The China Securities Regulatory Commission (the “CSRC”) promulgated the Measures for the Administration of the Representative Offices of Overseas Stock and Futures Exchange in China (the “Measures”) on July 25, 2019 to regulate the recordation, amendment, revocation and relevant legal liabilities concerning the establishment of permanent non-profit representative offices (“Representative Offices”) in China by overseas exchanges (including overseas stock exchanges, futures exchanges, automatic stock and futures quotation or electronic trading platforms or markets, and other overseas exchanges recognized by the CSRC) for engaging exclusively in non-profit activities such as liaison and research. The Measures are highlighted below:
1. The materials required and the procedure for establishment recordation.
An overseas exchange shall, within five working days after its Representative Office has completed business registration, submit the following materials to the dispatched office of the CSRC where the overseas exchange is located: the recordation application, a copy of the business license, a legal business certificate or the like issued by the relevant authority of the country or region and has been certified by the Chinese embassy (consulate) in the country; the bylaws, management structure, ownership structure chart, scope of business, main rules of business, management systems, internal control mechanisms, and a list and profile of the members of its board of directors (council) and management personnel, the annual reports for the past three years; an authorized statement on whether the proposed chief representative has been punished for a serious violation of the law in the past three years; the identification, resume, contact information, home address, and other information of the proposed chief representative as well as an undertaking signed by the chief representative; a copy of the registration certificate and basic profile of the Representative Office. The responsible person of the Representative Office shall be the chief representative, who may not concurrently be a member of the staff of the headquarters or regional headquarters of the overseas exchange, nor shall he or she be employed by a profit-seeking enterprise in China at the same time. A chief representative assuming concurrent positions shall be replaced by the overseas exchange.
If the recordation materials are complete, the CSRC will publish the name, amendment, cancellation and related materials of the Representative Office within five working days. If the recordation materials are incomplete, the dispatched office of the CSRC in the place the Representative Office is located shall request the overseas exchange to supplement the materials.
2. Specific provisions on the change and cancellation of a Representative Office.
In case of change to the name of a Representative Office, a written report issued by the overseas exchange stating the reasons of the name change, together with the new business registration, shall be submitted to the dispatched office of the CSRC where the Representative Office is located. If the name change is attributed to a change to the controlling equity, a merger and reorganization, or receivership of the overseas exchange, the overseas exchange shall file a new recordation.
If a Representative Office has changed its chief representative, a written report and statutory documents, such as a copy of the registration certificate of the Representative Office, shall be submitted to the dispatched office of the CSRC where the Representative Office is located after the formalities for amendment registration with the market regulatory authority are completed.
A Representative Office that has changed its place of business shall, within five working days of such change, submit to its local dispatched office of the CSRC the phone number, fax number and the mailing address of its new place of business.
In case of the cancellation of a Representative Office, a report issued by the overseas exchange shall be submitted to the dispatched office of the CSRC where the Representative Office is located at least 20 working days before the cancellation process commences, followed by another report to the local dispatched office of the CSRC within 5 working days after completing the cancellation registration with the market regulatory authority. The overseas exchange shall be responsible for any unsettled matter after the Representative Office is canceled.
3. The Measures specifically prohibit a Representative Office from engaging in any act that may result in potential profits.
A Representative Office and its staff shall not enter into any agreement or contract with any legal or natural person that will generate income for itself or its overseas exchange. It may not engage in explicit or implicit profit-making activities, or provide trading services to entities or individuals in China either directly or through a member of the overseas exchange or other institutions; it can only provide market introduction services to institutions or enterprises and shall submit a report to the local dispatched office of CSRC where the Representative Office is located within 5 working days after the activity is concluded. During a market introduction event, the Representative Office and its staff shall not cover any specific products, provide trading-oriented information such as account opening, trading methods and trading costs, or provide or accept any offer to buy or sell any securities, futures contracts or other financial products.
A Representative Office shall, within four months after the end of each year, submit to the local dispatched office of the CSRC where the Representative Office is located a work report in Chinese for the past year covering information including but not limited to the status of the Chinese companies listed on its overseas exchange and its Chinese-funded members. In addition, the annual report of its overseas exchange for the previous year shall be submitted.
If any of the following occurs to an overseas exchange, its Representative Office shall submit a report in Chinese to the local dispatched office of the CSRC within 10 days upon occurrence of such event. A change to the bylaws, business permits, name, registered capital or registered address; a spin-off, consolidation or other major merger, acquisition or reorganization; a change to the chairman of the board of directors (or the board of governors), general manager, legal representative or key responsible persons; any significant operating loss or financial distress; measures such as investigation, sanctions, disciplinary action or settlement taken against the overseas exchange by the financial regulatory authority of the country or region in which the overseas exchange is located; or any other matter that has a material impact on its operation.
4. The legal liabilities of a Representative Office.
If an overseas exchange is registered with the local market regulatory authority but does not file for recordation with the local dispatched office of the CSRC where its Representative Office is located or fails to timely submit the recordation materials, the CSRC or its dispatched office will demand rectification, and failure to timely rectify will result in a warning along with a fine of up to RMB 30,000.
If a Representative Office and its staff illegally operate securities or futures business, the CSRC or its dispatched office will impose a penalty in accordance with the Securities Law of the People’s Republic of China, the Regulation on the Administration of Futures Trading and other applicable laws and regulations. If a Representative Office and its staff illegally engages in any profit-seeking activity other than the securities and futures business, the dispatched office of the CSRC will notify the market regulatory authority and other relevant authorities to deal with such violation pursuant to law.
In addition, if false materials are submitted during the Representative Office registration, or if fraudulent measures are taken to conceal the actual circumstances during the representative office recordation process; if reports or materials are not submitted pursuant to applicable requirements, or if the reports or materials so submitted conceal the actual circumstances or are false; failure to submit a required report prior to organizing any market introduction event; refusal to submit to inspection or supervision or if documents or materials are not accurately provided, the CSRC or its dispatched office will demand rectification, issue a warning and impose a fine of up to RMB 30,000. In case of a serious violation, the CSRC will cancel the recordation.