China Securities Regulatory Commission: Lower the commission rate of fund stock trading and reduce the upper limit of the manager's commission distribution ratio

On April 19, according to the website of the China Securities Regulatory Commission, in order to thoroughly implement the "Several Opinions of the State Council on Strengthening Supervision and Risk Prevention and Promoting the High-quality Development of the Capital Market" (the new "National Nine Articles"), further strengthen the management of securities transaction costs of publicly offered securities investment funds (hereinafter referred to as funds), standardize the management of securities transaction commissions and distribution of fund managers, protect the legitimate rights and interests of fund share holders, and enhance the service capabilities of institutional investors of securities companies. The Provisions on the Administration of Securities Transaction Costs of Publicly Offered Securities Investment Funds (hereinafter referred to as the "Regulations") will be officially implemented from July 1, 2024.

In the early stage, the China Securities Regulatory Commission solicited opinions from the public on the "Regulations". All parties in the market generally agree with the basic ideas and main contents of the Provisions, and put forward some specific amendments. After careful study, the CSRC absorbed and adopted some of the opinions and suggestions, and made amendments and improvements.

There are 19 articles in the "Provisions", the main contents of which are four aspects: first, to reduce the commission rate of fund stock transactions, second, to reduce the upper limit of the proportion of securities trading commissions to fund managers, third, to comprehensively strengthen the relevant compliance and internal control requirements of fund managers and securities companies, and fourth, to clarify the content and requirements of information disclosure of transaction commissions at the fund manager level.

The promulgation and implementation of the "Provisions" will further optimize the commission system for fund securities transactions, reduce the transaction costs of fund investors, and help guide securities and fund operating institutions to further correct their business philosophy, focus on improving investors' long-term returns, provide better trading, research and investment services, and promote the formation of a good industry development ecology. In the next step, the China Securities Regulatory Commission will guide the CSRC and industry associations to do a good job in the interpretation, training and implementation of the new regulations, and organize industry institutions to complete the adjustment of the commission rate for the first stock transaction by July 1, 2024.

Provisions on the Administration of Securities Transaction Costs of Publicly Offered Securities Investment Funds

Article 1 These Provisions are formulated in accordance with the Securities Investment Fund Law, the Securities Law and other laws, administrative regulations and the provisions of the China Securities Regulatory Commission in order to further strengthen the management of securities transaction costs of publicly offered securities investment funds (hereinafter referred to as funds), standardize the management of securities transaction commissions and distributions of fund managers, protect the legitimate rights and interests of fund share holders, and enhance the service capabilities of institutional investors of securities companies.

Article 2 The mode of fund manager's participation in securities trading includes entrusting a securities company to handle it (hereinafter referred to as the brokerage trading model) and leasing a trading unit from a securities company (hereinafter referred to as the leasing trading unit model).

Fund managers should reasonably choose the securities trading mode to reduce transaction costs based on their own compliance and risk control capabilities, information system construction, product management scale, etc.

Article 3 A fund manager shall select a securities company with good financial status, standardized business conduct, compliance and risk control capabilities, and strong trading and research capabilities to participate in securities transactions.

Different funds managed by a fund manager may entrust the same securities company or share a trading unit to conduct securities transactions.

Article 4 The fund manager shall sign an agreement with the securities company that provides securities trading services, stipulating the rights and obligations of both parties, and clarifying the service content, the price standard and calculation method of the transaction commission.

In principle, the commission rate for stock trading of passive equity funds managed by fund managers shall not exceed the average market commission rate for stock trading, and shall not pay for other expenses such as research services and liquidity services through trading commissions;

The average market commission rate for stock trading is calculated by the Securities Association of China on a regular basis and notified to industry institutions. If the commission rate for stock trading agreed between the fund manager and the securities company is higher than that provided for in the preceding paragraph, the adjustment of the transaction commission rate shall be completed within three months.

Article 5 The total annual trading commission of a fund manager for securities trading through a securities company shall not exceed 15% of the total commission for all fund securities transactions in the current year. The domestic securities brokerage business subsidiaries controlled by securities companies are included in the consolidated calculation of the parent company.

Fund managers whose total management scale of equity and hybrid funds at the end of the previous year does not reach RMB 1 billion are not subject to the restrictions in the preceding paragraph, but the total annual trading commission for securities trading through a securities company shall not exceed 30% of the total commission for securities trading of all funds in the current year.

Article 6 The provisions of Article 5 shall not apply to the funds managed by the fund manager that adopt the brokerage trading model. If a fund manager newly leases a trading unit to conduct securities trading, the commission ratio of the securities transaction of the corresponding fund product shall meet the provisions of Article 5 from the second year.

Fund managers shall not circumvent the provisions of Article 5 by changing the trading mode of securities of existing funds.

Article 7 The fund manager shall establish and improve the management system for the selection of securities companies, the signing of agreements, the evaluation of services, and the distribution of trading commissions, and it is strictly forbidden to link the selection of securities companies, the leasing of trading units, and the distribution of trading commissions with the scale of fund sales and holdings, and it is strictly forbidden to promise the trading volume and commissions of fund securities to securities companies in any form or to exchange interests with securities companies by using trading commissions.

Fund managers shall establish a mechanism for segregating trading, investment research, sales and other businesses, and fund sales personnel shall not participate in business links such as the selection of securities companies, the signing of agreements, the evaluation of services, and the distribution of transaction commissions.

Article 8 The fund manager shall not use the transaction commission to transfer and pay expenses to a third party, including but not limited to the expenses arising from the use of external expert consultation, financial terminals, research platforms, databases, etc. Funds managed by fund managers that adopt the brokerage trading model are excluded from the use of trading commissions to pay research service fees to third-party securities companies.

Article 9 Where a fund manager entrusts a money brokerage company to provide brokerage services for the fund, the relevant service fees shall not be paid from the assets of the fund.

Article 10 The fund manager shall conduct securities transactions in strict accordance with the investment scope and investment strategy agreed in the legal documents of the fund, and it is strictly forbidden to harm the interests of the holders of fund shares by increasing the volume of securities transactions.

Article 11 The general manager, compliance officer and other senior management personnel of the fund manager shall conscientiously perform their compliance management duties, and the compliance officer shall conduct compliance review on the selection of securities companies, the signing of agreements, service evaluation, the distribution of transaction commissions, the management of investment operations, and the conversion of trading modes of existing funds involved in the securities transactions of the Company.

Article 12 The fund manager shall, before March 31 of each year, publicly disclose on the official website the criteria and procedures for selecting securities companies, the affiliation with the securities companies providing services, the stock transaction commission rate, the annual summary and distribution details of trading volume, and the annual summary expenditure and distribution details of trading commissions. The format and content of the relevant information disclosure shall be announced separately by the Asset Management Association of China.

Where a fund manager violates the provisions of Article 5 of these Provisions, it shall disclose and explain it in the fund's annual report.

The fund manager shall properly keep the documents and materials of the company's participation in securities transactions for a period of not less than 20 years.

Article 13 A securities company shall strengthen the management of the leasing and use of trading units, perform reporting and other obligations to securities trading venues in accordance with regulations, and the transaction commissions charged for leasing trading units shall not be lower than the cost of relevant services. Securities companies are not allowed to use trading commissions to transfer and pay fees for fund managers in violation of regulations to third parties. Securities companies should strengthen the capacity building of securities trading services, strengthen the allocation of personnel positions, increase investment in information systems, and provide more secure, convenient and high-quality securities trading services.

Securities companies shall establish and improve internal management systems for research services, continue to strengthen the construction of talent teams such as researchers, improve the professional ability, business quality and compliance level of research services, and strictly regulate the professional conduct of research service practitioners. Securities companies shall, according to the research service needs of professional institutional investors such as fund managers, formulate corresponding systems and procedures, and allocate sufficient professionals to provide professional and prudent research services in the interpretation of research reports and follow-up research.

Article 14 A securities company shall establish and improve a mechanism for identifying, evaluating and preventing conflicts of interest in fund distribution business, so as to effectively prevent conflicts of interest between fund sales and securities trading, research services and other businesses.

Securities companies shall establish and improve a scientific and reasonable remuneration and performance appraisal system, focusing on the assessment of the compliance of sales departments, branches and employees, the scale of sales holdings, and the long-term investment income of investors, and shall not directly or indirectly use the securities trading volume and transaction commissions of the fund as performance appraisal indicators of the sales departments and branches, nor shall they be linked to the remuneration and performance of fund sales personnel.

Article 15 The fund custodian shall establish and improve the fund securities transaction supervision system and mechanism, strictly supervise the securities trading behavior of the fund under its custody, pay attention to the transaction commission expenditure of the fund under its custody, and report to the China Securities Regulatory Commission in a timely manner when it is found that it violates the provisions of laws and regulations and the fund contract, and affects the interests of the fund share holders.

Article 16 Fund managers, fund custodians and securities companies shall cooperate with the stock exchange to strengthen the management of securities trading activities, assist China Securities Depository and Clearing Corporation Limited to make relevant system and technical adjustments, and sign agreements on the specific responsibilities of each party to ensure that the business compliance of securities trading, controllable risks, timely and efficient fund liquidation, and the independence and integrity of fund assets.

Article 17 Fund managers, fund custodians, securities companies and their staff shall strictly abide by the relevant provisions on honest practice, and shall not directly or indirectly convey improper benefits to others or seek improper benefits.

Article 18 If a fund manager, fund custodian, securities company and its staff violates these provisions, the China Securities Regulatory Commission may, in accordance with the Measures for the Supervision and Administration of Publicly Offered Securities Investment Fund Managers and the Regulations on the Honest Practice of Securities and Futures Business Institutions and Their Staff, take measures such as regulatory talks, issue warning letters, order public explanations, order regular reports, order corrections, suspend part or all of their business in accordance with the law, temporarily refuse to accept documents related to administrative licensing in accordance with the law, and identify them as unsuitable persons in accordance with the law.

Article 19: These Provisions shall come into force on July 1, 2024. The Notice on Issues Concerning the Improvement of the Trading Seat System for Securities Investment Funds (Zheng Jian Ji Jin Zi [2007] No. 48) issued by the China Securities Regulatory Commission shall be repealed at the same time.

Explanation for the drafting of the Provisions on the Administration of Securities Transaction Costs of Publicly Offered Securities Investment Funds

In order to further strengthen the management of securities transaction costs of publicly offered securities investment funds, standardize the management of securities transaction commissions and distribution of public fund managers, protect the legitimate rights and interests of fund share holders, and enhance the service capabilities of institutional investors of securities companies, the Commission will study and formulate the "Regulations on the Management of Securities Transaction Costs of Publicly Offered Securities Investment Funds" (hereinafter referred to as the "Regulations"). The relevant situation is explained as follows:

1. Drafting background

In February 2007, the Commission issued the Notice on Issues Concerning the Improvement of the Trading Seat System for Securities Investment Funds (Zheng Jian Ji Jin Zi [2007] No. 48) to standardize the trading seat system of securities investment funds, and to make requirements for the upper limit of fund companies' commission distribution, prevention of benefit transfer, information disclosure arrangements, and the supervision responsibilities of fund custodians. On the whole, the trading seat system of securities investment funds has played a positive role in standardizing the trading behavior of fund companies and protecting the legitimate rights and interests of investors. In July 2023, the Commission issued the "Work Plan for the Rate Reform of the Public Fund Industry", proposing to reasonably optimize the commission system for securities transactions of public funds. Accordingly, we will study and formulate the "Regulations" to optimize and improve the transaction commission distribution system, and further strengthen the supervision of the distribution of securities trading commissions of public funds.

Second, the main content

There are 19 articles in the Provisions, the main contents of which are as follows:

(1) Clarify the level of commission rates for securities transactions. The first is to reasonably reduce the securities transaction commission rate of public funds, of which passive equity fund products shall not pay for research services, liquidity services and other fees through securities transaction commissions, and the stock transaction commission rate shall not exceed the average market stock transaction commission rate level in principle; The second is to clarify the release mechanism of the average commission rate level. The Securities Industry Association shall regularly calculate and calculate the changes in the commission rate of industry transactions, and the industry institutions shall adjust accordingly within the prescribed period.

(2) Reduce the upper limit of the proportion of securities transaction commission distribution. First, for managers with equity funds with a management scale of less than 1 billion yuan, the upper limit of the commission distribution ratio will be maintained at 30%, and for managers with an equity fund management scale of more than 1 billion yuan, the upper limit of the commission distribution ratio will be reduced from 30% to 15%. The second is to clarify the requirements for the distribution ratio of transaction commissions under the coexistence of the brokerage trading model and the rental trading unit model.

(3) Strengthen the internal system requirements of fund managers and securities companies. First, it is required that fund managers shall establish and improve management systems for the selection of securities companies, the signing of agreements, the evaluation of services, and the distribution of transaction commissions, and it is strictly forbidden to link the selection of securities companies, the leasing of trading units, and the distribution of trading commissions with the scale of fund sales and holdings, and it is strictly forbidden to promise the trading volume and commissions of fund securities to securities companies in any form or to use transaction commissions to exchange interests with securities companies, and it is strictly forbidden to use transaction commissions to transfer payment fees to third parties. We and the dispatched agencies will comprehensively strengthen the supervision of trading behaviors, and strictly hold accountable those who violate the rules. The second is to strengthen the research capacity building of securities companies, optimize the assessment and incentive mechanism of the fund sales business of securities companies, require securities companies to establish a mechanism, effectively prevent conflicts of interest between fund sales and securities trading, research services and other businesses, improve the internal assessment mechanism of fund sales business, and strictly prohibit the securities trading volume and transaction commission of the fund as the assessment indicators of sales departments, branches and fund sales personnel. The third is to consolidate the responsibilities of fund custodians and strengthen external supervision and constraints.

(4) Clarify the content and requirements of information disclosure at the fund manager level. The disclosure requirements for the overall transaction commission rate level and distribution at the fund manager level have been added, and the relevant disclosure template will be issued separately by the AMAC.

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