China's top legislators recently passed some extensive revisions to the existing PRC Securities Law.The new legislation, which will take effect January 1, 2006, aims to promote the healthy and steady development of China's capital market. The revisions emphasize risk management, safe market operation, and strengthened protections of the rights of investors. Some of the highlights of these new revisions are as follows:

Chapter One - General Provisions

1. Overall, the scope of the law now encompasses a much broader range of securities (such as derivatives), whereas previously the law only covered stocks and bonds (Article 2).

2. Much like the Gramm-Leach-Bliley Act in the U.S., the revised PRC Securities Law now legalizes the mixed operation of securities, banking, trust and insurance. This helps to meet the needs of opening the market to the foreign finance institutions(Article 6).

Chapter Two – Issuance of Securities

Certain portions of the PRC Company Law that dealt with the issuance of securities have now been moved into the new revised Securities Law of the PRC.The sections covering the issuance of securities were written with the goal of maintaining healthy operation of the market, and protecting the rights of investors. Some of these amendments include:

1、The statutory meaning of the concept of ‘public offering’is more clearly defined (Article 10).

2、The system of sponsors for public offerings of shares and corporate bonds, as well as their duties of good faith and diligence are set forth (Article 11).

3、The conditions and statutory procedures for public share and bond offerings and are more clearly set forth so as to assure the quality of the listed company (Articles 13 and 16).

4、A new system of information disclosures has been required with respect to the documents required prior t a public listing (Article 21).

5、New provisions have been added to rectify situations where illegal securities that failed to satisfy listing conditions and procedures.These further set forth the joint and several liabilities of the sponsor, issuer and its controlling shareholders (Article 26).

6、Another amendment entitles the issuer and the securities companies handling the offering to replace the securities regulatory commission in deciding the issuing price in the event that shares are issued at a premium (Article 34).

Chapter Three - Trading of Securities

1、In addition to the Shanghai and Shenzhen stock exchanges, the revised Securities Law also now allows securities to be traded at other markets approved by the State Council.This makes it possible to establish Growth Enterprise Markets (GEM), OTC, offering systems and market maker systems in the future(Article 39).

2、Whereas spot transactions were addressed under the existing PRC Securities Law, the revised law embodies all forms of transactions, including futures and options (Article 42).

3、The revised Securities Law also perfects the conditions, procedures and the contents and forms of announcement that are required when applying to list shares and bonds (Article 50-54).

4、The stock exchange now has the power (instead of the securities regulatory commission) to approve, suspend or terminate the listing of shares and bonds (Article 48, 50, 56).

5、The system of continuing information disclosure, such as defining the scope of major affairs and the compensation liabilities for false disclosures have been more strictly set forth (Article 67, 69).

6、The meaning and extension of “informed persons” with insider information on securities trading, insider trading, manipulating, fraud has been more clearly set forth, along with penalties and liability (Article 74, 77, 79).

7、There are no longer limits on the capital inflows into the securities market (Article 81).

8、The Revised Securities Law also provides rules for trading of securities listed by State-owned enterprises (Article 83).

Chapter Four - Takeover of Listed Companies

The Revised PRC Securities Law focuses in greater detail on the conditions for takeover, through offering or through agreement or other such lawful means.This focus is designed to protect the public investors’ rights. The securities Regulatory Commission will undertake the functions and powers to regulate the takeover of the listed companies.

Chapter Five - Stock Exchange

Chapter Five defines the legal position and regulatory power of the stock exchange.More specifically, it entitles the stock exchange to put restrictions on securities accounts that encounter significantly abnormal transactions (Article 115).

Chapter Six - Securities Companies

The major amendments in Chapter Six of the Revised Securities Law were designed to strengthen the regulations of securities companies, and to extend their scope of business. These amendments include:

1. Additional conditions for the establishment of securities companies; as well as the provision of statutory procedures to change the form of the company, shut down, dissolve and/or declare bankruptcy. Basically, the Revised Securities Law provides an exit mechanism for securities companies (Article 129).

2. Securities companies no longer have to be separated by comprehensive securities companies and brokerage securities companies. Instead, the securities company may now apply for a broader scope in accordance with its registered capital and operational needs. This will help improve the structure of the securities industry, and enhance competition among securities companies (Article 125, 127).

3. Chapter Six of the Revised Securities Law also newly establishes the Securities Investors Protection Fund (SIPF) (Article 134).

4. Guidelines have been established for securities companies to carry out trading on margin or lend against their clients’ shares to others or use their clients’ shares as collateral (Article 142).

5. The regulatory method of clearing funds for securities trading of the clients’ securities has been adjusted. Clearing of trades through clients’ margin accounts shall be entrusted to a commercial bank (Article 137).

Chapter Seven - Securities Registration and Clearing Institutions

Revisions in this chapter include:

1、Legalizing the settlement of B shares (Article 155).

2、Affirming the legal position of the principle of netting settlement and delivery vs. payment (Article 167).

3、Assuring that the all funds and securities can only been used for clearing and settlement, and shall be free from enforcement performance (Article 168).

Chapter Eight - Securities Trading Service Organizations

Besides investment advisory institutions and credit-rating institutions, the Revised Securities Law now expands securities trading service organizations to finance advisor institutions, asset evaluation institutions and accountant firms.It also defines the conditions required for carrying out the related securities business, as well as duties and legal liabilities.

Chapter Ten - Securities Regulatory Authority

The key revision in Chapter Ten is that the Securities Regulatory Commission is granted quasi-jurisdictional power. This enhances the working rules of the employees of the Securities Regulatory Commission, adds new regulatory methods (and restrictions), so as to avoid future abuses of power.

Chapter Eleven - Legal Liability

Almost all of Chapter Eleven has been revised, the purpose being to enhance the enforcement and unification of the law. There are three kinds of liabilities set forth:administrative punishment, civil compensation and criminal sanctions.

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