SSE responds to questions from the press on Guidelines No.1 on the Application of Securities Trading Rules of the Shanghai Stock Exchange for Qualified Foreign Institutional Investors and RMB Qualified Foreign Institutional Investors

Today, under the approval of the China Securities Regulatory Commission (CSRC), the Shanghai Stock Exchange (SSE) officially published the Guidelines No.1 on the Application of Securities Trading Rules of the Shanghai Stock Exchange for Qualified Foreign Institutional Investors and RMB Qualified Foreign Institutional Investors (the QFII and RQFII Guidelines for short), which will take effect on November 1st, 2020. The SSE responded to questions from the press on the publication.

Question 1 What is the background to this revision of rules?

The Qualified Foreign Institutional Investors (QFII) and RMB Qualified Foreign Institutional Investors (RQFII) schemes were implemented in 2002 and 2011 respectively. These two schemes have played a positive role in introducing long-term investment funds from overseas, improving investor structure, and promoting sound development of the domestic capital market.

In recent years, China's capital market has been steadily opening up both ways, and institutional and international participation in A share investment has been continuously improving. In order to achieve higher level of openness of the capital market and to further improve the QFII and RQFII schemes, the CSRC revised and integrated the Measures for the Administration of Domestic Securities Investment by Qualified Foreign Institutional Investors, the Measures for the Pilot Program of Domestic Securities Investment by RMB Qualified Foreign Institutional Investors and associated rules, leading to the publication of the Measures for the Administration of Domestic Securities and Futures Investment by Qualified Foreign Institutional Investors and RMB Qualified Foreign Institutional Investors and the Provisions on Issues Concerning the Implementation of the Measures for the Administration of Domestic Securities and Futures Investment by Qualified Foreign Institutional Investors and RMB Qualified Foreign Institutional Investors.

Thus, the SSE made revisions to relevant business rules accordingly, and published the QFII and RQFII Guidelines in order to align with the revision of higher level regulations by the CSRC. These revisions will contribute positively to improving the openness of the domestic capital market, satisfying market needs, and promoting coordinated development of different channels of opening up.

Question 2 What are the major changes in the QFII and RQFII Guidelines published by the SSE?

The major changes in the QFII and RQFII Guidelines include these six aspects:

The first is to expand the scope of investment. In addition to the products already available, qualified foreign investors can invest in depository receipts, stock options, government-backed bonds, etc. At the same time, qualified foreign investors are allowed to participate in margin trading, securities borrowing and lending, and bond repurchase.

The second is to modify the information reporting requirements. In order to further reduce the burden of information reporting for market entities, the requirements for information reporting have been revised, the basic reporting obligations of relevant entities have been stipulated, and business guidelines have been formulated accordingly.

The third is to adjust the initial notification threshold of shareholding by foreign investors. When the proportion of the total A-share stocks of a single listed company held by all foreign investors collectively reaches or exceeds a certain percentage, the SSE will announce the total number and percentage of stocks of the company held by foreign investors. The initial notification threshold will be lowered from 26% to 24%.

The fourth is to optimize matters related to holding and closing positions. This revision improves the related handling methods in case the collective shareholding of foreign investors passively exceeds 30% of all stocks of a listed company, adjusts the order in which positions are closed when the total shareholding of foreign investors exceeds the limit, and clarifies the circumstances under which foreign investors can apply to continue to hold relevant shares after being notified to reduce their shareholding.

The fifth is to improve the relevant rules for non-trade transfers. It is clarified that qualified foreign investors shall conduct negotiated transfer of shares of listed companies according to relevant business rules. Newly-added qualified foreign investors may conduct non-trade transfers of securities in accordance with the relevant rules of securities depository and clearing institutions.

The sixth is to strengthen continuous supervision. The revision clarifies the information disclosure obligations of qualified foreign investors and foreign investors under their names, and specifies the requirements for information disclosure. It also strengthens the obligations for commissioned securities and futures companies to manage the trading conduct of qualified foreign investors and their clients.

Question 3 After the revision, the initial notification threshold of shareholding by foreign investors is lowered to 24% from the previous 26%. What are the major considerations for this adjustment?

According to relevant regulations, the total shareholding by foreign investors of the A shares or domestic shares of a single listed company may not exceed 30% of the total shares of that company. As a reminder that foreign shareholding is close to the limit, the SSE has set up the initial notification threshold.

In recent years, with the inclusion of A shares into MSCI, FTSE Russell and other major international indices, foreign investors are more enthusiastic about and confident in investing in A shares. Through our communications, many foreign investors and financial institutions expressed the hope to keep up with the level of foreign shareholding in listed companies, so as to have sufficient time to make adjustments.

With the guidance from the CSRC, the SSE conducted feasibility studies in this regard. As a measure to facilitate trading, the initial notification threshold of foreign shareholding is lowered from 26% to 24%, i.e. when all foreign investors collectively hold 24% or more of the total A-share stocks of a single listed company, the SSE will, before the market open of the next trading day, announce on its website the total number and percentage of stocks of the company held by foreign investors.

During the course of opening-up of China's capital market, the SSE will, with the guidance from the CSRC, continue to pay attention to the demand of foreign investors, upgrade our investor services, improve the capital market system and rules, and facilitate the participation of foreign investors in the A share market.