On June 25, 2012, the draft amendment of the Financial Investment Services and Capital Markets Act (“FSCMA”) was submitted to the National Assembly, after going through the relevant internal governmental review process (including discussions between relevant governmental offices, preliminary legislative notice procedures, review by the Regulatory Review Committee and review by the Ministry of Government Legislation, etc.) as well as being passed by the State Council on June 19, 2012.
Except for a few changes, such as the consolidation of trust business related content with a separate government bill, the contents of the draft FSCMA amendment are nearly the same as those of the draft amendment that the National Assembly previously failed to pass during the Assembly’s 18th Term. However, taking into account the delay in passing the proposed amendments to the FSCMA, the latest version of the draft FSCMA amendment provides for the amendment to go into effect only 3 months after the date of formal announcement of the National Assembly’s passage of the amendment, as opposed to the previously contemplated 6-month interval.
Meanwhile, amendments to the Enforcement Decree of the FSCMA came into effect on June 29, 2012, pursuant to completion of the related internal governmental review process. The Enforcement Decree amendments include provisions such as the following: (1) rational mechanisms for controlling/restricting exchanges of information (imposing “Chinese walls”); (2) introduction of an obligatory reporting system for data on large position short-selling net holding balances; (3) an increase in the scope of borrowing permitted for private equity funds; (4) regulatory mechanisms for activating repurchase transactions between institutions; (5) supplementation of special regulations regarding listed companies; and (6) strengthening of regulation of small scale public offerings.
Additionally, in comparison to the contents set out in the original preliminary legislative notice, the Enforcement Decree amendments, among other things: (1) provide for a relaxation of the Chinese wall requirements between underwriting and trading/brokerage business activities with respect to Qualified Institutional Buyer bonds and unsecured commercial paper; (2) in relation to the different phases of project financing, classify project finance advisory work (in which there is significant potential for use of important publicly undisclosed information) as an activity carried out by investment banking service providers and classify project finance arranging/investment business as activities that can be carried out by either investment banking or proprietary investment management service providers; (3) expressly provide that, following related demand forecast participation with respect to IPOs being conducted by other financial investment business entities, investment in the companies planned to be listed is to be managed by proprietary investment management service providers (as opposed to investment banking service providers); and (4) expand the scope of securities that may serve as exchangeable securities for exchangeable bonds (in order to eliminate inconsistency with related provisions of the amended Commercial Code) by allowing exchangeable bonds to be exchanged for unlisted securities.