The China Securities Regulatory Commission (CSRC) issued a draft for public comment on the Measures for the Administration of the Operation of Publicly Offered Securities Investment Funds (Draft for Comment) and supporting rules on October 9.

The move aims to standardize the investment operations of publicly offered securities investment funds (hereinafter referred to as "public funds"), support the development of equity funds, and enhance the operational flexibility of public funds.

Ten key highlights at a glance:

1. Lowering the establishment threshold for equity funds to support managers in making counter-cyclical arrangements for equity products.

2. Optimizing regulatory requirements for index funds to promote high-quality development of index-based investing.

3. Improving arrangements for funds investing in other funds to support public funds in enhancing asset allocation efficiency.

4. Broadening fund investment strategies and operational forms to create more room for fund innovation.

5. Refining management requirements for mini funds to guide the orderly exit of small-scale products.

6. Optimizing the holders' meeting mechanism to improve fund governance efficiency.

7. Clarifying counter-cyclical product arrangement requirements to place greater emphasis on investor returns.

8. Strengthening investment research support to effectively enhance the core professional capabilities of fund managers.

9. Strictly regulating "style drift" and "sector betting" to improve the robustness of investment operations.

10. Increasing legal liability for violations and strengthening coordination between self-regulatory and administrative supervision.

The Measures for the Administration of the Operation of Publicly Offered Securities Investment Funds (hereinafter referred to as the "Operation Measures") is an important supporting departmental rule of the Securities Investment Fund Law of the People's Republic of China (hereinafter referred to as the "Securities Investment Fund Law"). It specifies matters related to investment operations such as product registration, subscription and redemption, investment restrictions, income distribution, and holders' meetings, and has played an important role in standardizing fund investment operations, protecting investor rights, and promoting industry development.

The current Operation Measures has been in effect for over 10 years since its revision and release in 2014, during which both the market environment and the public fund industry landscape have undergone significant changes. Against this backdrop, the CSRC has revised the relevant measures and supporting rules.

In terms of revision content, the changes mainly include improving regulatory requirements for fund investment operations, supporting the development of equity funds, and optimizing certain investment operation indicators and mechanisms.

Improving Regulatory Requirements for Fund Investment Operations

First, consolidating the primary responsibility of fund managers in investment operations, requiring fund managers to strengthen counter-cyclical arrangement management of fund products, adhere to rational and prudent investment, and establish and improve risk management mechanisms that promote stable fund operations.

Second, strengthening management of investment style stability, reinforcing the binding role of performance benchmarks, requiring industry-themed funds to clearly define the investment direction indicated by the fund name, and requiring non-industry-themed funds to adhere to the principle of diversified investment.

Third, strengthening investor structure management, requiring fund managers to establish and improve monitoring, identification, and control mechanisms for large-amount subscriptions and redemptions, and optimizing requirements for the fund position-building period.

Fourth, strengthening self-regulatory management and administrative supervision, clarifying that stock exchanges should enhance rule-making, review management, and monitoring of listed funds in accordance with the principle of prudence; at the same time, increasing the magnitude of administrative penalties, adding a basis for administrative penalties against responsible persons, and raising the cost of violations.

Supporting the Development of Equity Funds

First, optimizing the supply of equity fund products by lowering the establishment threshold for equity funds, fund of funds (FOF), and similar funds from 200 million yuan in scale and 200 million units in shares to 50 million yuan and 50 million units respectively, while maintaining the establishment threshold for fixed-income funds unchanged.

Second, optimizing regulatory requirements for index funds, including refining regulatory requirements related to stake acquisition, reduction, and short-swing trading for fully passive replication index funds; and moderately relaxing trading restrictions for other index funds.

Third, enhancing the stability of equity positions in hybrid funds, requiring hybrid funds to clearly stipulate the allocation ratios of various asset classes and putting forward targeted regulatory requirements by category to promote alignment between hybrid fund risk ratings and actual risk characteristics.

Fourth, broadening space for product innovation by improving the definitions of fund types such as equity funds and bond funds, optimizing dividend requirements for closed-end funds, and enriching types of fund operation methods, thereby helping to diversify fund investment strategies and meet the diverse needs of investors.

Optimizing Certain Investment Operation Indicators and Mechanisms

First, improving regulatory requirements for "mini funds," requiring fund managers that choose to continue operating mini funds to bear the fixed cost of fund operations, and requiring the establishment of a mandatory exit mechanism for fund products with excessively low scale to effectively protect the interests of holders.

Second, optimizing exit requirements for sponsored funds by deleting the current provision that a sponsored fund must terminate its fund contract if its scale is less than 200 million yuan after three years from establishment.

Third, improving the governance efficiency of holders' meetings by revising and improving, within the framework of the Securities Investment Fund Law, the circumstances under which a holders' meeting must be convened, clarifying that fund managers may modify the agreed content of fund contracts without convening a holders' meeting under specified circumstances, and at the same time strengthening obligations such as advance notice by fund managers and reaching consensus with fund custodians.

To ensure the smooth implementation of the relevant provisions, the regulator has set a one-year transition period. Where the original fund contract does not comply with the Operation Measures and supporting rules, fund managers and fund custodians are permitted, during the transition period, to modify the fund contract through negotiation and make an announcement in accordance with the fund contract.

The CSRC stated that this revision is an important institutional arrangement for implementing the Action Plan for Promoting the High-Quality Development of Public Funds and driving the industry from "scale growth" toward "quality improvement."

The revision adheres to strengthening supervision, preventing risks, and promoting high-quality development, highlights an investor-oriented approach, focuses on pain points and bottlenecks in the investment operations of public fund products, and strives to promote the industry's return to its origin of "entrusted by others, managing money on behalf of clients," effectively enhancing investors' sense of gain.