Article 121 The persons conducting securities transactions inside stock exchanges who violate the relevant trading rules of the stock exchanges shall be imposed on disciplinary sanctions by the stock exchanges; if the circumstances are serious, they shall be deprived of their qualifications and banned from entering the floor for securities trading.

Chapter VI Securities Companies

Article 122 The establishment of a securities company shall be subject to examination and approval by the securities regulatory authority under the State Council. No entities or individuals shall engage in securities business without approval by the securities regulatory authority under the State Council.

Article 123 A securities company referred to under this Law means a company with limited liability or a company limited by shares established in accordance with the provisions of the Companies Law of the People’s Republic of China to engage in securities business.

Article 124 The following conditions shall be met for the establishment of a securities company:

(1) It has the articles of association which are in conformity with the provisions of laws or administrative regulations;

(2) Its major shareholders possess sustainable profitability and enduring trustworthiness and have no record of major illegal activities for the three immediately preceding years, and the net assets of each of them are not less than 200 million yuan;

(3) Its registered capital is in conformity with the provisions of this Law;

(4) Its directors, supervisors and senior managers possess the requisite qualifications for those posts, and its employees possess the requisite qualifications for securities business;

(5) It has sufficient risk management and internal control mechanism;

(6) It has up-to-standard operating premises and business facilities; and

(7) Such other conditions as may be so stipulated by laws or administrative regulations or by the securities regulatory authority under the State Council and so approved by the State Council.

Article 125 Subject to approval by the securities regulatory authority under the State Council, a securities company may engage in all or part of the following businesses:

(1) securities brokerage;

(2) securities investment consultancy;

(3) financial advising relating to securities trading or investment ;

(4) securities underwriting and sponsorship;

(5) proprietary account transactions;

(6) securities asset management; and

(7) other securities businesses.

Article 126 A securities company must have the words “securities company with limited liability” or “securities company limited by shares” included in its name. Article 127 A securities company that engages in one or all of the businesses specified in Subparagraphs (1) through (3) of Article 125 of this Law, its registered capital shall be 50 million yuan at the minimum; if it engages in one of the businesses specified in Subparagraphs (4) through (7), its registered capital shall be 100 million yuan at the minimum; and if it engages in two or more of the businesses specified in Subparagraphs (4) through (7), its registered capital shall be 500 million yuan at the minimum. The registered capital of a securities company is the actual paid-in capital.

The securities regulatory authority under the State Council may adjust the minimum amount of the registered capital on the basis of the principle of prudent regulation and the varying degrees of risk of the different securities businesses, but not less than the limits as provided for under the preceding paragraph.

Article 128 The securities regulatory authority under the State Council shall, within six months from the date it accepts an application for establishment of a securities company, examine the application in compliance with the statutory conditions and procedures and on the basis of the principle of prudent regulation, make a decision on whether to grant or not to grant the application, and notify the applicant of the decision. Where an application is not granted, the reasons therefor shall be given.

After obtaining approval for establishment of a securities company, the applicant shall, within the specified time limit, submit an application to the company registration authority for registration and business license.

A securities company shall, within 15 days from the date it receives its business license, apply to the securities regulatory authority under the State Council for a securities business permit. The securities company shall not commence its securities business without obtaining a securities business permit.

Article 129 To establish, acquire or close a branch office, to alter its business scope or registered capital, to replace the shareholders who hold 5% or more interests therein or the persons in practical control thereof, to modify a key clause in the articles of association of the company, to merge, divide, change the form of the company, to suspend business, to dissolve or go bankrupt, a securities company must obtain approval of the securities regulatory authority under the State Council.

To establish, acquire or participate in a securities business institution abroad, a securities company must apply to the securities regulatory authority under the State Council for approval. Article 130 The securities regulatory authority under the State Council shall set the norms for risk control of securities companies with respect to the net capital, the ratio of net capital to debt, the ratio of net capital to net assets, the ratio of net capital to the business scales of proprietary account transactions, underwriting and asset management, the ratio of liabilities to net assets, the ratio of current assets to current liabilities, etc.

A securities company shall not provide finance or guarantee to its shareholders or the parties related to the shareholders.

Article 131 Directors, supervisors and senior managers of a securities company shall be persons of integrity and honesty and be of good conduct, being well-versed in laws and administrative regulations governing securities, possessing the abilities of business operation and management needed for performing their duties and, before taking office, having acquired the post qualifications approved by the securities regulatory authority under the State Council.

A person who is in one the following circumstances or the circumstances as prescribed in Article 147 of the Companies Law of the People’s Republic of China shall not be appointed to the position of director, supervisor or senior manager of a securities company:

(1) being a person in charge of a stock exchange or securities registrar and clearance institution or a director, supervisor or senior manager of a securities company who has been removed from office due to violations of law or rules of discipline, and a five-year period has not elapsed ever since; and

(2) being a lawyer, certified public accountant or a professional of an investment consultancy institution, financial advisory institution, credit rating institution, asset appraisal institution or verification institution who has been disqualified as such due to violations of law or rules of discipline, and a five-year period has not elapsed ever since.

Article 132 An employee of a stock exchange, securities registrar and clearance institution, securities service institution or securities company or a staff member of a State organ who has been expelled due to violations of law or rules of discipline shall not be recruited as an employee of a securities company.

Article 133 Staff members of State organs and other persons who are prohibited by laws or administrative regulations from holding concurrent positions in companies shall not concurrently hold any posts in any securities companies.

Article 134 The State maintains a fund for protection of securities investors. The fund for protection of securities investors shall be composed of the funds contributed by securities companies and other funds so raised pursuant to law. The specific measures for raising, control and use of the fund shall be formulated by the State Council.

Article 135 A securities company shall allocate reserve funds against trading risks from its annual after-tax profits, which shall be used for making up the losses in securities trading. The specific proportion of the allocation thereof shall be prescribed by the securities regulatory authority under the State Council.

Article 136 A securities company shall maintain a comprehensive system of internal control and adopt effective partitioning measures against conflict of interests between the company and clients and among different clients.

A securities company shall conduct brokerage, underwriting, proprietary account transaction and securities asset management separately and shall not mix them up in operation.

Article 137 A securities company must conduct its proprietary account transactions in its own name and shall not make use of the name of another entity or the name of a natural person.

A securities company must use its self-owned funds or lawfully raised funds to conduct proprietary account transactions.

A securities company shall not let others use its accounts for proprietary account transactions.

Article 138 A securities company enjoys the right of business autonomy under the law and its legitimate business operation shall be subject to no interference.

Article 139 The funds for trade settlement of the clients of securities companies shall be deposited with commercial banks, and an individual account shall be opened in the name of each client for management of such funds. The specific measures and implementation thereof shall be formulated by the State Council.

Securities companies shall not calculate or include their clients’ funds for trade settlement and their clients’ securities as part of their own assets. No entity or individual shall misappropriate in any manner their clients’ funds for trade settlement and their clients’ securities. In case of bankruptcy or winding-up of a securities company, the clients’ funds for trade settlement and the clients’ securities shall not belong to the bankruptcy property or property for liquidation. The clients’ funds for trade settlement and their securities shall not be sealed up, frozen, withheld or alienated, or subjected to compulsory enforcement, except for the purposes of satisfying the debts of the clients themselves or under such other circumstances as provided for by law.

Article 140 To conduct brokerage business, a securities company shall make available at its premises the uniformly printed forms of entrustment for the entrusting parties to purchase or sell securities. Where other ways of entrustment are adopted, such entrustment must be recorded.

With respect to clients’ entrustment for purchasing or selling securities, no matter whether a transaction is completed, the records of entrustment shall be kept at the securities company for the period of time as specified.

Article 141 Upon accepting the entrustment for purchasing or selling securities, a securities company shall, following the rules for trading, process the securities transactions as an agent according to the specifications, quantities, bid-ask manners, price ranges of the securities, etc. as clearly indicated in the forms of entrustment, and shall record the transactions accordingly. Upon completion of the transactions, the securities company shall produce the confirmation reports of transactions in accordance with relevant rules and deliver the same to the clients.

The corresponding slips confirming the activities and results of securities transactions must be true and authentic and reviewed and verified one by one by persons other than the ones processing the transactions so as to ensure correspondence between the balance of the securities on the book and the securities actually held. .

Article 142 The services provided by a securities company to its clients in terms of funds or securities for securities trading must be in conformity with the provisions of the State Council and approved by the securities regulatory authority under the State Council.

Article 143 When conducting brokerage business, a securities company shall not accept the entrustment of discretionary power by a client to decide on the timings, types, quantities and prices of securities transactions.

Article 144 A securities company shall not undertake in any manner to secure gains or make up losses to its clients of securities trading.

Article 145 A securities company and its employees shall not in private accept clients’ entrustment to purchase or sell securities circumventing the legally established business premises of the company.

Article 146 Where in the course of securities trading, an employee of a securities company follows the instructions of the company, or violates the trading rules by making use of his position, the company shall be fully responsible for the consequences thereof.

Article 147 A securities company shall properly preserve the account data, entrustment and transaction records of its clients and the various data relating to its internal procedures and business operation. No one shall conceal, forge, distort or destroy those data. The aforementioned data shall be preserved for a period of not less than 20 years.

Article 148 Securities companies shall, in accordance with relevant regulations, submit information and materials relating to their business management, including their business operations and financial affairs, to the securities regulatory authority under the State Council. The securities regulatory authority under the State Council has the power to demand securities companies, their shareholders or persons in practical control to provide relevant information and materials within the designated period of time.

The information and materials submitted or provided by a securities company, its shareholders or persons in practical control to the securities regulatory authority under the State Council must be truthful, accurate and complete.

Article 149 Where the securities regulatory authority under the State Council considers necessary, it shall entrust an accounting office or an asset appraisal institution to audit or appraise a securities company with respect to its financial position, internal control and asset value of the company. The specific measures thereof shall be formulated by the securities regulatory authority under the State Council in conjunction with the relevant departments in charge.