Client Alert: SAFE Issued New Regulation on QFII

On February 3, 2016, the State Administration of Foreign Exchange (“SAFE”) reissued the Provisions on Foreign Exchange Administration of the Domestic Securities Investment by Qualified Foreign Institutional Investors (“New Regulation”), which came into force the same day. The New Regulation loosens certain restrictions of the original provisions in terms of the administration of the investment quota, lock-up period and capital inflow and outflow of the Qualified Foreign Institutional Investors (“QFIIs”) to promote further participation by QFIIs in the domestic securities market. Below is a summary of key amendments compared with the original provisions.

The New Regulation stipulates the formulas of basic quota as follows:
For applicants whose assets owned or managed by it or its corporate group are primarily outside China, the formula is:
USD 100 million + the average asset scale in the last three years * 0.2% - the obtained quota of the RMB Qualified Foreign Institutional Investors (“RQFII”) (after being converted into USD); however, the investment quota for foreign sovereign wealth funds, central banks, monetary authorities and other similar institutions will not be restricted by the above asset scale ratio.
For applicants whose assets owned or managed by it or its corporate group are primarily within China, the formula is:
RMB 5 billion + the asset scale of the preceding year * 80% - the obtained quota of RQFII (after being converted into USD).
The filing and approval requirements stipulated in the New Regulation are also applicable to those QFIIs that have obtained the investment quotas before the promulgation of the New Regulation when such QFIIs apply for increase of their investment quotas. It is worth noting that the New Regulation draws on certain more relaxed provisions of the Pilot Measures on the Domestic Securities Investment by RQFIIs (promulgated in 2013) especially in terms of the increase of quota and time frame for inbound remittance as well as reemphasizes that QFIIs shall not sell or transfer their investment quotas to other institutions or individuals in any form.