· Document Number：No. 141 [2016] of the Shenzhen Stock Exchange

· Area of Law： Securities

· Level of Authority： Industry Regulations

· Date issued：04-28-2016

· Effective Date：04-28-2016

· Status： Effective

· Issuing Authority： Shenzhen Stock Exchange

Implementation Measures of the Shenzhen Stock Exchange for Securities Lending Transactions under Refinancing Business (for Trial Implementation) (2016 Revision)
（Issued by the Notice of the Shenzhen Stock Exchange on Issuing and Implementing the Implementation Measures of the Shenzhen Stock Exchange for Securities Lending Transactions under Refinancing Business (for Trial Implementation) on August 27, 2012; revised in accordance with the Notice of the Shenzhen Stock Exchange on Amending Article 27 of the Implementation Measures of the Shenzhen Stock Exchange for Securities Lending Transactions under Refinancing Business (for Trial Implementation)(No. 141 [2016] of the Shenzhen Stock Exchange) on April 28, 2016）
Chapter I General Provisions
Article 1 In order to facilitate the smooth operation of refinancing business and guarantee the orderly conduct of refinancing securities lending between securities lenders and securities borrowers through the Shenzhen Stock Exchange (“SZSE”), these Measures are formulated pursuant to the Pilot Measures for Supervision and Administration of Refinancing Business, the Trading Rules for the Shenzhen Stock Exchange (hereinafter referred to as “the Trading Rules”), the Member Administration Rules for the Shenzhen Stock Exchange (hereinafter referred to as “the Member Rules”) and other relevant business rules of the SZSE.
Article 2 For the purpose of these Measures, the term “refinancing securities lending” (hereinafter referred to as “securities lending”) refers to the transaction that a securities lender (hereinafter referred to as “lender”) lends securities listed in the SZSE through the integrated agreement trading platform of the SZSE at certain rates to a securities borrower (hereinafter referred to as “borrower”), who shall return the borrowed securities on schedule and pay the corresponding equity compensation and fees.
Article 3 The SZSE accepts applications for securities lending and borrowing through the integrated agreement trading platform and confirms the conclusion of transactions according to the relevant provisions of these Measures. Upon being confirmed by the SZSE, securities lending transactions between lenders and borrowers become effective.
Article 4 Securities lending transactions made through the SZSE shall be governed by these Measures. Matters not mentioned in these Measures shall be governed by the Trading Rules, the Member Rules and other relevant provisions of the SZSE.
Chapter II Trading Participants
Article 5 Trading participants include lenders, borrowers, and members providing securities lending agency services for clients.
Article 6 Investors that meet the following conditions may become securities lenders:
1. being familiar with the relevant rules for securities lending, knowing the risk characteristics of securities lending, and having the required risk tolerance;
2. having not been forbidden or restricted by laws, administrative regulations, departmental rules or the business rules of the SZSE from engaging in securities lending;
3. having no material violation of laws or regulations related to securities trading in the last three years; and
4. satisfying other conditions as set forth by the SZSE.
Article 7 Lenders holding or leasing trading booths from the SZSE may directly participate in securities lending through their trading booths after obtaining trading authority for securities lending from the SZSE, while other lenders shall participate in securities lending through members.
Article 8 Securities financial companies are borrowers in securities lending.
Article 9 To borrow securities through the SZSE under these Measures, borrowers shall open special securities accounts for refinancing, guaranty securities accounts for refinancing, special capital accounts for refinancing, guaranty capital accounts for refinancing and other relevant accounts according to the relevant provisions, and file such accounts with the SZSE before engaging in refinancing.
Article 10 Borrowers shall apply to the SZSE for opening special trading booths for refinancing, special trading booths for refinancing margin and other trading booths for securities lending, and designate their special securities accounts for refinancing, guaranty securities accounts for refinancing and other relevant securities accounts to the relevant trading booths.
Article 11 To participate in securities lending, members and lenders holding or leasing trading booths from the SZSE shall apply to the SZSE for trading authority, and have the required business facilities and technical systems.
To apply to the SZSE for trading authority, members and lenders holding or leasing trading booths from the SZSE shall submit the following materials:
1. an application form;
2. internal management rules for securities lending agency or securities lending;
3. a list of senior managers and business personnel responsible for securities lending agency or securities lending, and their contact information;
4. lenders holding or leasing trading booths from the SZSE shall submit a letter of commitment that they have known and understood the Risk Disclosure Statement and file their accounts used for securities lending; and
4. other materials as set forth by the SZSE.
Article 12 To provide securities lending agency services for clients, members shall perform the following duties:
1. prudentially evaluating clients' cognition and risk tolerance about securities lending and fully disclosing potential risks;
2. examining clients' eligibility for securities lending according to the requirements of these Measures, concluding agency agreements with eligible clients, having them sign the Risk Disclosure Statement, and filing their accounts used for securities lending with the SZSE;
3. making securities lending applications with clients' authorization and making pre-examination and control before filing such applications;
4. for securities which have been applied for lending by clients, restricting the selling or otherwise use of them before the application instructions are revoked;
5. assisting clients and borrowers in handling return, renewal, notification, inquiry and other relevant matters;
6. providing clearance, delivery and check services for clients; and
7. Other duties as specified by the SZSE.
Article 13 Members may not provide securities lending agency services for clients that fail to meet the eligibility requirements.
Article 14 Before concluding agency agreements, clients shall truthfully provide the relevant information to members. For clients that refuse to provide the relevant information or provide false information, members shall refuse to conclude agency agreements with them.
Chapter III Underlying Securities and Term
Article 15 The scope of underlying securities for securities lending transactions (hereinafter referred to as “underlying securities”) shall be the same as that of underlying securities that could be borrowed for sale as announced by the SZSE.
Article 16 If any securities are removed from the scope of underlying securities, securities lending contracts which have not been completely settled before such adjustment shall still be valid.
Article 17 Securities lending transactions shall have fixed terms which include five brackets: 3 days, 7 days, 14 days, 28 days and 182 days. The SZSE may adjust the term of securities lending transactions in light of market conditions.
Article 18 The term of a securities lending transaction shall be calculated in consecutive days from the day when the transaction is concluded. The date when securities should be returned shall be the day next to the maturity date. If the date of return is not a trading day, it shall be postponed to the next trading day. If the underlying securities are suspended from trading on the date of return, the date shall be postponed to the day when the trading of securities is resumed.
Chapter IV Rates
Article 19 Securities lending transactions could be fixed-rate transactions, negotiated transactions and competitive bid transactions.
Article 20 Before the opening of each trading day, borrowers shall disclose to the market the borrowing rates (hereinafter referred to as “rates”) of different terms of underlying securities which they intend to borrow on the day. Such rates may not be changed during the day once they are disclosed. Borrowers may disclose their rates through the trading system or website of the SZSE.
Article 21 Lending fees shall be calculated from the day when a securities lending transaction is concluded and be paid on the date of return. No fee is accrued on the date of return.
Article 22 If the term of a securities lending transaction is postponed for not more than 30 consecutive days, the borrower shall pay lending fees to the lender on the basis of the original rates and the number of consecutive days; if it is postponed for more than 30 consecutive days, the borrower shall not pay lending fees to the lender from the 31st consecutive day.
Article 23 The formula for calculating lending fees is as follows: lending fees = closing price of securities on the lending day × quantity of securities lent × rates on the lending day × actual number of lending days / 360
Chapter V Application
Article 24 The time when the SZSE accepts lenders' lending applications is 9:15 – 11:30 and 13:00 – 15:00 of each trading day. Lending applications are valid for the day when they are filed and are revocable during the time for lending application.
Article 25 The time when the SZSE accepts borrowers' borrowing applications is 9:15 – 11:30 and 13:00 – 15:30 of each trading day.
Article 26 Borrowers shall send end-of borrowing marks to the SZSE at 15:00 – 15:30 of each trading day. If such marks are not sent to the SZSE within the prescribed time, they will be automatically generated by the integrated agreement trading platform.
Borrowing applications are valid for the day when they are filed and are revocable before they are received or before end-of borrowing marks are automatically generated by the integrated agreement trading platform.
Article 27 The SZSE shall not accept relevant orders if the market is closed on the very day or if trading of the underlying securities is suspended for the whole day.
If trading of the underlying securities is suspended after market is opened on the very day, the SZSE shall not accept orders for lending or borrowing such securities during the period when the trading thereof is suspended, but may cancel relevant orders.
Article 28 The SZSE accepts applications of the following two types:
1. applications for non-agreed transactions; and
2. applications for agreed transactions.
Article 29 Application instructions for non-agreed transactions submitted by lenders or borrowers shall include securities account number, securities code, term, lending or borrowing, rates, quantity of securities, and trading booth code of the applicant.
Article 30 After reaching a consensus in terms of the quantity of lent securities, lending term and lending rates, the lender and the borrower shall submit an application instruction for the agreed transaction which shall include securities account number, securities code, term, lending or borrowing, rates, quantity of securities, trading booth code of the applicant, trading booth code of the counterparty, and number of the agreed transaction.
Article 31 Lenders shall make lending applications through the common securities accounts opened at depository and clearing institutions designated by the SZSE.
Article 32 Before submitting application instructions, lenders shall confirm that their securities accounts are genuine and valid and that they actually own the quantity of securities as applied for. Securities lent by lenders to borrowers shall be free of any right-related defect, or lenders shall compensate for borrowers' losses.
Article 33 Before revoking their application instructions, lenders may not apply for selling or otherwise using the securities which have been applied for lending. If a lender breaches a securities lending contract as a result of insufficiency of securities in its securities account, it shall pay liquidated damages on a lump-sum basis to the borrower at 0.05% of the amount of the securities lending contract that has been concluded.
The formula for calculating the amount of the securities lending contract is as follows: amount of the securities lending contract = quantity of securities lent as agreed × closing price of securities on the lending day
Article 34 For a securities lending transaction made at fixed rates, the rates included in the application instruction shall be the same as those disclosed by the borrower to the market on the same day.
Article 35 The quantity of securities applied for by lenders and borrowers shall be 100 shares or a multiple thereof, and the minimum quantity of securities in a single application is 10,000 shares. The maximum quantity of securities in a lender's single lending application is 1 million shares.
The SZSE may adjust the above-mentioned limits in light of market conditions.
Chapter VI Conclusion of Transactions
Article 36 After end-of-borrowing marks are received at 15:00 – 15:30 of each trading day or automatically generated by the integrated agreement trading platform of the SZSE, the conclusion of transactions applied for on the day will be confirmed.
Article 37 The SZSE will directly confirm the conclusion of transactions when applications for agreed transactions are consistent in number, term, securities code, quantity of securities, rates and other elements.
Article 38 The SZSE confirms the conclusion of transactions for applications for non-agreed transactions by the following principles:
1. If the total quantity of lending applications filed by all lenders for each security does not exceed the quantity of borrowing applications filed by borrowers under each bracket, the conclusion of transactions shall be confirmed on the basis of lenders in order of the time when their lending applications are filed.
2. If the total quantity of lending applications filed by all lenders for each security exceeds the quantity of borrowing applications filed by borrowers under each bracket, the quantity of transactions that could be concluded shall be determined proportionally for all lenders, and the conclusion of transactions shall be confirmed with borrowers respectively. If some borrowers' applications are still partially unconcluded after that, matches shall be made in a descending order of the quantity of securities applied for by lenders, or the time when their lending applications are filed if the quantity of securities applied for is the same, until all borrowers' applications are concluded. When the quantity of transactions that could be concluded is determined proportionally, the minimum unit for concluding transactions is 100 shares.
Article 39 For underlying securities suspended from trading till 15:00 after the market is opened, the SZSE will not confirm the conclusion of transactions for all applications made for such securities on the day.
Article 40 For transactions made under these Measures, whether they have been concluded depends on the data recorded by the SZSE's host computer for trading.
Chapter VII Return
Article 41 After lending securities, lenders enjoy rights to take back the lent securities on schedule, collect lending fees and obtain corresponding equity compensation.
Article 42 Borrowers shall return the borrowed securities on schedule, pay lending fees, and make equity compensation. Borrowers that fail to return securities or make payments on schedule or in full amount shall pay liquidated damages at 0.05% of the amount of debt to lenders on a daily basis.
The formula for calculating the amount of debt is as follows: amount of debt = quantity of lent securities that have not been returned × closing price of securities on the lending day + lending fees that have not been paid
Article 43 Borrowers that are unable to return the borrowed securities or fail to pay lending fees or equity compensation shall immediately submit a report to the SZSE and negotiate with their lenders to determine the way to pay off debts. If they reach a consensus, borrowers shall report their payment plans determined upon negotiations to the SZSE. If they fail to reach a consensus or borrowers fail to pay off their debts according to the payment plans, lenders have the right to demand indemnification from borrowers according to law.
Article 44 If the term of a securities lending transaction is extended for more than 30 consecutive days, the borrower may negotiate with the lender to pay off its debt in cash.
If the borrower and the lender decide to pay off in cash, they shall calculate the fair value of the lent securities according to the stock index issued by the SZSE or by an index institution approved by the SZSE.
The formula for calculating the fair value is as follows: fair value = closing price of securities on the trading day before suspension of trading × (stock index of the sector to which the securities belong on the trading day before the debt is paid off in cash / stock index of the sector to which the securities belong on the trading day before suspension of trading) × quantity of lent securities
Article 45 If the listed company issuing the underlying securities is acquired for the purpose of termination of listing and the date of return is at least three trading days later than the day when such acquisition is announced, the date of return shall be moved up to the third trading day after the day when the said acquisition is announced. The borrower shall report the performance of contract to the SZSE within two trading days after the date of return.
Article 46 If the listing of the underlying securities is terminated and the date of return is at least three trading days later than the day when such termination is announced, the date of return shall be moved up to the third trading day after the day when the said termination is announced. The borrower shall report the performance of contract to the SZSE within two trading days after the date of return.
Article 47 The SZSE may, in light of market conditions and risk management needs, adjust the handling time, calculation formulas and ways for dealing with special circumstances as mentioned in this Chapter.
Article 48 On each trading day, borrowers shall file detailed data about the return of securities and payment of equity compensations made on that day with the SZSE.
Article 49 When a securities lending contract is renewed, after the lender and the borrower reach a consensus upon negotiations, the borrower shall send the renewal data approved by the lender to the SZSE.
Chapter VIII Equity Compensation
Article 50 If, after a borrower borrows securities but before it returns the securities, the securities issuer distributes investment proceeds, rations or gratuitously distributes securities to securities holders or issues any securities to which securities holders enjoy a preemption right, the borrower shall make equity compensation to the lender.
Article 51 The date of equity compensation shall be determined by the following principles:
1. If equities are cash bonus or interest, the date of equity compensation shall be the date of return;
2. If equities are bonus shares or converted shares, the date of equity compensation shall be the later of the listing date of securities and the date of return;
3. If equities are newly issued shares, convertible bonds or warrants, the date of equity compensation shall be the later of the next trading day after the securities are listed and the date of return; or
4. If equities are allotment rights, the date of equity compensation shall be the later of the next trading day after the ex-dividend day and the date of return.
Article 52 When equities are cash bonus or interest, borrowers shall return it to lenders on the date of compensation according to the amount of capital deserved by lenders from lending securities.
Article 53 When equities are bonus shares or converted shares, borrowers shall return them to lenders on the date of compensation according to the quantity of shares deserved by lenders from lending securities.
Article 54 When equities are warrants gratuitously distributed by the issuer, borrowers shall pay compensation to lenders on the date of compensation.
The formula for calculating the amount of compensation is as follows: amount of compensation = average trading price of warrants on the first day of listing × quantity of warrants distributed
Article 55 When equities are allotment rights, borrowers shall make payments to lenders on the date of compensation. If the amount of compensation is zero or less, no payments shall be made.
The formula for calculating the amount of compensation is as follows: amount of compensation = (closing price on the date of record – ex-dividend reference price) × quantity of lent securities
Article 56 When the equities are newly issued shares, convertible bonds to which existing shareholders enjoy a preemption right, borrowers shall make payments to lenders on the date of compensation. If the amount of compensation is zero or less, no payments shall be made.
The formula for calculating the amount of compensation is as follows: amount of compensation = (average trading price of securities to which existing shareholders enjoy a preemption right on the first day of listing – subscription price) × quantity of securities to which existing shareholders enjoy a preemption right
Article 57 The SZSE may adjust the type of the equities and the calculation formula of the amount of compensation in light of market conditions.
Chapter IX Information Disclosure and Report
Article 58 The SZSE shall disclose information about lenders' applications for non-agreed transactions through the integrated agreement trading platform, including the code of securities, name of securities, term, quantity of securities to be lent, rates and time of application.
Article 59 Before the opening of each trading day, the SZSE shall disclose the quantity of different terms of underlying securities dealt on the previous trading day at its website.
Article 60 Borrowers shall, within seven trading days upon the end of each month, report the advance settlement, renewal, negotiated settlement, default and other information of securities lending transactions concluded in the month.
Article 61 When the quantity of shares held by a lender or borrower in a listed company or the change therein reaches a statutory proportion, it shall fulfill the information reporting and disclosure obligations according to law.
Stocks held by borrowers through guaranty securities accounts for refinancing shall not be included in their proprietary stocks, and borrowers do not need to fulfill the information reporting, information disclosure or tender offer obligations for any change in the quantity of securities in such accounts.
Lenders do not need to fulfill the tender offer obligations when their shareholding proportion exceeds 30% merely because of the recovery of lent stocks.
Chapter X Supervision and Administration
Article 62 The SZSE shall oversee securities lending, keep reinforced monitoring over false applications made through the integrated agreement trading platform or other unusual trading behaviors that disturb the normal market order, and take regulatory measures in light of the actual situations.
Article 63 If necessary, the SZSE may oversee and inspect members and lenders holding or leasing trading booths from the SZSE in respect of their internal control rules, business operation rules and risk management measures in relation to securities lending, the safety and operation condition of their trading systems, and their implementation of the relevant rules of the SZSE.
Article 64 When any unusual circumstance occurs in securities lending, the SZSE may take the following measures in light of the actual situations:
1. suspending the lending of certain single underlying securities of certain terms;
2. suspending the lending of certain single underlying securities of all terms;
3. suspending the lending of all underlying securities of certain terms;
4. suspending the lending of all underlying securities of all terms; or
5. other measures which the SZSE deems necessary.
Article 65 If any lender has any significantly unusual trading behavior, the SZSE may restrict it from using its securities account for securities lending or take other necessary measures as the actual situations may require.
Members shall oversee the securities lending behaviors of their clients according to the requirements of the SZSE. If members discover any clients having any unusual trading behaviors, they shall notify and remind clients and report the situation to the SZSE without delay.
Article 66 If any member violates these Measures, the SZSE may take regulatory measures or disciplinary sanctions against it and, if the actual situations so require, suspend or cancel its trading authority for securities lending.
If any lender holding or leasing trading booths from the SZSE violates these Measures, the SZSE may suspend or cancel its trading authority for securities lending if the actual situations so require.
Article 67 If any borrower violates these Measures, the SZSE may take regulatory measures or disciplinary sanctions against it.
Chapter XI Supplementary Provisions
Article 68 The SZSE charges fees for securities lending. The charging rates will be separately announced by the SZSE.
Article 69 For concluded securities lending transactions, members may charge fees against lenders.
Article 70 The SZSE assumes no responsibility for losses resulting from such unusual circumstances as force majeure, unexpected incidents and system failure or the relevant measures taken by the SZSE.
Article 71 The clearing, delivery, equity compensation and return of securities lending shall be handled by depository and clearing institutions designated by the SZSE pursuant to the relevant provisions.
Article 72 For the purpose of these Rules, the terms “more than” and “less than” do not include the figures mentioned therein, while the term “not more than” includes the figures mentioned therein.
Article 73 These Measures come into force upon the approval by the China Securities Regulatory Commission.
Article 74 The power to interpret these Measures remains with the SZSE.
Article 75 These Measures come into force on the date of issuance.
Annex:
Essential Clauses of the Risk Disclosure Statement for Refinancing Securities Lending
In order to help borrowers fully understand the risks involved in refinancing securities lending (hereinafter referred to as “securities lending”), members providing securities lending agency services for clients should make a Risk Disclosure Statement for Refinancing Securities Lending (hereinafter referred to as the “Risk Disclosure Statement”) to reveal the potential risks and losses involved in securities lending. The Risk Disclosure Statement shall include, but not limited to, the following aspects:
Compared with ordinary securities trading, securities lending has its unique risks. To help you better understand such risks, we hereby make the following risk disclosure statement for you to read and sign:
I. Reminding lenders to pay attention to the fact that securities lending may have various risks such as credit risk, market risk, liquidity risk, equity compensation risk, operating risk, policy risk and technical risk, and requesting lenders to prudentially engage in securities lending according to their financial status, actual demand, risk tolerance and internal rules.
II. Reminding lenders to pay attention to the fact that the rates disclosed by securities financial companies through stock exchanges before the opening of each trading day are offers made by the securities financial companies on underlying securities they intend to borrow on that day, so lenders will be deemed as having agreed to and accepted such offers of the securities financial companies when they file applications for securities lending.
III. Reminding lenders to pay attention to the fact that they will not be able to take back lent securities before the securities lending contract becomes expired, which means that their use of such securities may be affected.
IV. Reminding lenders to pay attention to the fact that, during the period when their securities are lent out, if underlying securities are suspended from trading or terminated from listing, lenders may face the risk that the contract is settled ahead of schedule or with a delay.
V. Reminding lenders to pay attention to the fact that, during the period when their securities are lent out, securities financial companies will not make any compensation for their voting rights.
VI. Reminding lenders to pay attention to the fact that renewal matters shall be handled by lenders and securities financial companies upon negotiations and that lenders shall pay attention to the risks involved in that aspect.
VII. Reminding lenders to pay attention to the risk that the borrower is unable to return securities at maturity, make compensation for the relevant equities or pay lending fees. When securities financial companies default as above-mentioned, lenders need to negotiate with such companies by their own. If negotiation fails, lenders may resort to litigation, arbitration or other legal channels by their own.
VIII. Reminding lenders to pay attention to the fact that they shall understand in details the operation condition of securities financial companies and the potential business risks before engaging in securities lending and that securities financial companies borrow securities from lenders with their own credit standing, and will not provide any collateral.
IX. Reminding lenders to pay attention to the fact that they shall properly keep their account cards, identity certificates, trading passwords and other relevant materials and that they shall assume risks arising from the losing of such materials or from the use of such materials by others.
X. Reminding lenders to pay attention to the fact that changes in laws, regulations or policies of the state or the rules of stock exchanges may give rise to adverse impact on transactions that have already been concluded and even cause economic losses to them.
In addition to the above-mentioned risk statement, members may further provide illustrations or explanations on the relevant risks in their Risk Disclosure Statement if necessary.
It shall be expressed in conspicuous characters in the Risk Disclosure Statement that:
This Statement has only made some enumerations and has not listed all risks involved in securities lending. Before engaging in securities lending, lenders shall carefully read and understand the business rules for securities lending, properly make risk assessments and financial arrangements, and ensure that they have adequate risk tolerance for the business so as to avoid suffering unbearable losses from such business.
Members shall also request that lenders sign the Risk Disclosure Statement in person. For institutional lenders, the Risk Disclosure Statement shall be signed by their legal representatives or persons authorized by them and affixed with the official seal or contract seal of the institutions to confirm that they have known and understood all contents of the Risk Disclosure Statement and are willing to assume the potential risks and losses involved in securities lending.