The Financial Supervisory Commission (hereinafter, the “FSC”) issued the Jin-Guan-Zheng-Tou-1060033837 Circular of August 21, 2017 (hereinafter, the “Circular”) to provide relevant explanation and communicate matters that shall be noted with respect to streamlined investment procedures under which a securities investment trust enterprise may entrust its group enterprises or foreign investment consulting company to provide centralized transaction services.
This Circular first points out that when an entrusted transaction is engaged by an investment trust enterprise in manners stipulated under Article 7 of the Regulations Governing Securities Investment Trust Funds, relevant risk monitoring and control measures shall be included in the internal control system and be approved by the board of directors. The so-called risk monitoring measures include four items: (1) before a transaction instruction is delivered to an entrusted entity, an investment trust enterprise shall ensure that the execution of the investment transaction (including the investment objects, investment ratio, operation of entrusted transactions or manners of transactions) complies with the contract or laws or regulations and that the cash and positions meet settlement requirements; (2) a fund manager’s investment decisions shall be conspicuously separated from the procedure for entrusted transactions followed by traders of the entrusted entity to ensure the independent operations of traders of the entrusted entity and to prevent a fund manager from deciding on any timing of transaction; (3) traders of an investment trust enterprise shall monitor the execution of transactions to ensure their appropriateness, ensure that the securities firms, futures commissioned merchants or other trading counterparts entrusted by the entrusted entity meet laws and regulations and internal requirements, verify if the closing information reported by the entrusted entity meets the investment decision, specify the types, quantities, prices and timing of actual transactions in the execution records, and explain the reasons for discrepancies, and the investment trust enterprise shall have mechanisms and capabilities for effective monitoring of the entrusted entity at all times; and (4) an investment trust enterprise shall ensure that the securities firms, futures commissioned merchants or other trading counterparts retained by the entrusted entity meet the criteria for evaluating trading counterparts by an investment trust enterprise so as to prevent entrusted transactions from over-concentration in a single trading counterpart or trading counterparts affiliated with the same group as the investment trust enterprise; and an investment trust enterprise shall also periodically review the status of transaction execution by the entrusted entity to carry out the principle of best transaction execution and diversified ordering.
Finally, this Circular indicates that under Article 17-1, Paragraph 1 of the Regulations Governing Discretionary Services Operated by Securities Investment Trust Enterprises or Securities Investment Consulting Enterprises, an investment trust enterprise or investment consulting enterprise that utilizes entrusted investment assets for overseas investment may, with the approval of the clients, retain a company that provides foreign investment consulting services or its group enterprises to provide centralized transaction services by indirectly commissioning the transactions to foreign securities firms, futures commissioned merchants or other trading counterparts. If an operator seeks to take streamlined measures pursuant to Article 7 of the Regulations Governing Securities Investment Trust Funds, the above explanation shall be followed by setting up relevant risk control measures in its internal control system which shall be submitted to the board of directors for approval.