Saturday, March 15, 2014

Term Deposits and Money Market Funds – Can Chinese MMFs place deposits in foreign banks located abroad?


May a money-market fund (MMF) operating in China place deposits outside of China in a foreign-owned bank?  An examination of the prospectuses of most MMFs operating in China would give the impression that they may.  The prospectus of the Tianhong Enhanced Income Treasure Money Market Fund (天弘增利宝货币市场基金), discussed in this column in a recent article, includes the following:


 (4) The deposits that this Fund places with a single commercial bank possessing the qualification of fund custodian shall not exceed thirty percent of the Fund’s net asset value; deposits placed with a single commercial bank not possessing the qualification of fund custodian shall not exceed five percent of the Fund’s net asset value;

4)本基金存放在具有基金托管资格的同一商业银行的存款,不得超过基金资产净值的百分之三十;存放在不具有基金托管资格的同一商业银行的存款,不得超过基金资产净值的百分之五;


This would make it appear that if the bank has not received the status of a “fund custodian bank” in China – as most of the thousands of the banks in the world have not – then they may still take up to 5% of a China’s MMFs net assets.

And in fact this wording is virtually identical with that of a regulation promulgated jointly by the China Securities Regulatory Commission (CSRC – 中国证券监督管理委员会) and the People’s Bank of China (PBC – 中国人民银行) on 16 August 2004:


2) Deposits placed with a single commercial bank possessing the qualification of fund custodian shall not exceed thirty percent of the fund’s net asset value; deposits placed with a single commercial bank not possessing the qualification of fund custodian shall not exceed five percent of the Fund’s net asset value;

二)存放在具有基金托管资格的同一商业银行的存款,不得超过基金资产净值的百分之三十;存放在不具有基金托管资格的同一商业银行的存款,不得超过基金资产净值的百分之五


The truth, however, is a little more complex.  A little over three months after the joint promulgation of the regulation by the CSRC and PBC, on 29 November the CSRC issued an order entitled “Method for Managing the Qualification of Securities Investment Fund Custodian”, which included the following:


2, Deposit banks for money market funds should be commercial banks possessing the qualification of Securities Investment Fund Custodian, of Securities Investment Fund Sales Agency, or of Qualified Foreign Institutional Investor Custodian.

二、货币市场基金的存款银行应当是具有证券投资基金托管人资格、证券投资基金代销业务资格或合格境外机构投资者托管人资格的商业银行。