k8·凯发天生赢家·一触即发(中国区)官方网站

DVP And Overbought Rules For QFII And RQFII

作者 k8凯发天生赢家·一触即发金融部

1.DVP Rules and its implementation in China

Delivery versus payment (DVP) is a commonly adopted rule in the international securities market. It is used to ensure the price of the securities is paid in full when the securities are transferred. The basic requirement of DVP is that the buyer’s purchase of the securities must be made at or before the delivery of the securities. 

In China, the DVP rules has been gradually established step by step in China’s securities market. At the early stage, DVP effect was achieved in the brokerage, margin trading and short selling business of individual investors through risk control rules such as full margin, third-party depository, and pre-transaction capital verification and securities inspection. On 20 May 2022, CSRC officially issued the revised Administrative Measures for Securities Registration and Settlement. On the same day, China Securities Depository and Clearing Co., Ltd. (CSDCC) issued the Settlement Rules of China Securities Depository and Clearing Co., Ltd. (the “CSDCC Settlement Rules”) and the Administrative Measures for Settlement Reserves of China Securities Depository and Clearing Co., Ltd., which came into effect on 20 June 2022. These three documents marked the full implementation of DVP rules in China’s securities market. 

On 9 September 2022, China Securities Regulatory Commission (CSRC) promulgated the Provisions on the Registration and Settlement of Domestic Securities Transactions of Qualified Foreign Institutional Investors and RMB Qualified Foreign Institutional Investors (the “QFII Settlement Provisions”), which came into force as of the date of promulgation. The QFII Settlement Provisions are intended to fully implement the DVP reform in the domestic securities transactions invested by qualified foreign institutional investors (QFII) and RMB qualified foreign institutional investors (RQFII).

2.Responsibilities of Transaction Parties under DVP Rules

There are there major parties in a QFII/RQFII transaction, the QFII/RQFII, its entrusted custodian and securities company. The QFII Settlement Provisions specifies the respective responsibilities and obligations of the three parties in the transactions, registration and settlement business. Based on the QFII Settlement Provisions, a QFII/RQFII and its entrusted domestic securities companies and custodians should jointly take the following measures to prevent the occurrence of securities overbought:

(1)Before buying or selling securities, a QFII/RQFII shall ensure that its securities balance and fund balance with the custodian are sufficient for settlement;

(2)After obtaining the authorization of QFII/RQFII, the custodian shall provide the funds and securities balance of the qualified foreign investor to the securities company on that day, so as to prevent securities overbought;

(3)The securities company entrusted by QFII/RQFII shall verify the fund balance with the custodian before the market opens every day, so as to ensure that the securities to be executed will not lead to securities overbought.

Each party shall notify the other two parties once it discovers securities overbought. The custodian must immediately report to CSRC and CSDCC when it is aware of any overbought of securities.

3.Overbought Liabilities 

Although DVP rules are set to avoid overbought, there may still be overbought cases in violation of the rules. The QFII Settlement Provisions stipulate that QFII/RQFII who overbought securities shall be dealt with separately in the following situations:

(1)In case of overbought securities caused by the custodian’s mistake, the custodian shall undertake the settlement responsibility for the overbought securities to CSDCC, and enjoy the rights of disposal and income for the overbought securities. Meanwhile, the custodian can entrust a securities company to dispose of securities, and CSDCC shall provide necessary assistance.

(2)In case of overbought securities caused by the securities company, the custodian and the securities company shall directly handle the non-transaction transfer procedures of the overbought securities to the securities company, and at the same time, CSDCC will transfer funds equal to the overbought securities from the securities company’s settlement reserve account to the custodian’s settlement reserve account.

(3)If the qualified foreign investors, custodian and securities company fail to find out the reason for the overbought securities or the person responsible for the overbought before 12: 00 a.m. on T+1, the designated party[1] as specified in the agreement shall handle the matter in accordance with the provisions of the agreement.

If the custodian or the securities company fails to undertake the delivery responsibility of overbought securities in accordance with the above provisions, CSDCC has the right to deal with it in accordance with the provisions of the CSDCC Settlement Rules. Previously, CSDCC had the right to temporarily detain the securities equivalent to 120% of the overbought amount in the securities account of a QFII, which was different from the rules of domestic investors (deducting the relevant securities within the overbought amount). After the implementation of QFII Settlement Provisions, the liabilities under the CSDCC Settlement Rules and other relevant business rules are equally applicable to QFII/RQFII and domestic investors.

4.Summary

QFII/RQFII is an important arrangement to connect international investors with Chinese capital market before the foreign exchange control of capital account is fully opened. In order to further enhance the attractiveness of the Chinese capital market, it is necessary to further improve the financial infrastructure, improve relevant laws and regulations, and implement unified regulations on domestic and foreign investors. As a basic rule, the implementation of DVP will help to improve the financial infrastructure and enhance the attraction to and convenience for foreign investment. We look forward to the introduction of more unified rules for domestic and foreign investors in the future. We will keep an eye on it and publish newsletters frequently.

注释：

[1] the designated party refers to the party who, according to the agreement signed among QFII/RQFII, its entrusted custodian and the securities company, will be responsible for the settlement of the overbought securities for any reason.

往期回顾：

1.《k8凯发天生赢家·一触即发金融监管观察 | 内保外贷业务中的外汇监管合规》

2.《Regulatory Issues on Onshore Guarantee for Offshore Loans》

3.《k8凯发天生赢家·一触即发金融监管观察 | 信托业转型新时代已开启——《信托业务分类新规》对信托业务的影响（上）》

4.《k8凯发天生赢家·一触即发金融监管观察 | 信托业转型新时代已开启——《信托业务分类新规》对信托业务的影响（中）》

5.《k8凯发天生赢家·一触即发金融监管观察 | 信托业转型新时代已开启——《信托业务分类新规》对信托业务的影响（下）》

6.《k8凯发天生赢家·一触即发金融监管观察 | k8凯发天生赢家·一触即发金融监管观察 | 资产管理业务中的短线交易规则》

7.《Short Swing Profit Rules in the Asset Management Industry》

*本文由k8凯发天生赢家·一触即发金融部任谷龙律师撰写

k8凯发天生赢家·一触即发金融部

k8凯发天生赢家·一触即发金融部致力于在具有中国特色的金融法律监管环境下帮助客户解决各类复杂问题，为客户提供全面的、综合性的金融领域法律服务。k8凯发天生赢家·一触即发金融部由银行与金融、家事服务和财富管理、特殊资产与破产重组三大业务领域构成，在结构化融资、资产管理及破产重组领域经验丰富、业绩卓著，能够系统地提出行之有效且极具创新性的综合性解决方案，自始处于国内领先地位。

三大业务领域的有效联动，实现了业务全方位、全周期覆盖，拥有完整行业生态和资源。基于卓越的市场及行业口碑，k8凯发天生赢家·一触即发金融部现已与国内外众多银行及理财子公司、信托公司、各大资产管理公司及各地方资产管理公司、公司及资管公司、公募基金公司及子公司、保险公司及保险资管公司等各类型的金融机构建立了融洽的长期合作关系。

金融部联系人：

北京办公室：龙海涛（haitao.long@yuanfo.net）

                    任谷龙（gulong.ren@yuanfo.net）

上海办公室：邹   野（eric.zou@yuanfo.net）

深圳办公室：邓伟方（weifang.deng@yuanfo.net）