Open-end mutual fund managers will be allowed to have access to short-term financing from banks, said Zhou Zhengqing, former chairman of China Securities Regulatory Commission, who was quoted by China Securities Journal, one of the three official securities newspapers in the country.
This issue is one of the newly added items in the second draft of China Securities Investment Fund Law, the country's proposed law regulating the fledging fund management industry.
The second draft of the securities investment law was submitted on Friday for deliberations to the Standing Committee of the National People's Congress. The law is expected to be put in place after the third draft has been deliberated by the Congress's standing committee within the year.
The fund managers will have the right to borrow money from banks if they don't have enough cash to meet the redemption required by mutual fund investors, said Zhou, who is also a senior legislative member of the financial committee of the NPC, China's highest legislative body.
If open-end fund companies don't have enough cash in hand to meet the redemption and they are not allowed to borrow money from banks, they will have to sell out their stakes in listed companies, which will lead to a further downside for the market.
If the fund management firm has an alternative for obtaining the money they need, the turmoil resulting from the redemption can be avoided.
"The market sentiment will be more stable, if the item is written into the law," said Wu Jie, dealer of Kinghing Securities Co Ltd.
Unlike the closed-end fund, the open-end fund is not traded on the stock market and investors can buy or sell funds at any time.
Currently, China's fund management industry, started five years ago, has 79 securities investment funds. Fifty-four are closed-end funds with the remaining 25 being open-end ones hold-ing more than 100 billion yuan (US$12 million) in assets under management.
(Shanghai Daily July 3, 2003)
