The introduction of new disclosure requirements by China’s securities regulator has prompted a mini-exodus of capital “outsourced” by banks to ETF’s.
China’s ETF’s have released their first quarterly reports since the introduction of new regulations that require them to disclose any individual investors who hold 20% or more fund shares.
The China Securities Regulatory Commission introduced this requirement in March, with the goal of revealing the extent to which banks have entrusted or outsourced management of capital to fund companies, as well as to shine a spotlight on risks.
According to a recent Caixin report the introduction of the new regulations has already prompted a withdrawal of outsourced funds from publicly offered funds, with some institutions retracting their capital completely.
Their analysis found that out of 92 exchanged-traded bond funds a total of 57 had single investors who held stakes in excess of 20%, comprising more than 60% of the total.
During the first quarter investors holding more than 20% in six of the funds withdrew their capital completely, while a total of 19 saw net redemptions.
The outsourcing by banks of investments to funds has become a focal point for regulators, due to concerns over liquidity risk and the adverse impact of large-scale redemptions by big investors upon the rights and interests of smaller stakeholders.
CSRC has sought to place restriction on the amount of capital that banks can outsourced to investment funds, establishing warning thresholds of 20% and 50% respectively in the the draft version of the “Publicly Offering Open Securities Investment Fund Liquidity Risk administrative Provisions” that it released at the end of March.
The draft provisions would set stringent conditions for any individual investor whose holdings in funds reach 50% or more of net assets, requiring that companies use their own capital or shareholder capital to subscribe for products worth no less than 10 million yuan, in order to establish an indirect tie between the products and company capital, and restrict any disorderly or discretionary issuance.
The second would be restriction of non-monetary products to those that are closed or closed for set terms of at least 3 months, in order to prevent the rapid withdrawal of outsourced capital or large-scale trading movements from adversely affecting liquidity.