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the China Securities Regulatory Commission
Circular of the China Securities Regulatory Commission on Relevant Issues Concerning the Investment Warrant for Securities Investment
Funds in the Share-trading Reform
Zheng Jian Ji Jin Zi [2005] No. 138
All fund management companies and fund custodian banks:
Since the pilot reform of state-owned shares of listed companies was initiated, some listed companies have worked out their warrant
distribution plans. As a type of securities products, warrants have their own operational features. For the investment in warrants
with securities funds (hereinafter referred to as the funds), the relevant work shall be carried out step by step on the basis of
the pilot reform and further provisions thereabout shall be formulated according to the market development. So far, in order to regulate
the operations of fund investment, safeguard the legitimate interests and rights of fund shareholders, pursuant to the Law on the
Securities Investment Funds, the Measures for the Administration of Operation of Securities Investment Funds and other relevant provisions,
we hereby notify the relevant issues as follows regarding the pilot investment in warrants by fund managers with their fund assets
in the Share-trading reform:
I.
A fund may hold the warrants offered as compensation in the share-trading reform or may, according to the relevant rules of the Stock
Exchange, sell or exercise the warrants.
II.
A fund may, on its own initiative, invest in the warrants as issued in the share-trading reform.
III.
A fund manager, who plans to invest the fund assets in warrants according to the provisions of Article II of the present Circular,
shall abide by the relevant laws and regulations and comply with the pertinent stipulations in the fund contract, and shall report
the warrant investment plan to the China Securities Regulatory Commission for publicity. Such items as proportional restriction,
investment strategy, information disclosure method and risk control measures, etc. shall be specified in the warrant investment plan
and the investment risks fully revealed as well.
IV.
A fund manager who invests the fund assets in warrants is prohibited from any of the following circumstances:
(1)
The aggregate amount of warrants a fund purchases on any trading day exceeds 5 the net asset value of the fund in the previous
trading day;
(2)
The market capitalization of all warrants held by a fund exceeds 3% of the net asset value of the fund; or
(3)
All funds under the management of the same fund manager collectively hold more than 10% of a single warrant..
The Proportional restriction as prescribed in item (1), (2) or (3) in the preceding paragraph shall be applicable unless otherwise
provided by the China Securities Regulatory Commission.
V.
A fund manager shall formulate an effective and feasible warrant investment plan based on the fund investment strategy and the risk-return
characteristics of the fund to invest in warrants and may stipulate the specific fund investment proportion of the warrants within
the proportional scope as provided in Article IV of the present Circular.
VI.
In case the fund investment proportion concerned fails to comply with that set forth in items (2) and (3) of Article IV of the present
Circular and the fund contact or the warrant investment plan for reasons other than the fund manager itself, such as the fluctuations
in the securities market, change in fund size and the payment consideration in the share-trading reform and so on, the fund manager
shall make relevant adjustment within 10 trading days.
VII.
Where a fund manager invests the fund assets in warrants, it is prohibited from obtaining any illegitimate interests with insider
information, or manipulating the warrant prices or the prices of underlying securities, or carrying out any interest transfer in
warrant investment.
VIII.
Fund managers and fund custodians shall earnestly perform the duties of good faith, and prudence and diligence, establish and perfect
the management system of warrant investment, and formulate effective specific risk control measures for warrant investment so as
to effectively safeguard the legitimate rights and interests of fund shareholders.
China Securities Regulatory Commission
August 15, 2005
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