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Mainland China briefing: China stock exchanges issue implementation rules for trading by QFIs

Following the issuance of new rules governing the Qualified Foreign Investors (QFI) regime in September 2020, China equities and futures trading exchanges (including the Shanghai Stock Exchange (SSE), the Shenzhen Stock Exchange (SZSE), the National Equities Exchange and Quotations (NEEQ) and the China Financial Futures Exchange (CFFEX)) issued new implementation rules for QFIs at the end of October. These implementation rules took effect on 1 November 2020, the same day the New QFI Rules came into effect.

We set out below the key points of the implementation rules.

1.          SSE and SZSE

On 30 October 2020, SSE and SZSE issued revised implementation rules for securities trading by QFIs. Key revisions of the new implementation rules include the following:

  1. the investment scope for QFIs has been expanded to align with the New QFI Rules;


  2. the information reporting requirements have been revised to reduce the burden of market entities;


  3. the initial notification threshold of shareholding by foreign investors has been adjusted from 26% to 24% (i.e. when the percentage of A-shares of a single listed company held by all foreign investors collectively reaches 24%, SSE/SZSE will announce the total number and percentage of shares of the company held by all foreign investors);


  4. matters related to holding and closing positions are enhanced;


  5. rules for non-trade transfers are improved to align with the New QFI Rules.

The investment restrictions for foreign investors have been maintained. The shareholding of a single QFI or any other foreign investor must not exceed 10% of the total number of shares of an exchange-listed company. The aggregate shareholding of all QFIs and other foreign investors must not exceed 30% of the total number of shares of an exchange-listed company.

2.          NEEQ

NEEQ, normally known as the new third board, is the third national equities trading exchange after SSE and SZSE. NEEQ was launched in 2013 and designed for innovative, start-up, and high-growth micro, small and medium-sized enterprises. 

Shares and other types of securities transferred on NEEQ are newly included in the investment universe for QFIs under the New QFI Rules. On 30 October 2020, NEEQ issued implementation rules for trading by QFIs on NEEQ and also guidance for information reporting by QFIs. The NEEQ implementation rules clarify the trading, clearing and settlement arrangements, and general regulatory requirements for QFIs trading on NEEQ.

Similar to the SSE/SZSE implementation rules, the NEEQ implementation rules stipulate the investment scope for QFIs, specify the market access (QFIs can only trade shares on NEEQ through securities brokers registered with NEEQ Co., Ltd.), and set out the day-to-day regulatory requirements (including the requirements on information reporting/disclosure and shareholding restrictions).

It is also worth noting that the investment restrictions for foreign investors as mentioned above apply to NEEQ-admitted companies as well.

3.          CFFEX

Financial futures contracts listed and traded on CFFEX are also newly added as permissible investments for QFIs under the New QFI Rules. On 30 October 2020, CFFEX published a notice on its website pursuant to the New QFI Rules and with approval of the China Securities Regulatory Commission, stating the following:

  1. QFIs may participate in equity index futures trading on CFFEX;


  2. QFIs shall comply with the applicable laws, administrative regulations, ministry-level rules of the State as well as the business rules and notices of CFFEX. Their participation in equity index futures trading shall be in accordance with CFFEX’s requirements on hedging management;


  3. CFFEX members entrusted by QFIs shall perform their duties faithfully and diligently and enhance the compliance management of QFIs’ trading activities. 

These implementation rules are aiming to regulate the trading activities of QFIs on the equities and futures trading exchanges, and are in line with China’s efforts to further open up its capital market and to improve the inbound investment regime.

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