Procedures for Stock Market Investment by Insurance Funds
For the qualified insurance companies and insurance asset management companies proposing to undertake equity investment in the public market, the following 2 steps shall be carried out initially: (1) entrusting the insurance funds in custody of a bank; (2) obtaining seats in the exchange market.
Step 1 custody of insurance funds
The qualified insurance companies or the insurance asset management companies shall make a trust agreement with commercial banks or other financial institution, in which the settlement of the account, assets evaluation, and supervision on the utilization of these insurance funds, both parties’ rights and duties shall be covered under this agreement. The trustee could be a Chinese commercial bank which its paid-in capital is no less than Renminbi8 billion Yuan and has 3 year experience in custody of insurance funds. Additionally, according to the Announcement of China Banking Regulatory Commission about the Market Access Procedures for Foreign-funded Banks within China to Engage in the Custodian Business of Stock Assets of Insurance Companies, if they satisfy the requirements set in this annoucnement, foreign-funded banks could be entrusted by insurance companies and insurance asset management companies in custody of insurance funds.
Step 2, obtaining seats in exchange market
Due to the membership-based system in Shanghai and Shenzhen Stock Exchange, the one who wants to sell and purchase stocks shall have a seat in the exchange markets, which is also applicable for the qualified insurance companies and insurance asset management companies trading there.
How shall the qualified insurance companies and insurance asset management companies get seats in exchange market? 2004 year’s Interim Measures for the Administration of Stock Investments of Insurance Institutional Investors gives a vague answer. Article 37 of this measure states that “the insurance asset management companies and qualified insurance companies investing in stock market shall process stock dealing through their independent seats.”
But article 41 of this measure states that “if the insurance institution investor choose to process stock dealing through the seats owned by securities dealers, the securities dealers shall match the following conditions……”. In this measure, it is confusing that who can do stock dealing through their individual seats? Who can do stock dealing through the seats owned by securities dealers? How to get individual seats? How to do stock dealing through the seats owned by securities dealers?
On the side of CIRC and insurance companies, for the consideration of risk control, they wanted the insurance investors to obtain independent seats in the exchange market, which will reduce the costs and be easy to control risks. Additionally, some insurance companies have already obtained seats to deal with bonds or funds rather than stock in the exchange market, so they wanted these seats to be allowed to deal with stock directly. One the side of CSRC and securities dealers, for the consideration of commission income and membership system, they want the insurance investors process stock dealing through the seat owned by securities dealers.
Oct. 25th 2004, based on the coordination between CIRC and CSRC, the Notice of the China Insurance Regulatory Commission and the China Securities Regulatory Commission on Issues Related to Stock Investment Trading of Insurance Institutional Investors was promulgated by CIRC. According to this notice, insurance asset management companies can apply for independent seats from stock exchanges or both qualified insurance companies and insurance asset management companies can lease seats from securities dealers. In practice, only a few of insurance asset management companies have obtained independent seats in stock exchange. Most insurance companies have to lease the seat owed by insurance asset management companies or large scale securities dealers.