The Shanghai Stock Exchange (SSE) has recently released the “SSE Management Measures on Open-end Fund Business” (the “Measures” for short), in order to support the innovative development of the fund market and better serve all participants in the fund market. The “Measures” was implemented as of the issuance day, and the “SSE Rules (Trial) on Business Lines for Subscription, Purchase, and Redemption of Open-end Funds” (Shang Zheng Zhai Zi [2005] No. 29) issued previously was abolished at the same time.
The “Measures” specifies an array of business lines related to subscription, purchase, redemption, trading, and trusteeship transfer of open-end funds, as well as splitting and merging of split-capital fund units on the SSE. The open-end funds specified by the “Measures” include Listed Open-end Fund in the Shanghai market (the SSE LOF for short) and funds of the former Mutual Funds Distribution Channel (which can be subscribed for, purchased, redeemed on the SSE but cannot be listed for trading) and do not include Exchange Traded Funds (ETFs) and Traded Money Market Funds.
Since the implementation of the “Measures”, open-ended funds that meet the listing requirements can apply for listing and trading on the SSE; basic units and split units of split-capital funds can apply for listing and trading at the same time; and real-time pairing and conversion between basic units and split units can be achieved through splitting and merging.
Compared with the existing LOFs in the market, the SSE LOFs have the following characteristics:
The first is complete functions. Both basic units and split units of split-capital funds can apply for listing and trading. The listing and trading of basic units can provide their holders with a convenient exit channel. Besides, the SSE LOFs support the practice that a fund manager sets graded rates according to different holding periods of investor’s fund units, and investor’s cross-market trusteeship transfer will not influence the counting of holding periods.
The second is high efficiency. Fund units bought by an investor can apply for redemption on the same day, thus enhancing the arbitrage efficiency between the primary market and the secondary market. The SSE LOFs support on-floor real-time splitting and merging of split-capital funds, that is, basic units of split-capital funds can be split in real time into split units for selling, and split units can also be merged together as basic units for selling or redeeming. The real-time splitting and merging will help to stabilize discount and premium in the secondary fund market, improve the arbitrage mechanism between basic units and split units of split-capital funds, and enhance the pricing efficiency.
The third is conforming to investor’s trading practice. The SSE LOFs adopt the application methods of on-floor “Subscription by Amount”, “Purchase by Amount”, “Redemption of Fund Units”, and “Trusteeship Transfer of Fund Units”, which is the same as those of over-the-counter open-end funds and much conforms to investor’s trading practice.
Recently, the Department of Fund Supervision of the China Securities Regulatory Commission (CSRC) has released the “Guidance on Registering Long/Short Split-capital Funds”, and the SSE has joined hands with many fund companies in reporting to the CSRC the application of raising the SSE LOFs and split-capital funds. As the market business and technology have been ready, products of the SSE LOFs and split-capital funds are predicted to be launched soon.