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Introduction of Securities Registration and Depository Model in China June 2009

Introduction of Securities Registration and Depository Model in China June 2009 Contents Current Registration and Depository Models in China Registration Model Depository Model Structure of Accounts Summary Historical Background

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Introduction of Securities Registration and Depository Model in China June 2009

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  1. Introduction of Securities Registration and Depository Model in China June 2009

  2. Contents • Current Registration and Depository Models in China Registration Model Depository Model • Structure of Accounts Summary Historical Background Advantages and Disadvantages Improvement of the Account Structure

  3. Current Registration and Depository Models in China——Registration Model Issuer By entrustment SD&C The holder book Investor A Investor B Investor C Investor ……

  4. Some explanatory notes about registration model • The legal relationship between Issuer and SD&C: Principle-agent relationship • General dematerialization • Centralized registration: SD&C provides direct services related to registration to investors. • Holding system: Direct holding (major) Indirect holding (minor)

  5. Current Registration and Depository Models in China——Depository Model SD&C (depository) 存管模式 Broker’s self-supporting account 1000 shares Brokerage account 2400 shares Customer B 200 shares Customer C 1200 shares Customer A 1000 shares 400 shares 600 shares Broker (custody) Customer A 1000 shares Customer C 1200 shares 400 shares 600 shares Customer B 200 shares

  6. Some explanatory notes about depository model • Centralized management of accounts: SD&C opens accounts for investors directly. • Electronic book-entry • Two-tiered depository system: Ⅰ Investors’ accounts are in custody with brokers . Ⅱ Brokers’ self-supporting accounts and brokerage accounts are deposited with SD&C .

  7. Structure of Accounts——Summary Types of accounts • Classified by markets: Ⅰ Shanghai accounts Ⅱ Shenzhen accounts • Classified by the use of accounts: Ⅰ Renminbi ordinary accounts (A share accounts) Ⅱ Renminbi special accounts (B share accounts) Ⅲ Security investment fund accounts (fund accounts) Ⅳ Other accounts: broker bond accounts etc.

  8. ——Classified by holders: ⅰ A share accounts: Individual accounts Ordinary institutional accounts Special institutional accounts ⅱ B share accounts: Domestic investor accounts Foreign investors accounts • Classified by the character of holders: Ⅰ Direct-holding accounts Ⅱ Indirect-holding accounts: such as foreign investors’ B share accounts, QFII accounts.

  9. Open an account • Candidates of opening an account: Qualification of Chinese citizen or Chinese legal person Some other exclusions by law .( QFII etc.) • Principles of opening an account: (1) By real name Personal valid identification papers (2) One account for one person Ordinary investors: just can open only one account for one purpose at one market Special legal-person institutions: can open some accounts, such as securities firms, trust company, insurance company, fund company, QFII and so on.

  10. (3) Real-time principle Distribute account number and print account card by real-time account-opening system (4) Agent to open an account Ordinary investors: at account-opening agents. Only special legal-person institutions: directly at SD&C

  11. Use an account • Shanghai market: Designated-trading system Can be only used at the designated broker. • Shenzhen market: Custody securities at where you buy them Can be used at many brokers at the same time.

  12. Historical Background • Support of communication technology Boosting the capability of communication and data-processing Improving the efficiency of depository and clearing system • Subsequent predominance of China securities market General dematerialization Electronic book-entry • Requirement of supervision

  13. Structure of Accounts——Advantages and Disadvantages Advantages • Typical Direct-holding system: Clear legal relationship Safe, transparent, efficient • SD&C carries on the unified administration to accounts. Scale benefits Reducing cost and improving efficiency • SD&C takes charge of holding-details for investors directly which avails to supervision.

  14. Disadvantages • Many types of accounts, different markets have different accounts, different securities have different accounts. This leads to some disadvantages: inconvenience in use, occupies more system resources, lowers market efficiency and can’t meet to the needs of innovation businesses in the future.

  15. Structure of Accounts—— Users’ or Regulators’ needs to Improve the Structure • Needs of indirect-holding: such as cross-border transaction, security lending and borrowing and some innovation businesses in the future. • Needs of account unification: reducing the types of accounts that one account can be used at different markets to buy different securities.

  16. Thanks!

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