Membership Management Rules of Shenzhen Stock Exchange

Transcription

1 Membership Management Rules of Shenzhen Stock Exchange Chapter I General Rules 1.1 These Rules are formulated in accordance with the Securities Law of the People s Republic of China (hereinafter, the Securities Law), Regulation on Supervision and Administration of Securities Firms, Regulation on the Risk Disposal of Securities Firms, the Measures for the Administration of Stock Exchanges and other laws, administrative regulations, rules of competent authorities, regulatory documents, as well as the Constitution of Shenzhen Stock Exchange (hereinafter, the Exchange s constitution) for the purposes of regulating member securities firms of Shenzhen Stock Exchange (hereinafter, the Exchange), safeguarding transactions and their relevant activities, maintaining an orderly securities market and protecting the legitimate rights and interests of investors. 1.2 These Rules shall be applicable to ordinary members (hereinafter, members). The rules that govern special members shall be formulated by the Exchange separately. 1.3 Members conducting securities transactions and relevant activities on the Exchange shall comply with laws, administrative regulations, rules of competent authorities as well as the Exchange s constitution and operational rules, act with honesty and in good faith, ensure compliance in operations and be subject to the self-regulatory oversight of the Exchange. 1.4 The directors, supervisors and senior officers of members, business liaison persons shall comply with laws, administrative regulations, rules of competent authorities as well as the Exchange s constitution and operational rules, perform their duties with loyalty and diligence and be subject to the self-regulatory oversight of the Exchange. 1.5 The Exchange exercises self-regulatory oversight over members and their directors, supervisors, senior officers, representatives and business liaison persons in accordance with laws, administrative regulations, rules of competent authorities, regulatory documents, the Exchange s constitution, these Rules and other operational rules of the Exchange and under the authority delegated by China Securities Regulatory Commission (hereinafter, CSRC). Chapter II Management of Membership Section 1 Management of Member Qualifications A domestic securities institution that meets the following requirements may apply for membership of the Exchange. (1) It is established with the approval of the CSRC and has been granted the securities business license by the CSRC; (2) It has obtained the business license for enterprise legal person from the business registration authority in accordance with law; 1

2 (3) It has robust risk management and internal control systems; (4) It has up-to-standard business premises, facilities and technical systems; (5) It accepts and complies with the Exchange s constitution and operating rules; and (6) Other requirements as prescribed by the CSRC and the Exchange A securities institution that applies for membership of the Exchange shall submit the following documents: (1) An application; (2) The approval document regarding its establishment; (3) Its securities business license; (4) Its business license for enterprise legal person; (5) Its articles of incorporation; (6) Personal information on directors, supervisors and senior officers; (7) The names of shareholders with 5% of shares or above and de facto controller, and their respective capital contribution; shareholding percentages, scopes of business, registered capital, registered addresses and legal representatives; (8) Information of names, capital contribution, shareholding ratios on its domestic and overseas controlled subsidiaries and invested companies; and (9) Other documents as required by the Exchange. The securities institution shall submit the above documents in conformity with the ways and requirements of the Exchange The Exchange will accept the application if the application documents are complete. Within 10 trading days of acceptance thereof, the Exchange will make its decision whether or not to grant membership to the applicant. If the Exchange grants membership to the applicant, it will issue a membership certificate and make an announcement accordingly A member applying for change of its name shall submit the following documents to the Exchange: (1) An application; (2) The approval document regarding the change; (3) Its new securities business license; (4) Its new business license for enterprise legal person; (5) Its new articles of incorporation; (6) Its membership certificate; and (7) Other documents as required by the Exchange The Exchange will accept the member s name change application if the application documents are complete. Within 10 trading days of acceptance thereof, the Exchange will re-issue a membership certificate and make an announcement accordingly. 2

3 2.1.6 A member shall file an application with the Exchange for termination of its membership if: (1) It is cancelled or ordered to close down by the CSRC in accordance with law; (2) Its securities business license is revoked by the CSRC in accordance with law; (3) It is dissolved with the approval of the CSRC; or (4) It no longer meets other membership criteria prescribed in these Rules. A member that falls within any of the circumstances enumerated in (1), (2) and (3) of the previous paragraph shall file an application with the Exchange for termination of its membership within 30 trading days of receiving the CSRC s relevant decision A member applying for termination of its membership shall submit the following documents to the Exchange: (1) An application; (2) Relevant approval document or written decision; (3) Its membership certificate; (4) An statement on winding up of its business; and (5) Other documents as required by the Exchange The Exchange will accept the member s membership termination application if the application documents are complete. Within 10 trading days of acceptance thereof, the Exchange will make its decision whether or not to approve the termination The Exchange may in its discretion determine termination of a member s membership with a written notice if the member fails to apply for termination of its membership pursuant to the provisions in Section hereof. If the member objects to such decision, it may, within 15 trading days of receiving the notice, apply to the Exchange for review The Exchange will cancel a member s membership and make a relevant announcement if the Exchange approves the latter s membership termination application or decides to cancel the latter s membership. The membership certificate will become invalid since the date of cancellation Where the Exchange cancels a member s membership, the entity concerned shall complete relevant procedures and pay off relevant fees in a timely manner Where a member is assigned a custodian or receiver by China Securities Regulatory Commission (hereinafter, the CSRC) in accordance with law, in exercising of operating and management rights over the securities trading business placed in custody, the custodian or other relevant entity shall procure that the member complies with the Exchange s regulations and assumes relevant obligations. 3

4 Section 2 Member s Representative and Liaison Persons A member shall have a representative to communicate with the Exchange representing the member and be responsible for organizing and coordinating business exchanges between the member and the Exchange. A member s representative shall be a senior officer of the member. A member shall furnish its representative with conveniences for the performance of his duties and responsibilities. Its directors, supervisors and other senior officers and other relevant persons shall coordinate with its representative in his work A member shall have several liaison persons. Liaison persons shall perform the following duties and responsibilities under the authority delegated by members representatives: (1) To receive the various notices and information issued by the Exchange timely, accurately and completely and submit the documents and materials pursuant to relevant regulations as required by the Exchange; (2) To handle the affairs relating to the membership, seat, trading unit and trading authority; (3) To coordinate with the Exchange in the construction, modification and testing of trading and other relevant systems; (4) To handle the affairs relating to members compliance, margin trading, short selling and investor education; (5) To urge members to perform reporting duties and responsibilities and fulfill announcement obligations in a timely manner; and (6) Other duties and responsibilities as required by the Exchange Member representatives and business liaison persons shall be appointed by the Exchange based on the recommendation by the members. Members that recommend member representatives shall submit the following documents: (1) Membership recommendation documents; (2) The certificate of service for top executives; (3) The contacts of the proposed recommended persons; Business liaison persons shall have qualifications for securities business. Members that recommend business liaison persons shall submit the documents prescribed in (1) and (3) of the previous paragraph as well as the numbers of qualification certificates of securities practitioners The recommended member representative and membership liaison persons shall be deemed as approved by the Exchange if the relevant recommendation documents are complete and proper and the Exchange does not raise any objection within 5 trading days of receipt thereof. The Exchange may provide training to member representatives and business liaison 4

5 persons when needed A member shall replace its representative or business liaison person promptly if any of the following applies and report to the Exchange within 5 trading days; (1) Its representative is no longer a senior officer; (2) Its representative or business liaison person has been unable to perform his duties and responsibilities for more than three consecutive months; (3) Its representative or business liaison person makes a major mistake with severe consequences when performing his duties and responsibilities; or (4) Other circumstances as determined by the Exchange which render the representative or business liaison person unsuitable for his post. In case that a member fails to replace its representative or business liaison person upon the occurrence of any of the circumstances set forth in the preceding paragraph, the Exchange may in its discretion require replacement A member that changes its representative or business liaison person shall submit all the documents enumerated in Section hereof to the Exchange During the vacancy of the office of the representative, the member s legal representative or any senior officer so designated shall perform the duties and responsibilities of the representative until a new representative is recommended by the member. Section 3 Reports and Announcements Members shall fulfill relevant reporting obligations in a timely manner as required by the Exchange. The information and materials submitted by a member to the Exchange must be true, accurate and complete A member shall submit a report to the Exchange within 5 trading days upon the occurrence of any of the following circumstances: (1) Any change in the documents submitted pursuant to (3), (4), (6), (7) or (8) of Section hereof; or (2) Its establishment, acquisition or cancellation of any of its branches, change of the address or principal officer of any of its branches, change in material clauses of its articles of incorporation, or its merger, division or change of corporate form; (3)The risk control indicators, such as net capital and etc. are not in conformity with the requirements of the CSRC; (4)The involved amount of individual external guarantee or the sum amount within 12 months are occupied more than ten percent of the recently audited net capital; (5)The involved amount of lawsuit or arbitration or the sum amount within 12 months are occupied more than ten percent of the recently audited net capital; (6)The member or its directors, supervisors or top executives are investigated by the 5

6 authorized institution for violating the law or regulation or subject to criminal or executive punishment; (7)The member changes the accounting firm; (8)The resolutions of the shareholder meeting, general meeting of shareholder or board of directors are cancelled or announced invalid pursuant to law; (9)Other matters prescribed by the CSRC and the Exchange Upon the occurrence of any of the following circumstances, a member shall report to the Exchange promptly and report the progress thereof on an on-going basis: (1) Material business risk that affects trading on the market; (2) Major technical failure in trading and relevant systems that disables normal trading; (3) Force majeure or unexpected event that affects the normal trading of clients; (4) Commencement of risk handling proceedings, be subject to such measures of the CSRC as suspending its business operations for rectification, placing it under the custody of a designated institution, having it taken over by a designated institution, or having it restructured or cancelled; or (5) Other major events that impact its normal conduct of business. The member shall make an announcement promptly at its premises or on its website upon occurrence of the abnormal situations enumerated in (1), (2), (3) and (4) of the preceding paragraph. Section 4 Membership Fee A member shall pay relevant fees on schedule in accordance with the fee items, standards and collection methods prescribed by the Exchange Where a member is in arrears in its payment of relevant fees, the Exchange may, depending on the circumstances, suspend accepting the member s relevant business applications or processing of the member s relevant business Where a member is designated a custodian or a receiver by the CSRC, it shall, pursuant to the requirement of the Exchange, pay relevant charges that arise in order to ensure normal securities transactions. If the member is unable to pay the charges on time, the Exchange may, depending on the circumstances, take appropriate measures. Chapter III Management of Seats, Trading Units and Trading Authority 3.1 A member shall secure and at least hold one seat on the Exchange. 3.2 A member may secure a seat by purchase from the Exchange or transfer from another member. No member may return any seat to the Exchange. 3.3 The Exchange imposes controls over the maximum number of trading seats. 6

7 3.4 In order to participate in securities trading after being granted a seat, a member shall apply to the Exchange for the trading unit and trading authority and become a trading participant of the Exchange. 3.5 The detailed implementing rules on the management of seats and trading units shall be prescribed by the Exchange separately. 3.6 The Exchange manages the trading authority of members in accordance with relevant rules, through the trading unit, taking into account their following information: (1) Scope of business; (2) Tolerance of market risk; (3) Status of trading and relevant systems; (4) Internal risk control; (5) Availability of professionals; and (6) Compliance with the Exchange s rules. 3.7 The Exchange may determine, adjust and restrict the trading products, modes and sizes for members in its management of the trading authority of members. Chapter IV Management of Securities Trading and Relevant Business 4.1 A member that undertakes securities trading business shall establish trading compliance and internal risk control and management mechanisms, improve business processes and technical means, exercise effective supervision of its own and its clients trading activities and prevent unusual and irregular trading activities. 4.2 A member that undertakes securities brokerage business shall enter into a broker-client agreement with its clients. It shall accept and act upon clients securities trading instructions pursuant to the requirements of the Exchange s trading rules. In the broker-client agreement, a member shall clarify the rights and obligations of both parties and stipulate on providing client information, managing the account trading authority, handling unusual trading activities, rejecting client instructions and terminating the broker-client relationship. 4.3 When entering into a broker-client agreement with a client, a member shall verify the client s identity, know the client s credit status, and retain the photocopies or electronic copies of the client s identity documents, securities account and other certificates as well as other relevant materials. 4.4 A member shall keep complete, accurate and detailed records or vouchers of the funds and securities in their client s accounts and of client instructions and transaction data. It shall manage such records and vouchers under separate accounts and provide reconciliation and inquiry services for clients. 7

8 4.5 A member shall take effective measures to properly preserve such documents and materials as client account opening information, client instruction records and transaction records and prevent them from being lost, destroyed, forged and altered. Such documents and materials shall be kept no less than 20 years. 4.6 Unless otherwise specified in laws, administrative regulations or rules of competent authorities, regulatory documents, a member shall keep confidentiality of its clients information. 4.7 A member shall implement front-end control of proprietary trading and asset management business, verify the compliance of each order as to the funds, securities and price and identify and prevent business risk in a timely manner. A member shall take effective management measures and report to the Exchange in a timely manner upon the occurrence of unusual trading activities in its proprietary securities trading and asset management business. 4.8 A member that makes innovations in product or business through its proprietary trading account or asset management account and participates in securities trading on the Exchange shall, pursuant to the requirement of the Exchange, file the relevant proprietary trading accounts, asset management accounts and its product or business innovation plans with the Exchange for the record. 4.9 A member that conducts margin trading and short selling, pledge-style quoted repo, agreed buy-back securities trading, pledge-style stock repo trading shall comply with the relevant regulations of the Exchange A member shall strengthen management of securities accounts and shall not provide convenience for any securities transaction executed by any other person through unlawful use of accounts A member that undertakes securities investment advisory business shall establish a quality auditing mechanism for research papers and the procedures for releasing research papers and ensure that information is from legal source and conclusions are based on justifiable grounds. It shall fully disclose investment risk and avoid misleading investors and thus causing unusual movement in the prices of relevant securities A member shall strictly comply with the relevant regulations of the Exchange and guard against business risk when conducting securities underwriting, securities sponsorship, securities issuance and fund sales A member shall establish and enhance the Chinese wall system, take effective 8

9 measures to manage all the businesses where there exists a conflict of interest, strictly control improper use of sensitive information and prevent insider trading and conflicts of interest A member shall, pursuant to the requirements of the Exchange, take part in training programs on securities trading and relevant business and technology. Chapter V Management of Clients Trading Activities 5.1 A member shall perform its duties and responsibilities of management of clients trading activities, urge its clients to comply with the laws, administrative regulations, rules of competent authorities and regulatory documents relating to the trading of securities, as well as the rules of the Exchange, and guide investors in rational and lawful participation in securities transactions. 5.2 A member shall strengthen compliance management of its clients trading activities, designate a special department to be responsible for supervision and management of its clients trading activities, provide training to personnel whose work is related to clients transactions, and develop various systems for management of its clients trading activities. 5.3 When accepting a client s securities trading instruction, a member shall verify the client s identity and account s trading authority, check each instruction of the client as to the trading qualification, capital, securities and price, verify if the client has sufficient funds and securities available, and ensure that the client s instruction conforms to the provisions of the Exchange s rules. 5.4 A member shall establish a trading monitoring system to monitor the trading activities of its clients. It shall notify and remind the client of any unusual trading activity which it identifies in the monitoring or to which the Exchange issues a warning. In case that any unusual trading activity would seriously affect the normal orderly market, it may refuse any instruction from the client pursuant to the broker-client agreement and report to the Exchange in a timely manner. 5.5 A member shall closely monitor the watch list accounts as required by the Exchange, inform the client of relevant situation in a timely manner, require the client to mend its way and offer compliance education to the client. The term watch-list accounts refers to the securities accounts provided by the CSRC that are suspected of legal and regulatory violations, and the securities accounts involved in seriously unusual trading activities or in repeated unusual trading activities as discovered by the Exchange in real-time monitoring. 9

10 5.6 A member shall put in place a regulatory assistance system and process to facilitate the Exchange s investigations. At the request of the Exchange, it shall provide the relevant client information timely, accurately and completely and assist the Exchange in self-regulation of the client s trading activities. 5.7 Where the Exchange requires its member clients to submit a undertaking of compliance, the member shall communicate the Exchange s regulatory requirements to its clients in a timely manner and take effective measures to urge its clients to submit the undertaking of compliance with respect to trading of securities. 5.8 A member shall keep confidential the regulatory documents it receives from the Exchange and shall not leak the regulatory documents to any third party irrelevant to such documents without the permission of the Exchange. 5.9 The Exchange will establish an assessment mechanism of members management of their clients trading activities to assess members assistance in the Exchange s supervision and the results of their regulating of the trading activities of the watch list accounts. Chapter VI Management of Client Suitability 6.1 The Exchange will, based on the risk/return profile, complexity and market awareness of products or services and in accordance with laws, administrative regulations, rules of competent authorities and regulatory documents, develop rules for specific products or services (hereinafter, the Exchange products or services) and prescribe the means of risk disclosure with respect to the Exchange products or services and the suitability requirements such as market access requirements for investors. 6.2 A member shall, in accordance with the provisions of the operational rules of the Exchange, establish relevant client suitability management system, client classification and the Exchange products or services risk rating mechanisms, have adequate understanding of its clients and the Exchange products or services and provide appropriate Exchange products or services to suitable clients. 6.3 A member shall, in accordance with laws, administrative regulations, rules of competent authorities, regulatory documents as well as the operational rules of the Exchange, assess its clients risk perception and tolerance and implement differentiated management of its clients based on the latter s asset status, investment knowledge and experience, risk appetite, investment objectives, etc. A member shall record and keep clients information as well as its assessment results of their risk perception and tolerance in writing or electronically. 10

11 6.4 A member shall get to know the relevant information about the Exchange products or services to be offered to its clients, including the content, nature and risk/return profile of the Exchange products or services as well as relevant rules. 6.5 A member shall match clients with the Exchange products or services in terms of their suitability. It shall determine the types and scope of clients suitable for the Exchange products or services based on the risk/return profile, investment objectives, investment horizons, and etc. of the Exchange products or services and ensure that the Exchange products or services to be offered to its clients are commensurate to their risk perception and tolerance and meet the investor suitability management requirements of the CSRC, other regulatory bodies and self-regulatory organizations. 6.6 A member offering the Exchange products or services to its clients shall provide detailed information on the Exchange products or services to its clients, expressly inform its clients of the risk/return profile of the Exchange products or services, fully disclose the investment risk involved and, pursuant to the relevant rules of the Exchange, sign the risk disclosure statement with the clients. A member shall, pursuant to the requirements of the Exchange, track on an on-going basis the transactions of its clients that are involved in the trading of high-risk securities, disclose risk to the clients in various ways and guide them in rational investment. 6.7 A member shall introduce the market access system pursuant to the market access requirements of the Exchange and notify its clients of whether or not it grants access to the clients. A member shall refuse to offer the Exchange products or services to the clients that do not meet the relevant market access requirements. The market access requirements for investors include but are not limited to the investors asset status, investment knowledge and experience, etc. 6.8 A member offering the Exchange products or services to investors shall disclose to the investors the potential conflicts of interest between the investors and itself as well as the information that will help the investors understand relevant investment and make analysis. Chapter VII Management of Investor Education 7.1 A member shall conduct various investor education activities pursuant to the relevant regulations of the CSRC, other regulatory bodies, self-regulatory organizations as well as the relevant requirements of the Exchange. It shall guide investors in rational participation in securities transactions and improve their risk prevention awareness and self-protection capabilities. 11

12 7.2 A member shall establish and enhance the investor education system. It shall incorporate investor education in various business areas, create investor education positions, specify investor education job responsibilities, provide training to employees for investor education and ensure the funding and staffing of investor education work. 7.3 A member s investor education includes the following contents: (1) Securities laws, regulations and policies as well as the operational rules of the Exchange; (2) Securities investment knowledge and skills; (3) Securities products, business and their risk/return profile; (4) Securities market violation cases; (5) Macro-economic policies and industry developments; (6) Exercise of investors rights, handling of claims and resolution of disputes; and (7) Other contents relating investor education. A member shall supplement and adjust the contents of investor education in a timely manner based on its own investor education situation and in response to changes in market conditions to ensure that its investor education contents are up-to-date. 7.4 A member shall conduct investor education taking into account the types of investors. It shall provide education on the fundamental knowledge of securities business investment products, the characteristics of business or products, and investment risk and return and etc. to the investors who are new entrants, have low risk tolerance or are in specific age groups. 7.5 The Exchange will inspect, direct, supervise, coordinate, serve and assess member s investor education service and guide members in strengthening investor education. 7.6 The Exchange may conduct various investor education activities in line with market conditions. Members shall offer active cooperation and assist the Exchange in the organization and arrangement of relevant work. Chapter VIII Management of Securities Transaction Information 8.1 The right to and interest in the Exchange s securities transaction information shall be owned by the Exchange in accordance with law. The member who uses the security transaction information obtained from the Exchange shall enter into usage agreement with the Exchange or other entities authorized by the Exchange, and comply with the Exchange s regulations on the management of securities transaction information. 8.2 A member shall transmit securities transaction information via the 12

13 communications system licensed by the Exchange. 8.3 A member shall timely and accurately make pubic securities transaction information at its business premises for use by clients for conducting securities transactions. 8.4 Without the permission of the Exchange or any entity authorized by the Exchange, a member shall not use securities transaction information by the following means: (1) Providing securities transaction information to clients with or without compensation for use in activities other than their own securities transactions; (2) Providing securities transaction information to any entity or individual other than its clients with or without compensation; (3) Using securities transaction information outside its premises (including securities business outlets and online trading platform); or (4) Using securities transaction information by any other means prohibited by the operational rules of the Exchange or other authorization agreement. 8.5 A member shall inform its clients that they may not use securities transaction information in activities other than their own securities transactions. It shall also manage clients use of securities transaction information effectively. A member shall promptly take effective measures when discovering the clients are using the security transaction information in a way harming the interests of the Exchange, and later report to the Exchange. Chapter IX Management of Trading and Relevant Systems 9.1 A member shall, in accordance with the relevant regulations of the CSRC and other regulatory bodies and self-regulatory organizations, establish a trading system and relevant systems such as the quotation system and communications system (hereinafter, the trading and relevant systems) and develop corresponding management systems for operational security. The interface of the trading and relevant systems between the member and the Exchange shall conform to the technical management specifications prescribed or recognized by the Exchange or any entity authorized by the Exchange. 9.2 The performance, capacity and scalability of the member s trading and relevant systems shall be commensurate with its business development and market needs and ensure the continuous and stable operation of the trading and relevant systems. 9.3 A member shall enter into an agreement with the Exchange or any entity authorized by the Exchange for use of the service of the trading and relevant systems provided by the Exchange or such entity. 13

14 9.4 A member shall, in accordance with the technical specifications and business requirements of the Exchange or any entity authorized by the Exchange, modify the software and hardware of the trading and relevant systems and, pursuant to the requirement of the Exchange, participate in the test organized by the Exchange or any entity authorized by the Exchange and report test results to the Exchange in a timely manner. A member s modification and testing of its trading and relevant systems shall not affect normal trading activities. 9.5 A member s trading and relevant systems shall have such functions as the verification of the validness of clients instructions and management of clients trading authority to ensure that the orders routed to the Exchange trading system meet the requirements of the trading rules and relevant rules of the Exchange. 9.6 A member shall establish and implement the management system and operational procedures for day-to-day operation and maintenance of the trading and relevant systems to ensure the operational security and stability of the trading and relevant systems. 9.7 A member shall establish the back-up system and back-up communications lines for the trading and relevant systems and implement effective management thereof to ensure that the back-up system and back-up communications lines operate properly upon occurrence of accidents or disasters. 9.8 A member shall establish the data back-up and recovery management system, keep strict confidentiality of the business data and system data generated from securities transactions. Such data shall be timely backed up and stored in an off-site location. 9.9 A member shall examine the security and stability of its trading and relevant systems on a regular basis and develop a contingency plan. It shall also conduct regular or ad hoc contingency exercises pursuant to the requirements of the Exchange or of any entity authorized by the Exchange If a major technical failure that occurs in a member s trading and relevant systems or any other factor affects securities market transactions, it shall take immediate and effective measures and report to the Exchange in a timely manner A member shall take technical segregation measures between the trading and relevant systems and other technical systems, and between trading communications network and other application network. 14

15 9.12 A member shall ensure the security of its connection with the trading and relevant systems of the Exchange. Without the permission of the Exchange or the entity authorized by the Exchange, it shall not conduct any activity irrelevant to the securities business during trading hours through the Exchange s trading and relevant systems A member shall, pursuant to the relevant regulations of the CSRC and the Exchange, have an intimate knowledge of the access configurations of its own and its clients program trading systems and file the trading unit to be used for program trading and the relevant information with the Exchange for the record. Chapter X Resolution of Disputes 10.1 A member shall designate a department to be principally responsible for accepting and responding to clients complaints. It shall establish and enhance the complaint-handling mechanism, publicize the handling process and results and, pursuant to the requirements of the Exchange, report transaction-related complaints and its handling results to the Exchange A member shall put in place a self-help remedy mechanism pursuant to laws, administrative regulations as well as the relevant regulations of the CSRC, other regulatory bodies and self-regulatory organizations and compensate for the losses of investors in accordance with law A member shall keep a record of the business disputes between itself and other members for reference by the Exchange A member shall submit a report to the Exchange within 2 trading days of the occurrence of any business dispute between itself and other members or between itself and its clients if such dispute is likely to affect normal transactions A member shall, pursuant to the provisions of the relevant operational rules of the Exchange, verify major abnormal transactions that are obviously unfair, report the matter to the Exchange in a timely manner and offer cooperation at the request of the Exchange Business disputes between a member and any of its clients may be resolved by themselves, submitted to a mediation institution recognized by the Exchange for mediation, referred to an arbitration institution for arbitration, or brought to a people s court for judgment Business disputes between members may be referred to the Exchange for mediation. Members shall submit a written application for mediation and the 15

16 Exchange will produce a mediation statement if a mediation agreement is reached. The mediation statement shall take effect upon being signed by the members. Chapter XI Supervision and Inspection 11.1 The Exchange conducts real-time monitoring of securities trading activities, with a focus on unusual trading activities of members and their clients that are likely to affect the trading price or trading volume of securities The Exchange may conduct on-site or off-site supervision and inspection of members when it deems necessary for regulatory purposes The Exchange may, based on the principle of prudent supervision, require a member to make self-inspection of its securities transactions, business operations, compliance management, risk control as well as the operation of its technical system, and submit a special self-inspection report to the Exchange The Exchange may make special investigations into unusual trading activities and suspected violations of laws and regulations when it deems necessary for regulatory purposes The Exchange may take the following measures against any member when it deems necessary for regulatory purposes: (1) Oral warning; (2) Written warning; (3) Requiring an explanation within a specified time limit; (4) Summoning for a conversation; (5) Requiring self-examination or correction within a specified time limit; (6) Restricting trading under the relevant account; (7) Suspending acceptance of relevant applications or processing of relevant business; and (8) Reporting relevant irregular acts to the CSRC. When taking the regulatory measure prescribed in (6) or (7) of the preceding paragraph, the Exchange will report to the CSRC as well as the CSRC s regional offices The Exchange may take any of the regulatory measures enumerated in (1), (2),(3) and (4) of Section 11.5 hereof against a member if any of its directors, supervisors, senior officers, representatives, business liaison persons or other relevant persons breaches these Rules or the relevant regulations of the Exchange A member shall offer active cooperation in the Exchange s supervision, give timely explanations as required by the Exchange, and provide relevant business statements, account books, original vouchers, account opening materials as well as 16

17 other documents and materials. It shall not refuse to provide or delay in providing relevant materials by any reason, nor shall it provide false, misleading or incomplete materials. Chapter XII Disciplinary Actions 12.1 Where a member breaches these Rules or other relevant regulations of the Exchange, the Exchange will order the member to remedy its breach and, depending on the seriousness of the breach, take the following disciplinary actions either exclusively or concurrently: (1) Circulating a notice of criticism; (2) Public censure; (3) Restricting the trading authority of the relevant trading unit; (4) Withdrawing the trading authority of the relevant trading unit; (5) Cancelling membership. When taking the foregoing disciplinary actions, the Exchange will report to the CSRC as well as the CSRC s regional offices. A member subject to the disciplinary action enumerated in (3), (4), or (5) of the first paragraph shall make an announcement at its premises or on its website within 5 trading days of receiving a notice of the disciplinary action Where a director, supervisor, senior officer or representative of a member breaches these Rules or other relevant regulations of the Exchange, the Exchange will order the director, supervisor, senior officer or representative to remedy his breach and, depending on the seriousness of the breach, take the following disciplinary actions: (1) Circulating a notice of criticism; (2) Public censure. Where a director, supervisor, senior officer or representative of a member has been subject to a total of three disciplinary actions of the Exchange over the past 36 months, the Exchange may also report to the CSRC for identifying the director, supervisor, senior officer or representative as unsuitable for his post A member contending disciplinary action decisions enumerated in (2), (3), (4) and (5) of the first paragraph of Section 12.1 hereof, or any of its directors, supervisors, senior officers or representatives contending disciplinary action decision in (2) of the first paragraph of Section 12.2 hereof may apply to the Exchange for review within 15 trading days of receiving a notice of the disciplinary action. During the review period, the execution of the disciplinary action shall not be suspended. Matters relating to the review shall be governed by the relevant regulations of the 17

18 Exchange. Chapter XIII Supplementary Rules 13.1 Fund management companies, commercial banks, insurance companies or insurance asset management companies, overseas securities institutions providing services for foreign currency-denominated shares, and other entities recognized by the Exchange that meet the requirements of the Exchange on technical systems and relevant facilities, business and risk management, and internal control systems may become other trading participants of the Exchange, participate in securities transactions by hiring members trading units or by such other means as prescribed by the relevant regulations of the Exchange, subject to the self-regulatory oversight of the Exchange. Other trading participants involved in securities transactions on the Exchange shall be governed mutatis mutandis by the regulations of the Exchange relating to compliance management and risk control of member s proprietary trading and asset management business, management of clients trading activities and suitability, management of securities transaction information, management of trading and relevant systems, etc. They shall put in place relevant systems for business liaison with the Exchange and for reporting major business risk and technical failure to the Exchange. Where other trading participants breach these Rules or the operational rules of the Exchange, the Exchange may take self-regulatory measures or disciplinary actions against them by applying mutatis mutandis the relevant provisions of these Rules relating to the supervision and inspection of members and disciplinary actions against members For the purposes of these Rules, the following terms and expressions have the following meanings: (1) Ordinary Member:a domestic securities institution lawfully established as a legal person and granted membership by the Exchange under these Rules. (2) Special Member: a representative office of an overseas securities institution in the People s Republic of China meeting relevant requirements of the CSRC and granted membership by the Exchange. (3) Trading Unit: a basic business unit established upon application that allows the applicant to participate in securities trading on the Exchange, to be subject to the supervision of the Exchange, and accept service provided by the Exchange. (4) Securities Trading: trading of securities and the derivatives on securities. (5) Unusual Trading Activities: the unusual trading activities prescribed in the Trading Rules of Shenzhen Stock Exchange and other rules of the Exchange. (6) Securities Transaction Information: real-time quotations, securities indexes, transaction data and public securities transaction information in respect of relevant securities transactions generated from centralized trading of securities and derivatives on the Exchange pursuant to certain rules and processed by the 18

19 Exchange. (7) Major Technical Failure: the major technical failure prescribed in the rules of the Exchange relating to members management of trading and relevant systems. The meaning of any term or expression not defined in these Rules shall be determined pursuant to laws, administrative regulations, rules of competent authorities, regulatory documents as well as the relevant operational rules of the Exchange These Rules and any amendment hereto shall come into force after being adopted by the board of directors of the Exchange and approved by the CSRC The power to interpret these Rules shall rest with the Exchange These Rules shall be implemented as of the date of promulgation. 19