Potential participants in China's new qualified foreign institutional investor (QFII) scheme are lobbying for changes that would allow them to set up sub-accounts and segregate the assets of their clients, banking sources said.
Under existing regulations, QFIIs are not permitted to open sub-accounts with the China Securities Depository and Clearing Co (CSDCC). Allowing for the accounts has been a focus of ongoing talks between regulators and foreign banks applying to act as custodians under the programme.
What appeared to be a fine technical point may have serious implications for foreign investors in areas such as dividend remittance and the protection of clients' assets, the sources said.
China's new QFII programme, effective this month, enables foreign investors for the first time to buy yuan-denominated A shares and selected bonds listed on the Shanghai and Shenzhen stock exchanges.
A shares account for the lion's share of China's stock market capitalisation of 4.26 trillion yuan (about HK$4.04 trillion), rivalling Hong Kong as Asia's second-largest market after Japan.
Under existing rules, QFIIs are allowed to set up just one special yuan account with the CSDCC through a custodian bank to hold their investments.
Because many QFIIs are expected to act as fund managers and broker-dealers managing mostly other people's assets, there is a need for sub-accounts to segregate their own and clients' assets.