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Pilot Provisions on the Formation of Subsidiary Companies by Securities Companies
(Issued by the China Securities Regulatory Commission on December 28, 2007; and amended
according to the Decision of the China Securities Regulatory Commission on Amending the Pilot
Provisions on the Formation of Subsidiary Companies by Securities Companies on October 11,
2012)
Article 1 For the purpose of meeting the trend of forming groups and professional operation
and management of securities companies, regularizing their acts of formation subsidiary
companies and their relationship with subsidiary companies, and promoting the innovative
development of securities companies and the opening up of the securities industry, these
Provisions are formulated in accordance with the Company Law, the Securities Law and other
related laws and administrative regulations.
Article 2 The term “subsidiary company” as mentioned in these Provisions refers to a
securities company which is established in accordance withthe Company Law and the Securities
Law, controlled by a securities company, and operates one or more types of securities business
upon the approval of China Securities Regulatory Commission (hereinafter referred to as CSRC).
Article 3 It is not allowed to operate the same kind of business that have potential conflict of
interest or competitive relation between a securities company and its subsidiary companies or
among the subsidiary companies under the control of the same securities company.
Article 4 Upon the approval of the CSRC, a securities company may establish a sole
subsidiary, or establish a subsidiary company with joint investment from other investors satisfying
the conditions for being shareholders of securities companies as provided in the Securities Law.
The other investors as mentioned in the preceding paragraph shall be beneficial to perfecting the
governance structure of the subsidiary company, improving its competitiveness and enhancing its
persistent regularized development. If the other investor is a financial institution, it shall have
certain advantage in technical cooperation, personnel training, management service or marketing
channels, etc.
Article 5 To establish a subsidiary company, a securities company shall satisfy the following
requirements of prudence:
1. for the latest 12 months, all its risk control indicators have reached the prescribed standards and
its net capital has been 120 million yuan or more;
2. it has a relatively strong operation and management capability, and, if it has set up a subsidiary
company to operate securities brokerage, securities underwriting, securities recommending or
securities assets management business, the market share of the subsidiary company has been at the
intermediary level in the last year;
3. it has a sound corporate governance structure, a perfect risk management system and a healthy
internal control mechanism, which are enough to effective prevent risk transfer and interest
conflict between the company and its subsidiary companies; and
4. other requirements as specified by the CSRC.
Article 6 A securities company shall submit the following documents to the CSRC to apply
for formation a subsidiary company:
1. an application form signed by the legal representative or authorized representative of each
investor of the subsidiary company;
2. a contract on the establishment of the subsidiary company signed by investors, or a resolution of
the (general) meeting of shareholders of the company on funding the subsidiary company solely;
3. the draft of the bylaws of the subsidiary company;
4. a feasibility study report, which shall at least contain: the basic information about investors; an
explanation on the corporate governance structure, risk management system, internal control
system and compliance management system of the applicant; arrangements for preventing risk
transfer and interest conflict between the securities company and its subsidiary company; and a
description on the organization and management structure, business scope and development plan
of the subsidiary company, etc.;
5. a roster of investors, a description on their amount of investment, form of investment and
proportion of their investment to the registered capital, an asset evaluation report on non-monetary
property invested in the subsidiary company, an explanation on the correlation of investors,
auditing reports of investors holding 5% or more shares for the last three years, and the stock right
structure chart of the subsidiary company;
6. competence certificates of persons to hold the chairman of board of directors, chairman of
board of supervisors and senior managers of the subsidiary company;
7. a certificate on the fact that the applicant has the competence to operate the securities business
to be operated by the subsidiary company and an explanation on the applicant’s market share of
the said securities business in the last year;
8. a commitment made by the applicant on not operating the same kind of business that have
potential conflict of interest or competitive relation with the subsidiary company, and an
arrangement ensuring that other investors of the applicant will provide support for the
continuously regularized development of the subsidiary company;
9. an explanation on the fact that the applicant has reached the prescribed requirements in the last
12 months in terms of net capital and risk control indicators, and an explanation on the influence
of the establishment of the subsidiary company on risk control indicators;
10. a legal letter issued by a law firm within the boarders of China; and
11. other documents as specified by the CSRC.
Article 7 with the approval of the CSRC, a subsidiary company that satisfies all of the
following prudential requirements may apply for expanding its business scope:
1. it has operated as a going concern for two or more years with a good credit record, and has not
committed any major violation of laws and regulations in the last two years;
2. its risk control indicators have persistently satisfied the prescribed requirements for the last 12
months;
3. it has sustained profitability and stronger business management capacities, and the market share
of its major business in the last year is not lower than the intermediate level of the industry;
4. it has a sound corporate governance structure, complete risk management rules and effective
internal control mechanisms; and
5. other requirements as specified by the CSRC.
When the subsidiary company satisfies the aforesaid requirements, its shareholders may also apply
for forming another subsidiary company to operate any added securities.
Article 8 To apply for expanding its business scope, a subsidiary company shall submit the
following documents to the CSRC:
1. an application form signed by its legal representative or an authorized representative;
2. a resolution of the (general) meeting of shareholders on expanding the business scope;
3. a feasibility study report, which shall at least contain: the basic situation of the subsidiary
company, and the organization and management construction as well as development plan of its
new business, etc.;
4. certificates on the competence of the senior managers to be in charge of the new business;
5. an explanation on its constant operation situation and its market share and profits in the last
year;
6. an explanation on whether its risk control indicators have satisfied the prescribed requirements
for the last 12 months;
7. an explanation on its corporate governance structure, risk management system, internal control
system and compliance management system, and arrangements for preventing risk transfer and
interest conflict between the securities company and its subsidiary companies as well as among
subsidiary companies under a same securities company;
8. a commitment made by its controlling shareholder on not operating the same kind of business
that have potential conflict of interest or competitive relation with the subsidiary company, and
arrangements ensuring that other shareholders will provide support for the development of the
new business; and
9. other documents as specified by the CSRC.
Article 9 Except for sole subsidiary companies, at the (general) meeting of shareholders of a
subsidiary company, each shareholder shall exercise the voting power in accordance with the
proportion of its investment to the registered capital or the proportion of stocks, and the proportion
of elected directors recommended by each shareholder shall be corresponding to the proportion of
investment or proportion of stocks of the shareholder.
No subsidiary company or its shareholders may stipulate any issues conflicting with the provision
of the preceding paragraph in the form of agreement or arrangement.
Article 10 A subsidiary company may not directly or indirectly hold the equity or stocks of
its controlling shareholder or other subsidiary company under the control of the same securities
company, or invest in its controlling shareholder or other subsidiary company under the control of
the same securities company in other forms.
Article 11 A securities company may, in accordance with the relevant provisions or
contractual stipulations, provide support and service for its subsidiary companies in compliance
management, risk control, auditing, human resource management, information technology and
operation, etc.
Article 12 No securities company may damage the legitimate rights and interests of its
subsidiary companies, other shareholders of the subsidiary companies and clients of the subsidiary
companies by taking advantage of its position as the controlling shareholder.
Article 13 A subsidiary company shall have a sound corporate governance structure, a
perfect risk management system, a sound compliance management system and a healthy internal
control mechanism.
A reasonable and necessary partition wall system shall be established to avoid risk transfer and
interest conflict between a securities company and its subsidiary companies as well as among
subsidiary companies under the control of a same securities company.
Article 14 A securities company and each of its subsidiary companies shall file the annual
report, supervision report and other relevant material with the CSRC separately, and the securities
company shall still file such material with the CSRC after consolidating the financial and business
data of its subsidiary companies.
The figures about net capital and risk control indicators of a securities company and its subsidiary
companies calculated either separately or on a consolidated basis shall satisfy the requirements of
the CSRC.
Article 15 The establishment, alteration, termination, business activities, supervision,
administration and other issues of a subsidiary company shall be conducted in accordance with
laws, administrative regulations and the CSRC provisions.
Article 16 Where a securities company controls another securities company by share
acquisition or subscription or any other means, these Provisions shall apply.
Where a securities company controls a securities investment fund management company, a futures
company, a securities investment consultant institution, a financial advisory institution, a direct
investment institution or any other company, these Provisions shall apply mutatis mutandis, except
as otherwise provided for by laws and administrative regulations and rules.
Where a securities company controls another securities company by formation, share acquisition
or subscription or any other means, it shall satisfy the requirements of Article 3, Article 4 and
Article 9 of these Provisions within five years from the date of control.
Article 17 “Market share” as mentioned in these Provisions shall be calculated on the basis
of the data published by the Securities Association of China and securities exchanges.
The term “intermediary level of the industry” as mentioned in these Provisions means that the
rank of a securities company operating a certain securities business which is determined in
accordance with the operational indicators of this business is at a median position.
Article 18 These Provisions shall come into force as of January 1st, 2008.