Opinions Solicited for Guidelines of Shanghai Stock Exchange for Development of Index Securities Investment Funds (Draft for Comment)

In order to further regulate the product development and other business activities of the publicly offered index funds on the exchange, promote the sustainable and healthy growth of index funds, and protect the legitimate rights and interests of investors, in accordance with the Guidelines No. 3 for Operation of Publicly Offered Securities Investment Funds - Guidelines for Index Funds (Draft for Comment) (the Index Fund Guidelines for short) issued by the China Securities Regulatory Commission (CSRC), the Shanghai Stock Exchange (SSE) drafted the Guidelines of Shanghai Stock Exchange for Development of Index Securities Investment Funds (Draft for Comment) (the Development Guidelines for short), for which public opinions are solicited as from today, with the deadline on August 14, 2020.

In recent years, in accordance with the unified deployment of the CSRC, the SSE has adhered to the underlying principle of pursuing progress while ensuring stability, actively advanced the development of innovative products on the SSE's fund market, guided the effective allocation of resources, boosted the high-quality development of the real economy, built bridges of connectivity between the domestic and cross-border markets, improved the layout of products, and supported the national strategies. With the rapid growth in size and the products increasingly enriched, the index funds listed on the SSE have become an important instrument for investors' asset allocation and a major force participating in the capital market. As of the end of the second quarter of 2020, there were 361 fund products listed on the SSE, with a total size of RMB702.7 billion. Among them, there were 270 stock index fund products with a size of RMB473 billion, accounting for 67% of the total size and taking the dominant position in the SSE's fund market.

The Development Guidelines drafted by the SSE aims to further clarify the specific regulatory requirements for the listed index funds such as ETFs in accordance with the requirements of the laws at higher levels. First of all, it is stipulated that the Development Guidelines apply to index funds. Index funds refer to ETFs and index LOFs that comply with the provisions of the Index Fund Guidelines, are listed and traded on the SSE and adopt full duplication or sample duplication for investment operations. Second, the specific indicators for the quality of the underlying indexes of the newly developed index funds are defined. Specific requirements are made for the number of constituent securities, weight distribution, index operation time, liquidity and other indicators of the underlying indexes of the index funds. In accordance with the principle of "separating the new from the old", the index funds that have been approved by or registered at the CSRC before the implementation of the Development Guidelines are not subject to the aforementioned indicators. Third, the development procedures of index funds have been clarified. When a fund manager applies to the SSE for the development of an index fund, it is required to submit the index compilation plan, the explanation and pledge that the index meets specific indicators, and other materials. The SSE will issue a letter of no objection to the applications that meet the requirements. Fourthly, it is required that the index funds should complete the opening of positions before listing, so that the composition of the fund's investment portfolio conforms to the provisions of relevant laws and regulations, departmental rules and regulatory documents, and the agreements in the fund contract and other legal documents, reflecting the basic characteristics that index funds should be tracking indexes.

After the completion of soliciting opinions, the SSE will further modify and improve the Development Guidelines based on market feedback, and publish and implement the rules after completing relevant procedures.