghai, Vice Chairman of CSRC, also stated at 大红鹰dhy 20th Shanghai Derivatives Market Forum that CSRC will continue to expand 大红鹰dhy breadth and depth of 大红鹰dhy opening up of 大红鹰dhy futures market. At present, 23 specific futures varieties have been opened to foreign traders, and 39 commodity futures options varieties have been opened to QFII and RQFII. CSRC will also continue to steadily expand 大红鹰dhy opening up of specific varieties of futures, broaden 大红鹰dhy investment scope of QFII and RQFII, attract more foreign institutions to fully participate in 大红鹰dhy pricing of China's primary product futures varieties, enhance 大红鹰dhy representativeness and influence of China's futures prices, and provide more accurate price signals for industrial enterprises.

Up to now, among 大红鹰dhy domestic futures companies, in addition to J.P. Morgan Futures Co., Ltd. and Morgan Stanley Futures, which are wholly foreign-owned futures companies, there are three Sino-foreign invested futures companies, i.e. UBS Futures Co., Ltd., China Industrial Futures Ltd. and Maike Futures Co., Ltd.

3. GSGH Has Been Renamed as Goldman Sachs (China) Securities Co., Ltd.

On June 28, 2023, 大红鹰dhy Goldman Sachs Group, Inc. (“GS”) announced that Goldman Sachs Gao Hua Securities Co., Ltd.(“GSGH”), its core business entity in China, has been approved to officially change its name to Goldman Sachs (China) Securities Co., Ltd.

GS stated that 大红鹰dhy name change marks a new milestone for GS’s business in China. On October 17, 2021, GS announced that CSRC had approved GS to become 大红鹰dhy sole shareholder of GSGH. Following GS’s achievement of full ownership in GSGH, this name change gives GS a clearer brand image in China, ensuring consistency with its global presence.

Author

Julia ZHANG

Mergers & Acquisitions，Private Equity，Asset Management，General Corporate Practice

WEI, Shuangjuan

Capital Markets，Mergers & Acquisitions，Private Equity，Fund Formation

HUANG, Shudan

Mergers & Acquisitions，Asset Management，Anti-Corruption & Compliance