Laws of the People's Republic of China

China Securities Regulatory Commission

Notice of China Securities Regulatory Commission on Transmission of Guide for Securities Self-support Business of Securities Companies and on Strengthening its Operation

To securities companies:

In recent years, self-support business of securities companies have been accompanied with operation with non-normative account, unproportional position, concentrated shareholding or suspected manipulation of the market, which might trigger the breakout of corporation risks. This Commission, on the basis of comprehensive control of securities companies, carried out survey on the operation of securities companies and raises more detailed requirements on its supervision in such documents as Notice on Promoting Self-regulation, Legitimate Operation and Innovation of Securities Companies ( Zheng Jian Ji Gou Zi[2005]No.37). Nowadays, most securities companies are, on the basis of self -survey and in accordance with the requirements of the Commission herein, rectifying their operation, and some are vigorously exploring how to ameliorate and perfect its self-support business mechanism, some of the remaining, however, have failed to report and record account in accordance with the requirements herein, carried out inefficient rectification and violated the relating rules to increase the position scale and etc. In order to promote reform of the self-support business mechanism of securities companies, to prevent the risk in self-support business, China Securities Regulatory Commission formulated Guide for Securities Self-support Business of Securities Company and transmitted it, on the basis of having solicited opinions in the circle of securities. The related particulars are hereby notified as follows for the abidance and implementation hereof by securities companies:

China Securities Regulatory Commission

November 11, 2005

Guide for Securities Self-support Business of Securities Companies

Chapter ¢ñ General Principle

Article 1

In order to standardize self-support business of securities companies and to effectively control risk, this Guide is hereby formulated in accordance with provisions of related laws and rules and the requirement of standardization of self-control.

Article 2

Securities companies shall, in accordance with the requirement of this Guide and the management characteristic and business operation of the companies herein, establish perfect self-control management system, investment decision-making mechanism, operation flow and risk monitoring mechanism to undertake self-support business on the premise that risk can be estimated, controlled and endured.

Article 3

Securities companies shall establish and perfect responsibility-affix-to person mechanism. Where violation of law occurs in self-support business, responsibilities shall be affixed to person.

Chapter ¢ò Decision-making and authorization

Article 4

Securities companies shall establish relatively concentrated investment mechanism and authorization mechanism with the integration between rights and responsibilities. Decision-making mechanism of self-support business shall in principle be established in accordance with such a system: board of directors--investment decision-making institution--self-support sectors.

Article 5

Board of director, the supreme decision-making institution of the self-support business, on the basis of severe abidance of the risk control indicator criterion in monitoring provisions, shall, in accordance with such situation as asset, debt, profit and loss, and abundance of capital in the companies herein, work out the scale of self-support, endurable risk and etc., and put them into practice by means of board of directors' decision-making, with the specific investment operation management of self-support business decided by the decision-making institutions of the authorized company by the board of directors herein.

Investment decision-making institutions, the supreme decision-making institution, shall be responsible for the settlement of specific asset arrangement strategy, investment proceedings and investment types and etc.

Self-support business sector, the executive institution of self-control, shall, within the scope of decision-making set by investment decision-making institution and in accordance with its authorized rights, be answerable for the decision-making and execution of investment particulars.

Article 6

Securities companies shall establish the authorization system of self-support business, confirm the range of authorized rights, its time limit and responsibilities, make written record in the process of authorization to ensure the effective execution of authorized system.

Securities companies shall establish business management system with clear administrative levels and definite responsibilities, work out standardized business flow, and make clear the responsibilities of related sectors and positions of self-support business.

Article 7

Management and operation of self-support business shall be exclusively responsible by the self-support business of securities companies, and non-self-support business sectors and its branches shall not carry out self-support business in any form.

Article 8

Important decisions mentioned in self-support business in the process of scale of self-support, at risk limitation, asset arrangement, business authorization and etc., shall be made collectively and in written form and kept in the archives after the signature by related personnel.

Chapter ¢ó Operation of Self-support Business

Article 9

Self-support business must, in the name of securities company of itself, be undertaken through special self-support post, with non-self-support business sector responsible for the management of self-support account, including opening account, cancelling account, using registration and etc.

Self-support business shall establish and perfect the examination and auditing system of self-support system, and is forbidden to lend self-support account, use non-self-support post to undertake disguised self-support business and extra-account self-support business.

Article 10

Self-support business shall strengthen fund allocation and accounting of self-support business, with non-self-support business responsible for allocation of self-support business fund.

Debit and credit of self-support fund must be operated in the name of the company, and is forbidden in the individual name; cash withdrawal from self-support business is also forbidden.

Article 11

Self-support business shall perfect the investment justification mechanism, establish investment pool system, with self-support sectors operating within the range of limited self-support scale and endurable risk, and choosing investment from investment pool.

Article 12

Self-support business shall establish and perfect the mechanism and decision-making of profit stop and loss stop mechanism, with the implementation and actual assessment in conformity with the written procedure and written record.

Article 13

Establishment of rigorous operational flow, research on investment variety, formulation of portfolio and implementation of transaction directive shall be separated from each other and charged by different persons; auditing and compulsory record shall be made, backup system of self-support business shall be established, perfected and be charged by special personnel for its administration. .

Article 14

Liquidation and statistics of self-support business shall be implemented by special personnel, and reconciled duly with fund liquidators of financial sector, and subsequently recorded by relating personnel.

Independent liquidation system on self-support fund shall be undertaken, with the separation of self-support business post with the liquidation post of brokerage, asset management business and of otherwise business.

Chapter ¢ô Risk Monitoring

Article 15

Firewall shall be established to ensure the strict separation of self-support business with such businesses as brokerage, asset management, and investment bank in personnel, information, account, fund and accounting.

Article 16

Organs and functions of investment decision-making, investment operation and risk control shall be independent from each other; background functions such as account management, fund liquidation and accounting shall be charged by independent sector or post so as to form effective balanced supervision mechanism in the whole process of self-support business.

Article 17

Risk monitoring sector shall be capable to normally implement functions and acquire information an data in self-support business operation, and thoroughly monitor risk in risk monitoring through establishing real-time monitoring system, establish effective risk monitoring report mechanism, submit risk monitoring system to the board of directors and decision-making institutions, and inform relating information to self-support business sectors and up-to-standard sectors. In case of discovering potential risk or irregular performance in business operation or risk control indicators, risk monitoring sector herein shall report it to the board of directors and raise proposal for its solution. The board of directors and investment decision-making institution as well as the relating sectors of self-support business shall render feedback promptly to the proposal hereof, with written record being made in the process of report and feedback.

Article 18

Risk monitoring sector shall, in accordance with its real situation, enthusiastically borrow internationally advanced management experience, introduce and develop effective risk control management tools, gradually establish and perfect such processes as risk identity, survey and monitoring to make risk monitoring more scientific.

Article 19

Risk monitoring sector shall establish mark-to-market system of self-support business, perfect integrated analysis and monitoring system of risk exposure of self-support business and total profit and gain, perfect quantizing indicator system of risk control, and undertake regular sensitivity analysis and pressure test upon market value variation of self-support business and of the potential influence of risk control indicator centered on the company's net capital.

Article 20

Risk monitoring sector shall establish and perfect functions of risk monitoring system of self-support business, and set the corresponding risk monitoring value to improve dynamic monitoring efficiency through dynamic variation automatically indicated by early warming trigger equipment.

Article 21

Risk monitoring sector shall improve the transparency of self-support business. Securities self-support operation dealing system and the monitoring system shall set necessary opening function or data interface so as to notice and check the self-support business of securities companies.

Article 22

Risk monitoring sector shall establish and perfect the correcting and handling mechanism for defects in self-support operation risk monitoring, with the risk monitoring sector, in accordance with the result of investigation and of assessment, be responsible for raising rectifying and correcting measures and undertaking follow-up examination.

Article 23

Risk monitoring sector shall establish perfect file management system for investment decision-making and investment operation to ensure its availability for checking after investment.

Article 24

Risk monitoring sector shall establish perfect achievement assessment and incentive system, perfect performance of evaluation mechanism, follow the principle of objectivity, fairness and quantization to evaluate the investment capability and achievement performance on self-support personnel.

Article 25

The auditing sector shall regularly undertake comprehensive audit upon the according-to-law operation, profit and loss, risk monitoring and etc., and issue auditing report hereon.

Article 26

The auditing sector shall strengthen professional ethics and good faith education upon self-support personnel, intensify the awareness of the confidentiality, according-to-law operation, risk control upon self-support personnel. Key self-support operation personnel shall, before leaving office, be audited by auditing sectors.

Chapter ¢õ Information Report

Article 27

Report mechanism shall be established in self-support business. The content of report includes but not limits to: implementation of decision-making, self-support asset quality, self-support profit and loss, risk monitoring and otherwise important particulars.

The board of directors shall review, sign signature and feedback the interior report of self-support business.

Article 28

Securities companies shall establish and perfect their self-support business report system, be consciously subject to exterior supervision. Securities companies shall, in accordance with the requirement of supervisory sector and securities exchange, subject their self-support business operation.

Content of the report includes:

1)

account and post of self-support business;

2)

Important decision-making engaged in scale of self-support business, limit of risk, asset allocation, business authorization and etc.;

3)

Risk monitoring report of self-support business;

4)

Other particulars needed reporting.

Article 29

Securities companies shall clarify the responsible sector, report process and person responsible, and, render corresponding punishment to the persons with direct responsibility and leading reasonability for false record, misleading statement, or gross negligence, and promptly report it to the supervisory sector.

Chapter ¢ö Appendix

Article 30

The Guide shall be interpreted by China Securities Association.

Article 31

The relating terms of the Guide is given as follows:

1)

Risk exposure refers to the securities exposure (net position) formed as a result of difference between long position and short position of certain securities type held by a securities company for certain period.

2)

Risk monitoring valve refers to certain indicator to control risk set in risk monitoring system. Risk monitoring valve generally includes trading limit, risk limit and profit-stop and -loss-stop limit and etc.

3)

Sensitivity analysis refers to the potential influence of single or several market risk factors (interest rate, exchange rate and stock price and etc.), with the invariability of other conditions, upon financial products and its integrated market value.

4)

Pressure test refers to the test of risk endurance in non-normative market, i.e. assessment on loss of financial products and its integrated value under extreme market conditions such as volatile variation of such market risk factors as interest rate, exchange rate, stock price and etc., or unexpected political or economic event.

Article 32

The Guide shall come into effect as of the date of its promulgation.