The Financial Supervisory Commission issued the Jin-Guan-Zheng-Chuan-1060004899 Circular of March 15, 2017 (hereinafter, the “Circular”), holding that all offshore institutional investors may borrow securities and such borrowing is not limited to specific offshore foreign institutional investors.
This Circular eases relevant restrictions and allows all offshore foreign institutional investors to borrow securities collateralized by their domestic assets without being constrained by the restrictions that “securities which are not held shall not be sold” and “no guarantee shall be provided” under Article 21, Subparagraphs 2 and 3 of the Regulations Governing Investment in Securities by Overseas Chinese and Foreign Nationals.
This Circular also points out that under Article 14, Paragraph 1 of the Regulations Governing Investment in Securities by Overseas Chinese and Foreign Nationals, an offshore overseas Chinese or foreign national investing in domestic securities may apply for foreign exchange settlement of investment capital, earnings on investments, and proceeds from the sale of borrowed securities; provided, however, that exchange settlement is only permitted for those capital gains and stock dividends that constitute realized gains. However, if an offshore foreign institutional investor serves as a lender of a borrowing transaction, since the domestic cash collateral provided by securities borrowers is not part of the investment capital or earnings on investments inward remitted by such offshore foreign institutional investor, no application may be filed for foreign exchange settlement.
In addition, to accommodate the eased qualification requirement for traders of the borrowing transactions, this Circular also removes the requirement that when a privately placed mutual fund or unit trust applies to set up a borrowing account, the declaration that it is managed by a juristic person shall be submitted.