31 Aug 2018 China legal update: The CSRC Issued New Administrative Measures for Foreign-Invested Futures Companies
I. Legal News
The CSRC Issued New Administrative Measures for Foreign-Invested Futures Companies
On August 24th, 2018, the China Securities Regulatory Commission (“CSRC”) released the Administrative Measures for Foreign-invested Futures Companies (the “Measures”), which entered into force on the same day. Futures companies, according to Administrative Regulations on Futures Trading, are financial institutions engaging in futures businesses, of which the establishment shall be approved by the Futures Supervision and Administration Department of the State Council. The term of futures trading refers to the trading that is conducted by means of public centralized trading or in any other manner as may be approved by the futures regulatory authority under the State Council and takes futures contract or option contract as the subject matter of trading1.
The Measures defines Foreign-invested futures companies as futures companies in which a single foreign shareholder or multiple affiliated foreign shareholders directly hold(s) or indirectly control(s) more than five percent of the futures company’s shares. Previously, according to article 9 of Measures for the Supervision and Administration of Futures Companies, a foreign shareholder holding 5% or more of the share of a futures company shall be a financial institution that is established and in lawful existence in accordance with the law of its home country or region. The Measures further specifies the qualification requirements for foreign shareholders directly holding more than 5% or more of shares, which is the foreign shareholder should be operated continuously for a minimum of five years and have not been subject to any material punishment for violations of law or regulations in the past three years. The foreign shareholder should also have a good international reputation and operation performance, of which business scale, incomes, profits shall be ranked in the forefront of the world. The foreign shareholder shall also have maintained its long-term credit at a high level for the past three years.
Regarding to indirect shareholding in a futures company, the Measures requires that for any foreign investor having actual control over more than five percent of equities in a futures company through an investment relationship, agreement or another arrangement, the equities shall be directly transferred to such investor(s). The foreign investor(s) then shall meet the above-mentioned qualification requirements for foreign shareholders. Eventually the Measures also provides that foreign senior executives of a foreign-invested futures company shall be located in China to perform their duties.
II. Hot Topic
DiDi Chuxing, China’s Biggest Ride-Hailing Company, Made the Headlines This Week-End After a 20-Years Old Woman Was Raped and Murdered by Her Driver
Didi Chuxing (“DiDi”), China’s biggest ride-hailing company, was created in 2012 with its headquarters in Beijing. Today it operates in more than 400 cities all over China. Last year, according to the China Daily, DiDi completed 7.43 billion rides for 450 million users. DiDi’s main competitor worldwide is the American Uber, and in 2016 the Chinese company acquired Uber’s China unit.
On August 26th, 2018, in the city of Wenzhou, a DiDi driver was arrested by the police and confessed having raped and murdered a 20-year-old woman. A day before, another female passenger complained about the same driver. She claimed that he had repeatedly asked her to sit in the front seat, before driving her to a remote area, and when she insisted to get off the car he followed her until she threatened to call the police. DiDi acknowledged that it had failed to investigate such woman’s complaint. This is the second time in three months that such an incident occurs. In May 2018, a 21-year-old flight attendant was raped and murdered by her driver.
Over the past four years, at least 50 sexual harassment and assault cases were reported by Chinese media, in relation with Didi’s services. This last episode triggered lots of criticism on Chinese social medias, especially on the platform Weibo. In two days, there was 1 billion post or repost of stories related to this one.
The carpooling service used by the victim, hitch service (顺风车), which allows users to share a ride with someone going in the same direction as they do, was suspended. A few days before the death, on the August 24th, 2018, after a meeting with several government departments in Shenzhen, Didi was ordered to review its system by the end of September 2018, including a clampdown on illegal cars and drivers, a suspension of its carpooling service and significant improvements on how it handles consumer’s complaints and enhances emergency measures.
In a statement released on Saturday (August 25, 2018), Didi acknowledged its failure to investigate the first complaint. It also dismissed the general manager of its hitch business unit and the deputy president of its services department. According to DiDi, the suspect had no prior record and had provided authentic documentation and passed the mandatory facial recognition test before starting to work as a driver.
In the wake of the second killing, downloads for an app that propose to link the user to police departments via live streaming went up the download rankings.
According to Chen Ziyu, a Beijing-based lawyer who was interviewed on the topic after the death of a first victim in May，the carpooling sector is a legally grey area. It doesn’t generate revenue for the driver and thus isn’t regulated by law as a commercial act. In 2016 several ministries issue the Interim Measures for the Administration of Online Taxi Booking Business Operation and Services. This document stipulates that carpooling should obey local rules, which most cities have yet to establish. Since there is no legal basis ensuring the carpooling safety standards, it is difficult to assess DiDi’s responsibility in this kind of incident.
There were rumors about the company launching an 80 billion USD Initial Public Offering (IPO) by the end of 2018, this safety issues may lead DiDi to delay its plans.
Tencent Awarded RMB 19.4 Million Yuan for Former Employee’s Breaching of Non-Competition and Non-Disclosure Agreements
Tencent Holdings (“Tencent”) has won a lawsuit against CEO of Moonton Technology (“Montoon”), Xu Zhenhua, and in consequence, Tencent, was awarded RMB 19.4 million yuan.
Montoon developed a game called “Mobile Legends”, which happens to be very popular over the world and particularly in China. Claiming that Moonton earned hundreds of thousands and even million of dollars on their back, Tencent filed a copyright infringement lawsuit in California. Tencent argues that a lot of the Moonton’s game features had been stolen from its own game, “League of Legends”. The case was dismissed as the American court decides that it could be handled in a better way by a Chinese court.
On July 2017, Tencent filed a new lawsuit in China, on the grounds of breaching of a non-competition and a non-disclosure agreement, against Xu Zhenhua, who worked at Tencent between 2009 and 2014. To support its claim Tencent provided for a comparison of the game’s champions, their abilities, equipment and the maps used, and both games appeared to have a lot of similar elements. In the meanwhile, two other games from Moonton were also brought into the case, “Magic Rush: Heroes” and “Mobile Legends: 5V5 MOBA”.
On July 18th, 2018, a Shanghai Court ruled in favor of Tencent, and Xu Zhenhua was condemned to pay RMB 19.4 million yuan to Tencent. Besides this judgment, a separate copyright infringement case is still pending.
In the near future, Tencent may sue Moonton again over copyright infringement of a different game, “King of Glory”.
① The term of futures contract shall refer to a standardized contract that is formulated in a uniform manner by the futures exchange for delivering a specific amount of subject matter on a stipulated future date at a specified location. A futures contract includes commodity futures contract, financial futures contract and other futures contracts.
The term of option contract shall refer to a standardized contract that is formulated in a uniform manner by the futures exchange and specifies that the buyer is entitled to buy or sell the specified subject matter (including the futures contract) at a specific price on a stipulated future date.
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