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Securities Investment Fund Law of the People’s Republic of China

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Updated: Jan 30,2015 3:02 PM     

The Securities Investment Fund Law of the People’s Republic of China, as revised and adopted at the 30th Session of the Standing Committee of the Eleventh National People’s Congress of the People’s Republic of China on December 28, 2012, and came into force on June 1, 2013.

(Adopted at the 5th Session of the Standing Committee of the Tenth National People’s Congress on October 28, 2003 and revised at the 30th Session of the Standing Committee of the Eleventh National People’s Congress on December 28, 2012)

Table of Contents

Chapter I General Provisions

Chapter II Fund Management Institutions

Chapter III Fund Custodians

Chapter IV Operating Mode and Organization of a Fund

Chapter V Public Offering of a Fund

Chapter VI Fund Share Trading, Subscription and Redemption of a Publicly Offered Fund

Chapter VII Investment of a Publicly Offered Fund and Information Disclosure

Chapter VIII Modification and Termination of the Fund Contract on a Publicly Offered Fund and Liquidation of Fund Assets

Chapter IX Exercise of Rights by Fund Share Holders of a Publicly Offered Fund

Chapter X Non-Publicly Offered Funds

Chapter XI Fund Service Institutions

Chapter XII Fund Associations

Chapter XIII Supervision and Administration

Chapter XIV Legal Liability

Chapter XV Supplementary Provisions

Chapter I General Provisions

Article 1 This Law is enacted to regulate securities investment fund activities, protect the lawful rights and interests of investors and relevant parties, and promote the sound development of securities investment funds and the capital market.

Article 2 This Law shall apply to the formation of a securities investment fund (hereinafter referred to as a “fund”) through the public or nonpublic raising of capital, the management of the fund by a fund management institution, the custody of the fund by a fund custodian, and the securities investment activities conducted for the benefit of the fund share holders, within the territory of the People’s Republic of China; and matters not included in this Law shall be governed by the Trust Law of the People’s Republic of China, the Securities Law of the People’s Republic of China, and other relevant laws and administrative regulations.

Article 3 The rights and obligations of a fund management institution, a fund custodian and the fund share holders shall be agreed upon in a fund contract in accordance with this Law. The fund management institution and the fund custodian shall perform their fiduciary duties in accordance with this Law and the fund contract. The fund share holders of a fund formed through the public raising of capital (hereinafter referred to as a “publicly offered fund”) shall enjoy income and assume risks to the extent of the fund shares held respectively, and the distribution of income and assumption of risks for a fund formed through the nonpublic raising of capital (hereinafter referred to as a “non-publicly offered fund”) shall be agreed upon in the fund contract.

Article 4 Securities investment fund activities shall be conducted under the principles of free will, fairness and good faith, without any infringement upon the national interest or public interest.

Article 5 The debts incurred by fund assets shall be repaid with fund assets only, and the fund share holders shall be liable for the debts incurred by fund assets only to the extent of their respective capital contributions, except as otherwise agreed upon in the fund contract in accordance with this Law. Fund assets shall be independent from a fund management institution’s or a fund custodian’s own assets. The fund management institution or fund custodian shall not incorporate any fund assets into its own assets. All property and income obtained by the fund management institution or fund custodian from managing, utilizing or otherwise disposing of fund assets shall be incorporated into fund assets. Where the fund management institution or fund custodian is liquidated for being dissolved, administratively dissolved or declared bankrupt in accordance with law or any other reason, fund assets are not liquidating property.

Article 6 The claims enjoyed by fund assets shall not be used to offset the debts incurred by a fund management institution’s or a fund custodian’s own assets; and the claims enjoyed and debts incurred by the assets of different funds shall not be offset mutually.

Article 7 No enforcement may be conducted against fund assets, except for the debts incurred by fund assets.

Article 8 Taxes related to the holdings of a fund shall be assumed by the fund share holders, and the fund management institution or any other withholding agent shall withhold taxes in accordance with the relevant tax collection provisions of the state.

Article 9 Fund management institutions and fund custodians in managing and utilizing fund assets and fund service institutions in conducting fund service activities shall devote themselves to their duties and perform their obligations of good faith, prudence and diligence. Fund management institutions shall, when investing fund assets in securities, comply with the rules on prudential business operations and develop methodical and rational investment strategies and risk management rules to effectively prevent and control risks. Fund employees shall be qualified for engaging in the fund business and comply with laws, administrative regulations, professional ethics, and the code of conduct.

Article 10 Fund management institutions, fund custodians and fund service institutions shall, in accordance with this Law, form associations of the securities investment fund sector (hereinafter referred to as the “fund associations”) to strengthen industry self-regulation, coordinate industry relationships, provide services for the industry, and promote industry development.

Article 11 The securities regulatory authority of the State Council shall, in accordance with law, supervise and administer securities investment fund activities, and its local offices shall perform duties as authorized.

Chapter II Fund Management Institutions

Article 12A fund management institution shall be a company or partnership legally formed. The fund management institution of a publicly offered fund shall be a fund management company or any other institution confirmed by the securities regulatory authority of the State Council in accordance with the relevant provisions.

Article 13 The formation of a fund management company managing publicly offered funds shall meet the following conditions and be subject to the approval of the securities regulatory authority of the State Council:(1) The fund management company’s bylaws comply with this Law and the Company Law of the People’s Republic of China.(2) The registered capital of the fund management company, which must be paid-in monetary capital, is not less than 100 million yuan.(3) The major shareholder of the fund management company has good performance, financial condition and social reputation in conducting financial business or managing financial institutions, has assets reaching the standards prescribed by the State Council, and has no record of any violation of law in the last three years.(4) The number of employees qualified for engaging in the fund business of the fund management company satisfies the statutory requirement.(5) The directors, supervisors and senior executives of the fund management company meet the corresponding office conditions.(6) The fund management company has business premises and security protection facilities satisfying the relevant requirements and other facilities related to its fund management business.(7) The fund management company has a sound internal governance structure and adequate and effective internal auditing and monitoring rules and risk control rules.(8) Other conditions prescribed by laws and administrative regulations and by the securities regulatory authority of the State Council with the approval of the State Council.

Article 14 The securities regulatory authority of the State Council shall, within six months after accepting an application for the formation of a fund management company, conduct examination according to the conditions set out in Article 13 of this Law and under the principle of prudent supervision, make an approval or disapproval decision, and notify the applicant of the decision; and, in the case of disapproval, shall explain the reasons for the disapproval. Where a fund management company intends to modify a shareholder holding 5% or more equity in the company, modify its actual controller or modify any other major matter, the fund management company shall apply to the securities regulatory authority of the State Council for approval. The securities regulatory authority of the State Council shall, within 60 days after accepting the application, make an approval or disapproval decision and notify the applicant of the decision; and, in the case of disapproval, shall explain the reasons for the disapproval.

Article 15 Under any of the following circumstances, a person shall not serve as a director, supervisor, senior executive or any other employee of a fund management institution for a publicly offered fund:(1) The person has received a criminal penalty for embezzlement, bribery, malfeasance, property encroachment, or disruption of the order of the socialist market economy.(2) The person is personally liable for the bankruptcy liquidation of a company or enterprise due to poor business management or for the forfeiture of the business license of a company or enterprise due to any violation of law, in which the person served as a director, supervisor, factory director, or senior executive, and it has not been five years since the date of completion of bankruptcy liquidation or the date of forfeiture of business license.(3) The person fails to repay a large amount of personal debts upon maturity.(4) The person is an employee of a fund management institution, a fund custodian, a stock exchange, a securities company, a securities depository and clearing institution, a futures exchange, a futures company or any other institution or an employee of a government agency from which the person has been dismissed for any violation of law.(5) The person is a lawyer, a certified public accountant, an employee of an asset appraisal or verification institution, or an investment advisory employee who has forfeited his or her practicing license or who has been disqualified for any violation of law.(6) The person is otherwise prohibited by any law or administrative regulation from engaging in the fund business.

Article 16A director, supervisor or senior executive of a fund management institution for a publicly offered fund shall be familiar with securities investment laws and administrative regulations and have three or more years of work experience relevant to the position held, and a senior executive shall also be qualified for engaging in the fund business.

Article 17 The appointment or modification of the legal representative, chief executive officer or chief compliance officer of a fund management institution for a publicly offered fund shall be subject to the approval of the securities regulatory authority of the State Council in accordance with the office conditions prescribed by this Law and other relevant laws and administrative regulations.

Article 18 The directors, supervisors, senior executives and other employees of a fund management institution for a publicly offered fund shall declare to the fund management institution in advance any securities investment to be made by them, their spouses or any interested parties, without any conflicts of interest with the fund share holders. The fund management institution for a publicly offered fund shall develop management rules for the declaration, registration, examination and disposition, among others, of the securities investment made by the persons prescribed in the preceding paragraph and file such rules with the securities regulatory authority of the State Council for recordation.

Article 19 The directors, supervisors, senior executives and other employees of a fund management institution for a publicly offered fund shall not hold any positions in a fund custodian or another fund management institution and shall not conduct any securities trading or other activities that cause damage to fund assets and the interests of the fund share holders.

Article 20A fund management institution for a publicly offered fund shall perform the following functions:(1) Raising capital in accordance with law and handling the sale and registration of fund shares.(2) Undergoing recordation procedures for the fund.(3) Applying separate management and separate accounts to the assets of different funds under management and making securities investment.(4) Determining the income distribution of the fund according to the provisions of the fund contract and distributing income to the fund share holders in a timely manner.(5) Conducting fund accounting and preparing the fund’s financial accounting reports.(6) Preparing the fund’s semiannual and annual reports.(7) Calculating and publishing the net asset value of the fund and determining the subscription and redemption prices for fund shares.(8) Handling information disclosure regarding the management of fund assets.(9) Convening the fund share holders’ meeting according to the relevant provisions.(10) Preserving records, account books, statements and other materials regarding the management of fund assets.(11) Exercising litigation rights or taking other legal actions in the name of the fund management institution for the benefit of the fund share holders.(12) Other functions prescribed by the securities regulatory authority of the State Council.

Article 21A fund management institution for a publicly offered fund and the directors, supervisors, senior executives and other employees of the fund management institution shall not:(1) mix the institution’s or such a person’s own assets or the assets of others with fund assets to engage in securities investment;(2) unfairly treat the assets of different funds under management;(3) seek any benefit for any party other than the fund share holders by using fund assets or taking advantage of his or her position;(4) illegally promise the fund share holders any income or assumption of losses;(5) embezzle or misappropriate fund assets;(6) divulge any undisclosed information obtained by taking advantage of his or her position or use such information to engage or explicitly or implicitly advise any other person to engage in the relevant trading activities;(7) neglect duties or fail to perform duties as required; and (8) act otherwise as prohibited by any law or administrative regulation or the provisions of the securities regulatory authority of the State Council.

Article 22A fund management institution for a publicly offered fund shall establish a sound internal governance structure and specify the functions and powers of the shareholders’ meeting, board of directors, board of supervisors and senior executives to ensure the independent operation of the fund management institution. A fund management institution for a publicly offered fund may implement professional stock ownership plans and establish a long-term effective incentives and restraints mechanism. The shareholders, directors, supervisors and senior executives of a fund management institution for a publicly offered fund shall exercise rights or perform duties under the principle of giving priority to the interests of the fund share holders.

Article 23A fund management institution for a publicly offered fund shall set aside a risk reserve from the fund management remuneration. Where the fund management institution for a publicly offered fund has caused any loss to fund assets or the lawful rights and interests of the fund share holders for its violation of any law or regulation or violation of the fund contract or otherwise and shall assume compensatory liability, it may first use the risk reserve to make compensation.

Article 24 The shareholders and actual controller of a fund management institution for a publicly offered fund shall perform their obligations to report major events in a timely manner in accordance with the provisions of the securities regulatory authority of the State Council and shall not:(1) make any false capital contribution or illegally withdraw any capital contribution;(2) intervene in the fund business of the fund management institution without authorization by a resolution of the shareholders’ meeting or board of directors of the fund management institution;(3) require the fund management institution to seek any benefits for them or any other person by using fund assets, damaging the interests of the fund share holders; and (4) act otherwise as prohibited by the provisions of the securities regulatory authority of the State Council. Where any shareholder or the actual controller of a fund management institution for a publicly offered fund commits any act prescribed in the preceding paragraph or any shareholder of the fund management institution no longer meets the statutory conditions, the securities regulatory authority of the State Council shall order the shareholder or actual controller to make correction during a prescribed period and may, according to the circumstances, order the shareholder or actual controller to transfer the equity or controlling equity held in the fund management institution. Before the shareholder or actual controller prescribed in the preceding paragraph corrects the relevant violation or transfers the equity or controlling equity held in the fund management institution as required, the securities regulatory authority of the State Council may restrict the relevant shareholder from exercising the shareholder’s rights.

Article 25 Where a fund management institution for a publicly offered fund violates any law or regulation or there is any noncompliance in its internal governance structure, auditing and monitoring or risk control management, the securities regulatory authority of the State Council shall order the fund management institution to make correction during a prescribed period; and if the fund management institution fails to do so, or its conduct seriously endangers its robust operation or infringes upon the lawful rights and interests of the fund share holders, the securities regulatory authority of the State Council may, as the case may be, take the following measures against the fund management institution:(1) Restricting its business activities and ordering suspension of a part or all of its business.(2) Restricting its dividend distribution and restricting its payment of remuneration and provision of welfare to its directors, supervisors and senior executives.(3) Restricting it from transferring its own assets or creating any other right in its own assets.(4) Ordering it to replace any of its directors, supervisors and senior executives or restricting their rights.(5) Ordering the relevant shareholder to transfer the equity held or restricting the relevant shareholder from exercising the shareholder’s rights. The fund management institution for a publicly offered fund shall, after making rectification, submit a report to the securities regulatory authority of the State Council. The securities regulatory authority of the State Council shall, after verifying that the fund management institution satisfies the relevant requirements, remove the relevant measures taken against the institution within three days from the date of completion of the verification.

Article 26 Where any director, supervisor or senior executive of a fund management institution for a publicly offered fund fails to diligently perform his or her duties, thus causing the fund management institution to incur any material violation of any law or regulation or any material risk, the securities regulatory authority of the State Council may order replacement of him or her.

Article 27 Where a fund management institution for a publicly offered fund engages in any illegal business operation or has incurred any material risk, seriously disturbing the order of the securities market or infringing upon the interests of the fund share holders, the securities regulatory authority of the State Council may take regulatory measures against the fund management institution, such as ordering it to cease business suspension for rectification, designating a custodial or receivership institution for it, disqualifying it for fund management, and administratively dissolving it.

Article 28 During the period when a fund management institution for a publicly offered fund is ordered to cease business operation for rectification, a custodial or receivership institution is legally designated for it or it is liquidated, or where it incurs any material risk, the following measures may be taken against the directly responsible directors, supervisors and senior executives and other directly liable persons of the fund management institution with the approval of the securities regulatory authority of the State Council:(1) Notifying the exit administrative authority to prevent them from exiting China in accordance with law.(2) Requesting the judicial authority to prohibit them from displacing, transferring or otherwise disposing of their respective assets or creating any other right in their respective assets.

Article 29 Under any of the following circumstances, the functions of a fund management institution for a publicly offered fund shall terminate:(1) Being disqualified for fund management in accordance with law.(2) Being dismissed by the fund share holders’ meeting.(3) Being dissolved, administratively dissolved, or declared bankrupt in accordance with law.(4) Any other circumstances as agreed upon in the fund contract.

Article 30 Where the functions of a fund management institution for a publicly offered fund terminate, the fund share holders’ meeting shall appoint another fund management institution within six months; and before the appointment of the new fund management institution, the securities regulatory authority of the State Council shall designate a temporary fund management institution. The fund management institution for a publicly offered fund shall, after its functions terminate, properly preserve all the fund management business data and undergo the handover formalities for the fund management business in a timely manner, and the new or temporary fund management institution shall receive the business in a timely manner.

Article 31A fund management institution for a publicly offered fund shall, after its functions terminate, employ an accounting firm to audit fund assets according to the relevant provisions, publish the auditing results, and, at the same time, file such results with the securities regulatory authority of the State Council for recordation.

Article 32 The specific measures for regulating fund management institutions for non-publicly offered funds shall be developed by the financial regulatory authorities of the State Council in accordance with the principles in this Chapter.

Chapter III Fund Custodians

Article 33A fund custodian shall be a commercial bank or any other financial institution legally formed. To serve as a fund custodian, a commercial bank shall obtain a confirmation from the securities regulatory authority and the banking regulatory authorities of the State Council; and to serve as a fund custodian, any other financial institution shall obtain a confirmation from the securities regulatory authority of the State Council.

Article 34To serve as a fund custodian, a commercial bank or any other financial institution shall meet the following conditions:(1) Its net assets and risk control indicators comply with the relevant provisions.(2) It has specially set up a fund custody department.(3) The number of its full-time personnel qualified for the fund business satisfies the statutory requirement.(4) It meets the conditions for the safekeeping of fund assets. (5) It has safe and efficient clearing and settlement systems.(6) It has business premises and security protection facilities satisfying the relevant requirements and other facilities related to its fund custody business.(7) It has adequate and effective internal auditing and monitoring rules and risk control rules.(8) Other conditions prescribed by laws and administrative regulations and by the securities regulatory authority and the banking regulatory authorities of the State Council with the approval of the State Council.

Article 35 The provisions of Articles 15, 18 and 19 of this Law shall apply to the senior executives and other employees of the specialized fund custody department of a fund custodian. The provisions of Article 16 of this Law shall apply to the senior executives of the specialized fund custody department of a fund custodian.

Article 36 The fund custodian and the fund management institution for a fund shall not be the same institution and shall not make capital contribution to each other or hold shares in each other.

Article 37A fund custodian shall perform the following functions:(1) The safekeeping of fund assets.(2) Opening the capital accounts and securities accounts for fund assets according to the relevant provisions.(3) Maintaining separate accounts for the assets of different funds under custody and ensuring the integrity and independence of fund assets.(4) Preserving records, account books, statements and other relevant materials regarding the fund custody business.(5) Handling clearing and settlement matters in a timely manner according to the investment orders of the fund management institution as agreed upon in the fund contract.(6) Handling information disclosure matters related to the fund custody business.(7) Offering opinions on the fund’s financial accounting reports and semiannual and annual reports.(8) Reviewing and examining the net asset value of the fund and the subscription and redemption prices for fund shares as calculated by the fund management institution.(9) Convening the fund share holders’ meeting according to the relevant provisions.(10) Overseeing the investment operations of the fund management institution according to the relevant provisions.(11) Other functions prescribed by the securities regulatory authority of the State Council.

Article 38 Where a fund custodian discovers that any investment order of a fund management institution violates any law, administrative regulation or other relevant provisions or the fund contract, it shall refuse to execute the order, immediately notify the fund management institution, and report to the securities regulatory authority of the State Council in a timely manner. Where a fund custodian discovers that any investment order of a fund management institution which has been executed under the trading procedures violates any law, administrative regulation or other relevant provisions or the fund contract, it shall immediately notify the fund management institution and report to the securities regulatory authority of the State Council in a timely manner.

Article 39 The provisions of Articles 21 and 23 of this Law shall apply to fund custodians.

Article 40 Where a fund custodian no longer meets the conditions prescribed by this Law, fails to diligently perform its functions, or has any material lapse in performing its functions prescribed by this Law, the securities regulatory authority and the banking regulatory authorities of the State Council shall order the fund custodian to make correction; and if the fund custodian fails to do so during the prescribed period or its conduct seriously endangers the robust operation of the fund under custody or infringes upon the lawful rights and interests of the fund share holders, the securities regulatory authority and the banking regulatory authorities of the State Council may, as the case may be, take the following measures against the fund custodian:(1) Restricting its business activities and ordering suspension of handling any new fund custody.(2) Ordering replacement of the liable senior executives of the specialized fund custody department. The fund custodian shall, after making rectification, submit a report to the securities regulatory authority and the banking regulatory authorities of the State Council; and if, after verification, the fund custodian satisfies the relevant requirements, the relevant measures taken against it shall be removed within three days from the date of completion of the verification.

Article 41 Where a fund custodian falls under any of the following circumstances, the securities regulatory authority and the banking regulatory authorities of the State Council may disqualify it for fund custody:(1) Having not engaged in any fund custody business for three consecutive years.(2) Seriously violating the provisions of this Law.(3) Other circumstances prescribed by laws and administrative regulations.

Article 42 The functions of a fund custodian shall terminate under any of the following circumstances:(1) Being disqualified for fund custody in accordance with law.(2) Being dismissed by the fund share holders’ meeting.(3) Being dissolved, administratively dissolved, or declared bankrupt in accordance with law.(4) Any other circumstances as agreed upon in the fund contract.

Article 43 The fund share holders’ meeting shall appoint a new fund custodian within six month after the functions of the fund custodian terminate; and before the appointment of the new fund custodian, the securities regulatory authority of the State Council shall designate a temporary fund custodian. The fund custodian shall, after its functions terminate, properly preserve fund assets and fund custody business data and undergo the handover formalities for fund assets and the fund custody business in a timely manner, and the new or temporary fund custodian shall receive the same in a timely manner.

Article 44A fund custodian shall, after its functions terminate, employ an accounting firm to audit fund assets according to the relevant provisions, publish the auditing results, and, at the same time, file such results with the securities regulatory authority of the State Council for recordation.

Chapter IV Operating Mode and Organization of a Fund

Article 45 The operating mode of a fund shall be agreed upon in the fund contract.

Article 46A fund may be operated in a closed-end, open-end or any other mode. A fund operated in a closed-end mode (hereinafter referred to as a “closed-end fund”) means a fund of which the fund shares remain unchanged in the total amount and may not be redeemed by the fund share holders upon request during the term of the fund contract. A fund operated in an open-end mode (hereinafter referred to as an “open-end fund”) means a fund of which the fund shares are unfixed in the total amount and may be subscribed for or redeemed at the time and place as agreed upon in the fund contract. The measures for the fund share offering, trading, subscription and redemption of the funds operated in other modes shall be separately developed by the securities regulatory authority of the State Council.

Article 47 The fund share holders shall enjoy the following rights:(1) Sharing income from fund assets.(2) Participating in the distribution of the residual fund assets upon liquidation.(3) Transferring or requesting redemption of the fund shares respectively held by them in accordance with law.(4) Requiring that the fund share holders’ meeting be convened or convening the fund share holders’ meeting according to the relevant provisions.(5) Exercising their voting rights regarding matters deliberated at the fund share holders’ meeting.(6) Instituting an action against the fund management institution, fund custodian or fund service institution for its conduct that infringes upon their lawful rights and interests.(7) Other rights as agreed upon in the fund contract. The fund share holders of a publicly offered fund shall have the right to consult or copy the publicly disclosed information and data regarding the fund; and the fund share holders of a non-publicly offered fund shall have the right to consult the financial accounting books and other financial data of the fund where their personal interests are involved.

Article 48 The fund share holders’ meeting shall be composed of all fund share holders and exercise the following powers:(1) Deciding to offer new shares of the fund or renew the term of the fund contract.(2) Deciding to amend the essential clauses of the fund contract or terminate the fund contract early.(3) Deciding to replace the fund management institution or fund custodian.(4) Deciding to adjust the remuneration standards for the fund management institution or fund custodian.(5) Other powers as agreed upon in the fund contract.

Article 49 The fund share holders’ meeting may, as agreed upon in the fund contract, set up a general office to exercise the following powers:(1) Convening the fund share holders’ meeting.(2) Proposing the replacement of the fund management institution or fund custodian.(3) Overseeing the investment operations of the fund management institution and the custodial activities of the fund custodian.(4) Proposing the adjustment of the remuneration standards for the fund management institution or fund custodian.(5) Other powers as agreed upon in the fund contract. The general office as mentioned in the preceding paragraph shall be composed of members elected at the fund share holders’ meeting; and its rules of procedure shall be agreed upon in the fund contract.

Article 50 The fund share holders’ meeting and its general office shall not directly participate or intervene in the fund’s investment management.

Chapter V Public Offering of a Fund

Article 51 The public offering of a fund shall be registered with the securities regulatory authority of the State Council. No fund may be offered publicly without registration, whether explicitly or implicitly. The public offering of a fund as mentioned in the preceding paragraph includes raising capital from unspecific investors, raising capital from more than 200 specific investors cumulatively, and other circumstances prescribed by laws and administrative regulations. The publicly offered fund shall be under the management of the fund management institution and under the custody of the fund custodian.

Article 52To register the public offering of a fund, the prospective fund management institution shall submit the following documents to the securities regulatory authority of the State Council:(1) The application report.(2) The draft fund contract.(3) The draft fund custody agreement.(4) The draft prospectus.(5) The legal opinions issued by a law firm.(6) Other documents required by the securities regulatory authority of the State Council.

Article 53 The fund contract for a publicly offered fund shall include:(1) the objectives and name of the fund offered;(2) the names and domiciles of the fund management institution and fund custodian;(3) the operating mode of the fund;(4) the total fund shares and the term of the fund contract in the case of a closed-end fund or the minimum total shares offered in the case of an open-end fund;(5) the principles for determining the offer date of fund shares and the fund share prices and fees;(6) the rights and obligations of the fund share holders, fund management institution and fund custodian;(7) the procedures and rules for convening the fund share holders’ meeting and the deliberation and voting at the fund share holders’ meeting;(8) the procedures, time and place for the fund share offering, trading, subscription and redemption, the calculation method for fees, and the time and method for paying the redemption amount;(9) the principles and execution methods for fund income distributions;(10) the methods for drawing and paying remuneration for the fund management institution and fund custodian and the proportion;(11) the methods for drawing and paying other fees and expenses related to the management and utilization of fund assets;(12) the investment directions and restrictions for fund assets;(13) the calculation and publication methods for the net asset value of the fund;(14) the handling methods when the fund offered fails to satisfy the statutory requirements;(15) the causes and procedures for the rescission and termination of the fund contract and the liquidation methods for fund assets;(16) the dispute resolution methods; and (17) other matters as agreed upon by the parties.

Article 54 The prospectus of a publicly offered fund shall include:(1) the title of the registration approval document for the fund offering application and the date of registration;(2) the basic information on the fund management institution and fund custodian;(3) the summaries of the fund contract and fund custody agreement;(4) the fund share offer date, prices, fees and duration;(5) the methods for offering fund shares and the names of the offering institution and registration institution;(6) the names and domiciles of the law firm issuing legal opinions and the accounting firm auditing fund assets;(7) the methods for drawing and paying remuneration for the fund management institution and fund custodian and other relevant fees and expenses and the proportion;(8) the risk alerts; and (9) other information prescribed by the securities regulatory authority of the State Council.

Article 55 The securities regulatory authority of the State Council shall, within six months after accepting an application for the registration of the public offering of a fund, conduct examination in accordance with laws, administrative regulations and the provisions of the securities regulatory authority of the State Council, make a decision to approve or disapprove registration, and notify the applicant; and, in the case of disapproval, explain the reasons for the disapproval.

Article 56 The fund shares may be offered only after the application for the registration of the fund offering is approved. The fund shares shall be offered by the fund management institution or a fund sales agency authorized by it.

Article 57 The fund management institution shall publish the prospectus, fund contract and other relevant documents three days before the offering of fund shares. The documents prescribed in the preceding paragraph shall be authentic, accurate and complete. The publicity and promotion of fund offering shall comply with the provisions of the relevant laws and administrative regulations and shall not involve any conduct set out in Article 78 of this Law.

Article 58 The fund management institution shall conduct fund offering within six months from the date of receiving the registration approval document. If the fund is offered after the six months and there is no material change to the original registered matters, the fund management institution shall report to the securities regulatory authority of the State Council for recordation; and in the case of any material change, the fund management institution shall submit a new registration application to the securities regulatory authority of the State Council. The fund offering shall not exceed the fund offering period approved by the securities regulatory authority of the State Council for registration. The fund offering period shall commence from the offer date of fund shares.

Article 59 Where, upon the expiration of the fund offering period, the total fund shares sold reach 80% or more of the approved size for registration in the case of a closed-end fund or the total fund shares sold reach the approved minimum total shares offered for registration in the case of an open-end fund, and the number of fund share holders complies with the provisions of the securities regulatory authority of the State Council, the fund management institution shall, within ten days after the expiration of the fund offering period, employ a statutory capital verification institution to conduct capital verification and, within ten days after receiving the capital verification report, submit the report to the securities regulatory authority of the State Council, undergo the fund recordation formalities, and issue a public announcement.

Article 60 The capital raised during the fund offering period shall be deposited in a specialized account, and no one may use such capital before the completion of fund offering.

Article 61A fund contract is formed when an investor pays for the fund shares for which the investor subscribes; and the fund contract takes effect after the fund management institution undergoes the fund recordation formalities with the securities regulatory authority of the State Council in accordance with Article 59 of this Law. Upon the expiration of the fund offering period, if the conditions prescribed in Article 59 of this Law cannot be met, the fund management institution shall assume the following liability:(1) Assuming the debts and expenses arising from the fund offering with its own assets.(2) Refunding the payments already made by the investors plus the bank deposit interest over the same period, within 30 days after the expiration of the fund offering period.

Chapter VI Fund Share Trading, Subscription and Redemption of a Publicly Offered Fund

Article 62To apply for the listing and trading of fund shares, the fund management institution shall file an application with a stock exchange, and, if the stock exchange approves upon examination in accordance with law, both parties shall enter into a listing agreement.

Article 63 The following conditions shall be met for the listing and trading of fund shares:(1) The fund offering complies with the provisions of this Law.(2) The term of the fund contract is five years or more.(3) The capital raised of the fund is not less than 200 million yuan.(4) There are not less than 1,000 fund share holders.(5) Other conditions prescribed in the listing and trading rules for fund shares.

Article 64 The listing and trading rules for fund shares shall be developed by a stock exchange and submitted to the securities regulatory authority of the State Council for approval.

Article 65 Under any of the following circumstances after the listing and trading of fund shares, the stock exchange shall terminate the listing and trading and report to the securities regulatory authority of the State Council for recordation:(1) The conditions for listing and trading prescribed in Article 63 of this Law are no longer met.(2) The term of the fund contract expires.(3) The fund share holders’ meeting decides to terminate the listing and trading early.(4) Other circumstances under which the listing and trading shall be terminated as agreed upon in the fund contract or prescribed in the listing and trading rules for fund shares.

Article 66 The fund share subscription, redemption and registration of an open-end fund shall be handled by the fund management institution or a fund service institution authorized by it.

Article 67 The fund management institution shall handle fund share subscription and redemption on each working day, except as otherwise agreed upon in the fund contract. Subscription is formed when an investor pays for the subscription; and the subscription takes effect when the fund shares registration institution confirms the fund shares. Redemption is formed when a fund share holder files a redemption request; and the redemption takes effect when the fund shares registration institution confirms the redemption.

Article 68 The fund management institution shall pay the redemption amount on time, except under the following circumstances:(1) The fund management institution is unable to pay the redemption amount for a force majeure.(2) The stock exchange decides to implement a temporary market closure in accordance with law, as a result of which the fund management institution is unable to calculate the net asset value of the fund on that day.(3) Other special circumstances as agreed upon in the fund contract. Under any of the aforesaid circumstances, the fund management institution shall report to the securities regulatory authority of the State Council on that day for recordation. After the circumstances set out in paragraph 1 of this Article are eliminated, the fund management institution shall pay the redemption amount in a timely manner.

Article 69An open-end fund shall hold sufficient cash or government bonds in case of paying redemption amounts to the fund share holders. The specific proportion for cash or government bond holdings in fund assets shall be prescribed by the securities regulatory authority of the State Council.

Article 70 The subscription and redemption prices for fund shares shall be calculated on the basis of the net asset value per share on the subscription or redemption date plus or minus relevant fees.

Article 71 Where any error occurs in the pricing based on the net asset value per share, the fund management institution shall immediately correct such an error and take reasonable measures to prevent further losses. If the pricing error reaches 0.5% of the net asset value per share, the fund management institution shall issue a public announcement and report to the securities regulatory authority of the State Council for recordation. Where any pricing error based on the net asset value per share causes any loss to the fund share holders, the fund share holders shall have the right to require the fund management institution and fund custodian to make compensation.

Chapter VII Investment of a Publicly Offered Fund and Information Disclosure

Article 72A fund management institution shall utilize fund assets for securities investment in the manner of portfolio, except as otherwise required by the securities regulatory authority of the State Council. The specific modes of portfolio and investment proportions shall be agreed upon in the fund contract in accordance with this Law and the provisions of the securities regulatory authority of the State Council.

Article 73 Fund assets shall be used for the following investment:(1) Investment in stocks and bonds listed and traded on a stock exchange.(2) Investment in other securities and their derivatives prescribed by the securities regulatory authority of the State Council.

Article 74 Fund assets shall not be used for the following investment or activities:(1) Underwriting of securities.(2) Providing loans or collateral for others in violation of the relevant provisions.(3) Engaging in any investment with unlimited liability.(4) Trading the shares of any other fund, except as otherwise required by the securities regulatory authority of the State Council.(5) Making capital contribution to the fund management institution or fund custodian.(6) Engaging in insider trading, manipulating securities trading prices, or otherwise illicitly trading securities.(7) Other activities prohibited by any law or administrative regulation or the provisions of the securities regulatory authority of the State Council. Where fund assets are used for the trading of securities issued or underwritten during the underwriting period by the fund management institution or fund custodian, the controlling shareholder or actual controller thereof or any other materially interested company or for any other major affiliated transactions, the principle of giving priority to the interests of fund share holders shall be adhered to, conflicts of interest shall be prevented, the provisions of the securities regulatory authority of the State Council shall be complied with, and information disclosure obligations shall be fulfilled.

Article 75 The fund management institution, fund custodian and other parties with fund information disclosure obligations shall disclose fund information in accordance with law and ensure the veracity, accuracy and integrity of the information disclosed.

Article 76 The parties with fund information disclosure obligations shall ensure that the information required to be disclosed is disclosed during the period prescribed by the securities regulatory authority of the State Council and ensure that the investors are able to consult or copy the publicly disclosed information according to the time and method as agreed upon in the fund contract.

Article 77 The fund information to be publicly disclosed includes:(1) the prospectus of a fund, the fund contract, and the fund custody agreement;(2) the fund offering information;(3) the announcement on the listing and trading of fund shares;(4) the net asset value of a fund and the net asset value per share;(5) the subscription and redemption prices for fund shares;(6) the quarterly portfolio reports on fund assets, financial accounting reports and semiannual and annual fund reports;(7) any ad hoc reports;(8) the resolutions of the fund share holders’ meeting;(9) any major personnel changes in the specialized fund custody department of the fund management institution or fund custodian;(10) any legal proceedings or arbitration involving fund assets, the fund management business or the fund custody business; and (11) other information to be disclosed as required by the securities regulatory authority of the State Council.

Article 78 The following conduct shall be prohibited in the public disclosure of fund information:(1) Making any false records, misleading statements or major omissions.(2) Predicting securities investment performance.(3) Promising any income or assumption of losses in violation of the relevant provisions.(4) Disparaging any other fund management institution, fund custodian or fund sales agency.(5) Acting otherwise as prohibited by any law or administrative regulation or the provisions of the securities regulatory authority of the State Council.

Chapter VIII Modification and Termination of the Fund Contract on a Publicly Offered Fund and Liquidation of Fund Assets

Article 79A fund may change its operating mode or be merged with anther fund as agreed upon in the fund contract or according to a resolution of the fund share holders’ meeting.

Article 80To offer new shares or renew the term of the fund contract, a closed-end fund shall meet the following conditions and report to the securities regulatory authority of the State Council for recordation:(1) The fund has good operating performance.(2) The fund management institution has not received any administrative or criminal punishment for any violation of law or regulation in the last two years.(3) A relevant resolution has been adopted at the fund share holders’ meeting.(4) Other conditions prescribed by this Law.

Article 81 Under any of the following circumstances, a fund contract shall terminate:(1) The term of the fund contract expires without any renewal.(2) The fund share holders’ meeting decides to terminate the contract.(3) The functions of the fund management institution or fund custodian terminate and no new fund management institution or fund custodian undertakes the functions within six months after the termination.(4) Other circumstances as agreed upon in the fund contract.

Article 82 Upon the termination of a fund contract, the fund management institution shall organize a liquidation group to conduct liquidation of fund assets. The liquidation group shall be composed of the fund management institution, fund custodian and relevant intermediary service institutions. The liquidation report prepared by the liquidation group shall be filed with the securities regulatory authority of the State Council for recordation after it is audited by an accounting firm and a law firm issues a legal opinion it, and a relevant public announcement shall be issued.

Article 83 The residual fund assets after liquidation shall be distributed proportionately according to the shares held by the fund share holders.

Chapter IX Exercise of Rights by the Fund Share Holders of a Publicly Offered Fund

Article 84 The fund share holders’ meeting shall be convened by the fund management institution. Where the fund share holders’ meeting has set up a general office, the fund share holders’ meeting shall be convened by the general office; and if the general office fails to do so, the fund share holders’ meeting shall be convened by the fund management institution. If the fund management institution fails or is unable to convene the meeting according to the relevant provisions, the fund custodian shall convene the meeting. Where the fund share holders representing 10% or more of fund shares require that the fund share holders’ meeting be convened regarding the same matters, but none of the general office of the fund share holders’ meeting, the fund management institution and the fund custodian convenes the meeting, the fund share holders representing 10% or more of fund shares shall have the right to convene the meeting but shall report to the securities regulatory authority of the State Council for recordation.

Article 85To convene the fund share holders’ meeting, the convener shall issue a public announcement of the time and form of the meeting, the deliberation items, the rules of procedure and the voting method, among others, 30 days in advance at a minimum. Matters not included in the public announcement shall not be voted at the fund share holders’ meeting.

Article 86 The fund share holders’ meeting may be held at a meeting venue, by communication means or otherwise. Each fund share represents one voting right, and the fund share holders may exercise their voting rights at the fund share holders’ meeting by proxy.

Article 87 The fund share holders’ meeting may be held only when the fund share holders representing more than half of fund shares attend the meeting. Where the fund shares held by the fund share holders attending the fund share holders’ meeting are lower than the proportion prescribed in the preceding paragraph, the convener may reconvene the fund share holders’ meeting regarding the original deliberation items during the period of three months to six months after the announced time of the originally fund share holders’ meeting. The reconvened fund share holders’ meeting may be held only when the fund share holders representing more than one third of fund shares attend the meeting. Any decision on a deliberation item at the fund shareholders’ meeting shall be made with more than half of the voting rights held by the fund share holders attending the meeting; however, a decision on the change of the fund’s operating mode, the replacement of the fund management institution or fund custodian, the early termination of the fund contract or a merger with another fund shall be made with more than two thirds of the voting rights held by the fund share holders attending the meeting. The matters decided by the fund share holders’ meeting shall be reported to the securities regulatory authority of the State Council for recordation in accordance with law, and a relevant public announcement shall be issued.

Chapter X Non-Publicly Offered Funds

Article 88Non-publicly offered funds shall be offered to qualified investors, and the number of qualified investors shall not exceed 200 cumulatively. The qualified investors as mentioned in the preceding paragraph are entities and individuals which reach the prescribed asset size or income level, have corresponding risk identification ability and risk tolerance and subscribe for fund shares not lower than the prescribed limit. The specific standards for qualified investors shall be prescribed by the securities regulatory authority of the State Council.

Article 89 Except as otherwise agreed upon in the fund contract, a non-publicly offered fund shall be under the custody of a fund custodian.

Article 90 The fund management institution for a non-publicly offered fund shall undergo registration formalities at the fund association according to the relevant provisions and submit basic information.

Article 91 Without registration, no entity or individual shall use the word “fund” or words “fund management” or any similar name to engage in securities investment, except as otherwise provided for by any law or administrative regulation.

Article 92A non-publicly offered fund shall not raise capital from any entity or individual other than qualified investors and shall not be publicized or promoted to unspecific investors through public media such as newspapers and journals, radio stations, television stations and Internet or in manners such as lectures, seminars and analysis meetings.

Article 93 For a non-publicly offered fund, a fund contract shall be prepared and signed. The fund contract shall include:(1) the rights and obligations of the fund share holders, fund management institution and fund custodian;(2) the operating mode of the fund;(3) the manners and amounts of capital contribution for the fund and the time limit for payment;(4) the fund’s investment scope, investment strategies and investment limits;(5) the principles and execution methods for fund income distributions;(6) the relevant expenses assumed by the fund;(7) the content of fund information provided and methods of provision;(8) the procedures and methods for fund share subscription, redemption or transfer;(9) the causes and procedures for the modification, rescission and termination of the fund contract;(10) the liquidation method for fund assets; and (11) other matters as agreed upon by the parties. A fund share holder shall transfer fund shares in compliance with Articles 88 and 92 of this Law.

Article 94As agreed upon in the fund contract for a non-publicly offered fund, some fund share holders may serve in the capacity of a fund management institution responsible for the investment management of the fund and shall assume unlimited joint and several liability for the debts incurred by fund assets when fund assets are insufficient for repayment of such debts. For the non-publicly offered fund as prescribed in the preceding paragraph, the fund contract shall also state:(1) the names and domiciles of the fund share holders assuming unlimited joint and several liability and other fund share holders;(2) the conditions for removing and procedures for replacing the fund share holders assuming unlimited joint and several liability;(3) the conditions and procedures for the increase and exit of fund share holders and the relevant liability; and (4) the procedures for conversion between the fund share holders assuming unlimited joint and several liability and other fund share holders.

Article 95 After the fund offering of a non-publicly offered fund is completed, the fund management institution shall undergo recordation formalities at the fund association. Where the total amount of capital raised or the number of fund share holders reaches the prescribed standard, the fund association shall report to the securities regulatory authority of the State Council. The securities investment in the assets of a non-publicly offered fund includes the trading of publicly offered stocks of joint-stock limited companies, bonds, fund shares, and other securities and their derivatives prescribed by the securities regulatory authority of the State Council.

Article 96 The fund management institution and fund custodian shall, as agreed upon in the fund contract, provide fund information to the fund share holders.

Article 97 Where the shareholders, senior executives, operation period, and size of fund assets under management of a fund management institution which specializes in the management of non-publicly offered funds meet prescribed conditions, such a fund management institution may engage in the management of publicly offered funds with a confirmation from the securities regulatory authority of the State Council.

Chapter XI Fund Service Providers

Article 98 Entities which provide the sale, trading payment, share registration, valuation, investment advice, rating, information technology system and other fund services for publicly offered funds shall undergo registration or recordation formalities in accordance with the provisions of the securities regulatory authority of the State Council.

Article 99 Fund distributors shall fully disclose investment risks to the investors and sell fund products of different risk levels based on the investors’ risk tolerance.

Article 100 Fund trading payment agents shall transfer fund sales settlement capital according to the relevant provisions and ensure the safe transfer of fund sales settlement capital in a timely manner.

Article 101 The fund sales settlement capital and fund shares shall be independent from a fund distributor’s, a fund trading payment agent’s or a fund transfer agent’s own assets. When a fund distributor, a fund trading payment agent or a fund transfer agent goes bankrupt or is liquidated, the fund sales settlement capital and fund shares are not bankruptcy property or liquidating property. The fund sales settlement capital and fund shares shall not be sealed, frozen, deducted and transferred, or subject to enforcement except for an investor’s own debts or under other circumstances prescribed by law. Fund distributors, fund trading payment agents and fund transfer agents shall ensure the safety and independence of fund sales settlement capital and fund shares, and no entity or individual shall, in any form, misappropriate fund sales settlement capital or fund shares.

Article 102 The fund management institution may entrust fund service providers with share registration, accounting, valuation, investment advice and other matters regarding the fund, and the fund custodian may entrust fund service providers with accounting, valuation, review and other matters regarding the fund, which, however, shall not relieve the fund management institution or fund custodian from any liability assumed by it in accordance with law.

Article 103 The data registered by a fund transfer agent in an electronic medium shall be the basis for determining the ownership of fund share holders. Where a fund share holder pledges fund shares, the pledge shall be formed when the fund transfer agent conducts pledge registration. A fund transfer agent shall properly preserve the registered data and submit a backup of such data including but not limited to the name and identity information of fund share holders and the detailed fund share information to an institution accredited by the securities regulatory authority of the State Council. Such data shall be preserved for not less than 20 years from the date of cancellation of the fund account. A fund transfer agent shall ensure the veracity, accuracy and integrity of the registered data and shall not conceal, fabricate, tamper or destroy such data.

Article 104A fund investment adviser and its employees shall provide fund investment advice services on a rational basis and make truthful statements on its service ability and business performance and shall not promise or guarantee investment returns in any form or infringe upon the lawful rights and interests of the clients.

Article 105A fund rating agency and its employees shall be objective and impartial and conduct the fund rating business in accordance with business rules developed in accordance with law, shall not mislead investors, and shall prevent potential conflicts of interest.

Article 106 The information technology systems of fund management institutions, fund custodians and fund service providers shall satisfy the prescribed requirements. The securities regulatory authority of the State Council may require the information technology system service providers to provide information on such information technology systems.

Article 107 Where a law firm or an accounting firm issues legal opinions, audit reports, internal control evaluation reports or other documents for the relevant fund business as authorized by a fund management institution or fund custodian, it shall diligently perform its duties and check and validate the veracity, accuracy and integrity of the documents and data as the basis. Where the documents produced or issued by the law firm or accounting firm contain any false records, misleading statements or major omissions, causing any loss to the assets of others, the law firm or accounting firm shall assume compensatory liability jointly and severally with the client.

Article 108 Fund service providers shall diligently perform their duties, establish emergency response and other risk management rules and a disaster backup system and shall not divulge any undisclosed information regarding fund share holders or fund investment operations.

Chapter XII Fund Associations

Article 109 Fund associations are the self-regulatory organizations of the securities investment fund sector and are social group legal persons. Fund management institutions and fund custodians shall join fund associations, and fund service providers may join fund associations.

Article 110 The supreme governing body of a fund association is the general assembly consisting of all members. A fund association shall have a board of governors. The members of the board of governors shall be elected in accordance with the bylaws.

Article 111 The bylaws of a fund association shall be adopted at the general assembly and filed with the securities regulatory authority of the State Council for recordation.

Article 112A fund association shall perform the following functions:(1) Educating and organizing members regarding compliance with laws and administrative regulations on securities investment and protecting the lawful rights and interests of investors.(2) Protecting the lawful rights and interests of members in accordance with law and reflecting the suggestions and demands of members.(3) Developing and implementing the self-regulatory rules of the sector, supervising and inspecting the practice of members and their employees, and taking disciplinary actions according to the relevant provisions against violators of the self-disciplinary rules or the bylaws of the association.(4) Developing the sector’s practicing standards and business rules and organizing the practicing examinations, qualification management and business training for fund employees.(5) Providing member services, organizing exchanges regarding the sector, promoting innovation in the sector, and conducting sector publicity and investor education.(6) Conducting mediation for fund business disputes between members or between a member and its clients.(7) Handling registration and recordation for non-publicly offered funds in accordance with law.(8) Other functions prescribed by the bylaws of the association.

Chapter XIII Supervision and Administration

Article 113 The securities regulatory authority of the State Council shall perform the following functions in accordance with law:(1) Developing rules and provisions regarding the supervision and administration of securities investment fund activities and exercising the power of approval, confirmation or registration.(2) Handling fund recordation.(3) Supervising and administering fund management institutions, fund custodians and other institutions in securities investment fund activities, investigating and punishing violations of law, and issuing relevant public announcements.(4) Developing the qualification standards and the code of conduct for fund employees and overseeing the implementation thereof.(5) Supervising and inspecting the disclosure of fund information.(6) Guiding and supervising the activities of fund associations.(7) Other functions prescribed by laws and administrative regulations.

Article 114 The securities regulatory authority of the State Council shall have the authority to take the following measures in performing its functions in accordance with law:(1) Conducting on-site inspections of fund management institutions, fund custodians and fund service institutions and requiring them to submit relevant business data.(2) Entering the places where violations of law occur to investigate and obtain evidence.(3) Interviewing the parties to and entities and individuals involved in the investigated event and requiring them to explain matters related to the investigated event.(4) Consulting and copying property right registration data, communication records and other information related to the investigated event.(5) Consulting and copying the securities trading records, transfer records, financial accounting data and other relevant documents and materials of the parties to and entities and individuals involved in the investigated event; and when deeming it necessary, sealing documents and materials that may be transferred, concealed or destroyed.(6) Inquiring about the capital accounts, securities accounts and bank accounts of the parties to and entities and individuals involved in the investigated event; and, when deeming it necessary, freezing or seizing the illegal capital or securities and other assets involved which have been or may be transferred or concealed as proved by evidence or the important evidence which have been or may be concealed, forged or destroyed, with the approval of the primary person in charge of the securities regulatory authority of the State Council.(7) When deeming it necessary, restricting the parties to the investigated event from trading securities for not more than 15 trading days, which may be extended for another 15 trading days if the circumstances of the case are complicated, with the approval of the primary person in charge of the securities regulatory authority of the State Council, during investigation of a material securities violation such as manipulation of the securities market or insider trading.

Article 115 There shall be two personnel of the securities regulatory authority of the State Council at a minimum when they performing their duties in accordance with law to conduct investigation or inspection, and they shall produce their lawful credentials and have the obligation of keeping confidential any business secrets known by them during investigation or inspection.

Article 116 The personnel of the securities regulatory authority of the State Council shall devote themselves to their duties, perform their duties in accordance with law, adhere to impartiality and integrity, and accept supervision, without seeking any private gains by taking advantage of their positions.

Article 117 When the securities regulatory authority of the State Council performs its functions in accordance with law, the entities and individuals under investigation or inspection shall cooperate and truthfully provide relevant documents and materials and shall not refuse or obstruct investigation or inspection or conceal relevant documents and materials.

Article 118 Where the securities regulatory authority of the State Council discovers that any violation of law may constitute a crime when performing its duties in accordance with law, it shall transfer the case to the judicial authority.

Article 119 During the term of office or a period prescribed in the Civil Servant Law of the People’s Republic of China after leaving office, the personnel of the securities regulatory authority of the State Council shall not hold any positions in the institutions under supervision and administration.

Chapter XIV Legal Liability

Article 120 Where anyone, in violation of this Law, forms a fund management company without approval or engages in the business of managing publicly offered funds without confirmation, the securities regulatory authority shall eliminate the company or business or order the violator to make correction, confiscate any illegal income, and impose a fine of one up to five times the amount of illegal income on the violator; or if there is no illegal income or the illegal income is less than one million yuan, impose a fine of 100,000 yuan up to one million yuan on the violator. The directly responsible person in charge and other directly liable persons shall be warned and each fined 30,000 yuan up to 300,000 yuan. Where a fund management company, in violation of this Law, modifies any shareholder holding 5% or more equity in the company, its actual controller or any other major matter without approval, the securities regulatory authority shall order it to make correction, confiscate any illegal income, and impose a fine of one up to five times the amount of illegal income on it; or if there is no illegal income or the illegal income is less than 500,000 yuan, impose a fine of 50,000 yuan up to 500,000 yuan on it. The directly responsible person in charge shall be warned and each fined 30,000 yuan up to 100,000 yuan.

Article 121 The directors, supervisors, senior executives and other employees of a fund management institution or the senior executives and other employees of the specialized fund custody department of a fund custodian, who fail to make declarations in accordance with paragraph 1, Article 18 of this Law, shall be ordered to make correction and each fined 30,000 yuan up to 100,000 yuan. Where a fund management institution or fund custodian violates paragraph 2, Article 18 of this Law, it shall be ordered to make correction and fined 100,000 yuan up to one million yuan; and its directly responsible person in charge and other directly liable persons shall be warned, with their fund business qualifications suspended or revoked, and be each fined 30,000 yuan up to 300,000 yuan.

Article 122 The directors, supervisors senior executives and other employees of a fund management institution or the senior executives and other employees of the specialized fund custody department of a fund custodian, who violate Article 19 of this Law, shall be ordered to make correction, with any illegal income confiscated, and be each fined one up to five times the amount of illegal income; or if there is no illegal income or the illegal income is less than one million yuan, be each fined 100,000 yuan up to one million yuan; and if the circumstances are serious, their fund business qualifications shall be revoked.

Article 123A fund management institution or fund custodian, which, in violation of this Law, fails to apply separate management or separate accounts to fund assets, shall be ordered to make correction and fined 50,000 yuan up to 500,000 yuan; and its directly responsible person in charge and other directly liable persons shall be warned, with their fund business qualifications suspended or revoked, and be each fined 30,000 yuan up to 300,000 yuan.

Article 124A fund management institution or fund custodian or any of its directors, supervisors, senior executives and other employees, which commits any act as set out in Article 21 of this Law, shall be ordered to make correction, with any illegal income confiscated, and be fined one up to five times the amount of illegal income; or if there is no illegal income or the illegal income is less than one million yuan, be fined 100,000 yuan up to one million yuan. In the case of a fund management institution or fund custodian committing any of the aforesaid act, its directly responsible person in charge and other directly liable persons shall be warned, with their fund business qualifications suspended or revoked, and be each fined 30,000 yuan up to 300,000 yuan. Any property and income obtained by a fund management institution or fund custodian or any of its directors, supervisors, senior executives and other employees from encroachment or misappropriation of fund assets shall be incorporated into fund assets, except as otherwise provided for by any law or administrative regulation.

Article 125 Where a shareholder or the actual controller of a fund management institution violates Article 24 of this Law, the shareholder or actual controller shall be ordered to make correction, with any illegal income confiscated, and be fined one up to five times the amount of illegal income; or if there is no illegal income or the illegal income is less than one million yuan, be fined 100,000 yuan up to one million yuan; and the directly responsible person in charge and other directly liable persons shall be warned, with their fund or securities business qualifications suspended or revoked, and be each fined 30,000 yuan up to 300,000 yuan.

Article 126 Whoever engages in the fund custody business without confirmation shall be ordered to cease the business, with any illegal income confiscated, and be fined one up to five times the amount of illegal income; or if there is no illegal income or the illegal income is less than one million yuan, be fined 100,000 yuan up to one million yuan; and its directly responsible person in charge and other directly liable persons shall be warned and each fined 30,000 yuan up to 300,000 yuan.

Article 127A fund management institution and a fund custodian, which, in violation of this Law, make capital contribution to or hold shares in each other, shall be ordered to make correction and may be each fined not more than 100,000 yuan.

Article 128 Whoever publicly offers a fund without approval, whether explicitly or implicitly, in violation of this Law, shall be ordered to cease the offering and refund the capital raised plus the bank deposit interest over the same period, with any illegal income confiscated, and be fined 1% up to 5% of the capital raised. Its directly responsible person in charge and other directly liable persons shall be warned and each fined 50,000 yuan up to 500,000 yuan.

Article 129 Whoever uses the raised capital in violation of Article 60 of this Law shall be ordered to refund, with any illegal income confiscated, and be fined one up to five times the amount of illegal income; or if there is no illegal income or the illegal income is less than 500,000 yuan, be fined 50,000 yuan up to 500,000 yuan; and its directly responsible person in charge and other directly liable persons shall be warned and each fined 30,000 yuan up to 300,000 yuan.

Article 130A fund management institution or fund custodian which commits any act as set out in items (1) to (5) and item (7), paragraph 1 of Article 74 of this Law or violates paragraph 2 of Article 74 of this Law shall be ordered to make correction and fined 100,000 yuan up to one million yuan; and its directly responsible person in charge and other directly liable persons shall be warned, with their fund business qualifications suspended or revoked, and be each fined 30,000 yuan up to 300,000 yuan. Any property and income obtained from the utilization of fund assets by a fund management institution or fund custodian committing any act prescribed in the preceding paragraph shall be incorporated into fund assets, except as otherwise provided for by any law or administrative regulation.

Article 131A fund management institution or fund custodian which commits any act as set out in item (6), paragraph 1 of Article 74 of this Law shall be punished in accordance with the relevant provisions of the Securities Law of the People’s Republic of China, and the fund business qualifications of its directly responsible person in charge and other directly liable persons shall be suspended or revoked.

Article 132A party with fund information disclosure obligations, which fails to disclose fund information in accordance with law or discloses fund information containing any false records, misleading statements or major omissions, shall be ordered to make correction, with any illegal income confiscated, and be fined 100,000 yuan up to one million yuan; and its directly responsible person in charge and other directly liable persons shall be warned, with their fund business qualifications suspended or revoked, and be each fined 30,000 yuan up to 300,000 yuan.

Article 133A fund management institution or fund custodian which fails to convene the fund share holders’ meeting according to the relevant provisions shall be ordered to make correction and may be fined not more than 50,000 yuan; and its directly responsible person in charge and other directly liable persons shall be warned, with their fund business qualifications suspended or revoked.

Article 134 Whoever, in violation of this Law, uses the word of “fund” or words “fund management” or any similar name to engage in securities investment without registration shall, with any illegal income confiscated, be fined one up to five times the amount of illegal income; or if there is no illegal income or the illegal income is less than one million yuan, be fined 100,000 yuan up to one million yuan. Its directly responsible person in charge and other directly liable persons shall be warned and each fined 30,000 yuan up to 300,000 yuan.

Article 135A fund management institution which, in violation of this Law, fails to undergo recordation formalities after completing the offering of a non-publicly offered fund shall be fined 100,000 yuan up to 300,000 yuan. Its directly responsible person in charge and other directly liable persons shall be warned and each fined 30,000 yuan up to 100,000 yuan.

Article 136 Whoever, in violation of this Law, non-publicly offers a fund or transfers such fund shares to any entity or individual other than qualified investors shall, with any illegal income confiscated, be fined one up to five times the amount of illegal income; or if there is no illegal income or the illegal income is less than one million yuan, be fined 100,000 yuan up to one million yuan. Its directly responsible person in charge and other directly liable persons shall be warned and each fined 30,000 yuan up to 300,000 yuan.

Article 137 Whoever, in violation of this Law, engages in the fund service business for publicly offered funds shall be ordered to make correction, with any illegal income confiscated, and be fined one up to five times the amount of illegal income; or if there is no illegal income or the illegal income is less than 300,000 yuan, be fined 100,000 yuan up to 300,000 yuan. Its directly responsible person in charge and other directly liable persons shall be warned and each fined 30,000 yuan up to 100,000 yuan.

Article 138A fund distributor which fails to fully disclose investment risks to the investors and misleads the investors into purchasing any fund products unsuitable to their risk tolerance shall be fined 100,000 yuan up to 300,000 yuan; and if the circumstances are serious, be ordered to cease the fund service business. Its directly responsible person in charge and other directly liable persons shall be warned, with their fund business qualifications revoked, and be each fined 30,000 yuan up to 100,000 yuan.

Article 139A fund trading payment agent which fails to transfer the fund sales settlement capital according to the relevant provisions shall be fined 100,000 yuan up to 300,000 yuan; and if the circumstances are serious, be ordered to cease the fund service business. Its directly responsible person in charge and other directly liable persons shall be warned, with their fund business qualifications revoked, and be each fined 30,000 yuan up to 100,000 yuan.

Article 140 Whoever misappropriates the fund sales settlement capital or fund shares shall be ordered to make correction, with any illegal income confiscated, and be fined one up to five times the amount of illegal income; or if there is no illegal income or the illegal income is less than one million yuan, be fined 100,000 yuan up to one million yuan. Its directly responsible person in charge and other directly liable persons shall be warned and each fined 30,000 yuan up to 300,000 yuan.

Article 141A fund transfer agent which fails to properly preserve or backup fund share registration data shall be ordered to make correction, be warned, and be fined 100,000 yuan up to 300,000 yuan; and if the circumstances are serious, be ordered to cease the fund service business. Its directly responsible person in charge and other directly liable persons shall be warned, with their fund business qualifications revoked, and be each fined 30,000 yuan up to 100,000 yuan. A fund transfer agent which conceals, fabricates, tampers, or destroys fund share registration data shall be ordered to make correction, be fined 100,000 yuan up to one million yuan, and be ordered to cease the fund service business. Its directly responsible person in charge and other directly liable persons shall be warned, with their fund business qualifications revoked, and be each fined 30,000 yuan up to 300,000 yuan.

Article 142A fund investment adviser or fund rating agency or any of its employees, which provides investment advice or fund rating services in violation of this Law, shall be fined 100,000 yuan up to 300,000 yuan; and if the circumstances are serious, be ordered to cease the fund service business. Its directly responsible person in charge and other directly liable persons shall be warned, with their fund business qualifications revoked, and be each fined 30,000 yuan up to 100,000 yuan.

Article 143An information technology system service institution which fails to provide data on relevant information technology systems to the securities regulatory authority of the State Council according to the relevant provisions or provides any false information technology system data or any information technology system data containing any major omissions shall be ordered to make correction and be fined 30,000 yuan up to 100,000 yuan. Its directly responsible person in charge and other directly liable persons shall be warned and each fined 10,000 yuan up to 30,000 yuan.

Article 144An accounting firm or law firm which fails to diligently perform its duties and issues any documents containing any false records, misleading statements or major omissions shall be ordered to make correction, with any business income confiscated and its relevant business permit suspended or revoked, and be fined one up to five times the amount of business income. Its directly responsible person in charge and other directly liable persons shall be warned and each fined 30,000 yuan up to 100,000 yuan.

Article 145A fund service institution which fails to establish emergency response and other risk management rules and a disaster backup system or divulge any undisclosed information regarding fund share holders or fund investment operations shall be fined 100,000 yuan up to 300,000 yuan; and if the circumstances are serious, be ordered to cease the fund service business. Its directly responsible person in charge and other directly liable persons shall be warned, with their fund business qualifications revoked, and be each fined 30,000 yuan up to 100,000 yuan.

Article 146 Whoever, in violation of this Law, causes any damage to fund assets, fund share holders or investors shall assume compensatory liability in accordance with law. A fund management institution or fund custodian which, in violation of this Law or the fund contract in performing their respective functions, causes any damage to fund assets or fund share holders shall, in accordance with law, assume compensatory liability for their respective violations; and assume compensatory liability jointly and severally for their joint acts causing any damage to fund assets or fund share holders.

Article 147Administrative disciplinary actions shall be taken in accordance with law against employees of the securities regulatory authority who neglect duties, abuse powers, practice favoritism, make falsification, or demand or accept any property from others by taking advantage of their positions.

Article 148 Public security administration punishments shall be imposed in accordance with law on those who refuse or obstruct, without resorting to violence or threat, the performance of supervision, inspection or investigation duties by the securities regulatory authority or any of its employees.

Article 149 For any serious violations of any law or administrative regulation or the relevant provisions of the securities regulatory authority of the State Council, the securities regulatory authority of the State Council may prohibit the relevant liable persons from access to the securities market.

Article 150 Whoever is suspected of any crime for any violation of this Law shall be subject to criminal liability in accordance with law.

Article 151 Where civil compensatory liability shall be assumed and an administrative or criminal fine shall be paid for any violation of this Law, if the violator’s assets are insufficient for making such compensation and payment at the same time, the civil compensatory liability shall be fulfilled first.

Article 152 Where a fund management institution, fund custodian or fund service institution shall assume any civil compensation liability or pay any administrative or criminal fine in accordance with this Law, such compensation or payment shall be made out of the fund management institution’s, fund custodian’s or fund service institution’s own assets. The administrative and criminal fines collected and illegal incomes confiscated in accordance with law shall be all turned over to the State Treasury.

Chapter XV Supplementary Provisions

Article 153 The offering of a fund within the territory of the People’s Republic of China for investment in foreign securities and the securities investment within the territory of the People’s Republic of China by qualified foreign investors shall be subject to the approval of the securities regulatory authority of the State Council, and the specific measures shall be developed by the securities regulatory authority of the State Council in conjunction with other relevant departments of the State Council and submitted to the State Council for approval.

Article 154 This Law shall apply to the securities investment activities of a company or partnership formed through public or nonpublic capital raising for the purpose of engaging in securities investment activities, the assets of which are managed by a fund management institution or the general partners.

Article 155 This Law shall come into force on June 1, 2013.

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