Registration & Settlement

Registration and Depository Arrangements

Securities registration refers to activities taken by a securities depository and clearing organization that is entrusted by securities issuers to establish and maintain a register forsecurities holders in order to authenticatethe fact that they hold certain securities. Securities depository refers to activitiestaken by a securities depository and clearing organizationthat is entrusted by securities companiesto provide centralized safekeeping forthe proprietary securities of securities companies and their clients as well. Furthermore, such securities depository and clearing organizationprovides services related to the benefits entitlement of the securities such as collection of dividends. Securities custodyrefers to activitiestaken by any securities company who is entrusted by its clientsto safe-keeptheir securities on their behalf and provide services related to the benefit entitlement of the securities such as collection of dividends.
 

As a central securities depository, China Securities Depository and Clearing Corporation Limited (hereinafter referred to as“CSDC”) provides centralized registration and depository services for securities listed on theExchangeand manages securities ona paperlessand immobilized basis through establishing an electronic securities book-entry system.

CSDC adopts a registration and depository model where most securities are directly registered in the accounts of beneficial owners. Under such model, securities held by investors are directly listed under their own names in the register of securities holders. Ifpermitted bylaws, administrative regulations orthe CSRC, the securities of investors may also be registered in the securities account of theirnominees. CSDC has the right to require nominees to providerelevant information on beneficial owners on whose behalf they act.
 

An investor participating in tradingactivities on the floor of the Exchangeappoints a securities company as his securities custodian by completing the procedures for designated trading with the securities company and may only participate in trading activities through this securities company. Under such arrangement, the securities companiesare entrusted by investors to take custody of investors’ securities. CSDC is responsible for the depository of both the companies’proprietary securities and clients’ securities in custody. CSDC sets up general ledgers for the clients and securities companies in order to maintain detailed list for companies’ proprietary securities and clients’ securities separately. In addition, securities issuersentrustCSDC to complete theregistrationof theirissued securities.

CSDC classifies its securities registration services into initial registration, change of registration,withdrawal ofregistration and other services related to registrationdepending on the different stages of securities circulation. Initial registration includes registrations for IPO,bonds issuance, fund raising, issuing of warrants, additional offering of shares and rights issue, etc. Change of registration includes registration for share transfer through centralized trading, share transfer through non-centralized trading and any other changes applicable. If the rights of a securitiesholder are restricted due to reasons such as the securities being pledged or frozen, CSDC will mark downthe sameamount in the register of securities holders. For securities that are delisted from the Exchange, CSDC will proceed to withdraw securities from registry for issuers. Other registration-related services includeoffering access to the register of securities holders, dividend distribution and online voting services.

CSDC provides securities companies with securities depository services.CSDC offers centralized safekeeping for securities companies’ proprietary securitiesand clients’ securities as well as services for maintenance of benefits entitlements, etc. Specific services include: establishing and managing securities accounts, maintaining securities holdings of securities companies’proprietary securities and their clients’ securities via the book-entry system, providing access to securities accounts for securities holdings and holdingchanges therein,collecting dividends, and recording the establishment, change and termination of custody relationships between securities companiesand investors.Meanwhile, CSDC also provides cross-market custody transfer services, including custody transfer for listing of enterprise bonds, cross-market custody transfer for Treasury bonds and cross-system custody transfer for listed open-end funds.

Clearing and Settlement Arrangements

Securities clearing and settlement is the process of delivering securities to buyers and paying funds to sellers based on their obligations arising from securities transactions. Clearing refers to the process of calculating the amount of receivables and payables related to securities and funds for two counterparties on the settlement day based on securities transactions. Settlement refers to the process of organizing the two counterparties to deliver securities and make payments respectively based on clearing results. CSDC provides funds and securities settlement services for trading of securities listed on the Exchange.

(1) Two-Tier Settlement

“Tier One” settlement can be classified into two categories based on whether CSDC acts as a central counterparty(hereinafter referred to as “CCP”) or not.When CSDC providesmultilateral netting service asa CCP, it is responsible for centralized clearing and settlement of securities and funds with clearing participants; When CSDC acts as a non-CCP, it provides clearing and settlement services for clearing participants. “Tier Two” settlement generally refers to the settlement between clearing participants andtheir clients.

(2) Delivery Versus Payment

Delivery versus payment means that securities will be delivered if and only if funds are paid and vice versaduring the settlement process. A clearing participant who fails to have a sufficient amount of securities or funds available for settlement cannot obtain the corresponding funds or securities.

For different securities instruments, CSDC may mainly provide threetypes of settlement services: guaranteed net settlement, non-guaranteed gross settlement, and collection and payment service.

(1) Guaranteed net settlement

Guaranteed net settlement means that CSDC gets involved in the securities post-trade process as the settlement counterparty for all buyers and sellers, whichoffsets securities and funds receivable and payable from and toeach clearing participant to calculate net funds and securities receivable and payable, and to complete guaranteed settlement with clearing participants on the settlementday based on the net clearing results.Guaranteed net settlement helps to simplifythe settlement procedures and improvesettlement efficiency. Meanwhile, CSDC manages counterparty credit risks in a centralized manner in accordance withthe applicable clearing rules,contributing to the control and mitigation of the overall risks in the market.   At present, CSDC provides guaranteed net settlement services for the trading of A-shares, Treasury bonds, a portion of corporate bonds (enterprise bonds), closed-end funds, pledged bonds repos, ETFs and other trading instruments.

(2) Non-guaranteed gross settlement

Non-guaranteed gross settlement means that CSDC only provides separate clearing for each securities transaction without acting as a central counterpartyor undertaking the responsibility of guaranteed settlement and offset the funds and securities receivable and payable from and to each clearing participant. The settlementfails if any clearing participant is unable to provide a sufficient amount of funds or securities at the time of settlement. The settlement period of non-guaranteed gross settlement includes real-time gross settlement (RTGS), T+0 and T+1, which is pre-determined by the categories of trading instrument.

Currently, non-guaranteed gross settlement applies to transfer of SME private placement bonds, quotation repos, purchase and redemption of some ETFs and cash in-lieu transactions, transfer of corporate bonds and specific asset management programs not qualified for netting, transfer of non-publicly offered preferred stocks, other offering activities, agreed repurchase securities trading and exchange of exchangeable corporate bonds for stocks.

(3) Collection and payment service

Collection and payment service is a value-added serviceprovided by CSDC to clearing participantsfor funds transfer. Clearing participants and other entities may complete the clearing procedures on their own and submit clearing data to CSDC.CSDC then completes the transfer of funds based on data confirmed by the payer in accordance with relevant rules. Insufficiency of funds from the payer will result in failure of such transfer.

At present, CSDC can provide collection and payment service for purchase and redemption of some ETFs, refinancing activities and fund purchase and redemption, etc. It can also meetthe demandsfor settlement of other OTC funds.