Regulation on Risk Management of Securities Firms

regulation on risk management of securities firms

wednesday,april 23,2008 posted: 14:09 bjt(0609 gmt) 　


order of the state council of the people’s republic of china
no. 523


regulation on risk management of securities firms was passed in the sixth standing conference on april 23, 2008. it’s now publicized and takes effect accordingly.


premier wen jiabao
april 23, 2008







regulation on risk management of securities firms



chapter 1 general provisions


article 1　this regulation is formulated with the purpose of controlling and eliminating risks of securities firms, protecting legal right of investors and social public interests, and ensuring healthy development of securities industry, based on securities law of people’s republic of china (hereinafter referred to as securities law) and law of the people’s republic of china on enterprise bankruptcy (hereinafter referred to as law on enterprise bankruptcy).

article 2　the securities regulatory authority under the state council executes organization, coordination and supervision of risk management of a securities firm according to law.

article 3　the securities regulatory authority under the state council should establish coordination and quick response mechanism together with the people’s bank of china, finance department of the state council, public security department of the state council, other financial regulatory authorities of the state council and provincial people’s government.

article 4 the related local people’s government should take effective measures to maintain social stability during risk management process of the securities firm.

article 5　normal securities brokerage business should be guaranteed during risk management process of the securities firm.


chapter 2 suspending business for internal rectification, custody, takeover, administrative restructuring


article 6　the securities regulatory authority under the state council can appoint spot working group of risk supervision to conduct special inspection on securities firms, supervise business operation and management activities such as transferring fund, disposing assets, allocating personnel, using chop, developing and performing contract of the securities firm, and report status to local people’s government in timely manner, once major risk potential of the securities firm is founded.

article 7　securities regulatory authority of the state council can order to close part or all businesses of the securities firm for internal rectification once risk control target of the securities firm does not meet relevant prescription and the rectification is not complete within a certain period. the time limit for rectification after close of business is three months.

if securities brokerage business is ordered to be closes for rectification, the securities firm can entrust its securities brokerage business to the securities firm, which should be recognized by securities regulatory authority under the state council, for management within a certain period. if the securities firm does not entrust brokerage business or transfer customer properly within this period, the securities regulatory authority of the state council should transfer the customers to other securities firms.

article 8　if a securities firm meets the following conditions, the securities regulatory authority under the state council can hold custody of business involving customer such as securities brokerage; if it’s serious, the securities firm can be taken over:

（ⅰ）governance is in chaos and management is out of control;

（ⅱ）use customer’s assets inappropriately and cannot make up;

（ⅲ）delivery violation happened for many times or delivery violation amount is huge during settlement of securities transaction;

（ⅳ）risk control target does not meet requirement and major financial crisis occurs;

（ⅴ）other situations that may impact sustainable business operation of the securities firm.

article 9　if securities regulatory authority under the state council determines to hold custody of customer-related business of the securities firm, they should choose specialized institute such as securities firms to form trust group based on prescribed procedure and perform business operation management right of customer-related business like securities brokerage of the entrusted securities firm.

the trust group starts to perform the following role and responsibility since the day of custody:

（ⅰ）ensure securities brokerage business of the securities firm runs properly and pay advanced operation capital and transaction settlement funds with customer when it’s necessary by following the rule;

（ⅱ）take effective measures to maintain security of customer’s assets during custody;

（ⅲ）audit risks existed in the securities firm and report to emergent issues in business operation process to securities regulatory authority under the state council in timely manner, as well as put forward resolutions;

（ⅳ）other roles and responsibilities to be performed as required by securities regulatory authority under the state council.

custody period normally not exceeds 12 months. at the end of 12th month, if custody needs to be continued, the securities regulatory authority of the state council can extend custody period but should not be longer than 12 months.

article 10　the entrusted securities firm should undertake custody fee and business operation cost during custody. the securities regulatory authority of the state council should audit so custody fee and operation cost during custody.

the trust group will not bear loss of the entrusted company.

article 11　if securities regulatory authority under the state council determines to take over a securities firm, they should organize takeover team with professionals based on prescribed procedure and perform business management right of the securities firm. principal of the taken over securities firm has authority of legal representative of the securities firm, and shareholder meeting, board meeting, supervisory committee, manager and deputy manager should cease their roles and responsibilities.

takeover group starts to perform the following roles and responsibilities since the day of taking over:

（ⅰ）take over property, chop, account book, document, etc. of the securities firm;

（ⅱ）determine management affair of the securities firm;

（ⅲ）ensure normal running of securities brokerage business of the securities firm and improve internal control system;

（ⅳ）audit property of the securities and keep as well as collect assets based on law;

（ⅴ）control risk of the securities firm and put forward risk elimination proposals;

（ⅵ）audit violation behavior of personnel in the securities firm;

（ⅶ）other roles and responsibilities required by securities regulatory authority under the state council.

takeover period normally not exceeds 12 months. at the end of 12th month, if takeover needs to be continued, the securities regulatory authority of the state council can extend takeover period but should not be longer than 12 months.

article 12　when a securities firm has major risk, it can directly apply to securities regulatory authority under the state council for administrative restructuring if the following conditions are met:

（ⅰ）the financial information is true and complete;

（ⅱ）support from provincial people’s government or related department;

（ⅲ）has detail rectification measures as well as feasible restructuring plan.

a securities firm, which is order to close business for internal rectification, held custody or taken o
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