Offshore Funds with 40% Chinese Holdings Permanently to be on Taiwan Market & FSC Amends “Incentive Plan for SITE” to Motivate Small-and-medium Size Investment Enterprises

WEEKY NEWS PICTURE (TW)

Offshore Funds with 40% Chinese Holdings Permanently to be on Taiwan Market & FSC Amends “Incentive Plan for SITE” to Motivate Small-and-medium Size Investment Enterprises

Offshore Funds with 40% Chinese Holdings Permanently to be on Taiwan Market this October

After October 2019, it is expected that the offshore funds which can permanently invest in Chinese stocks up to 40% of their net value will be available on the island’s market. The Financial Supervisory Commission(FSC) announced on the 26th of February that the offshore funds institutions qualifying « Plan to Encourage Stronger Business Ties in Taiwan for Offshore Funds » in June this year will have the alternative to choose one single offshore fund to permanently relax the investment in the mainland ceiling to 40%, or, they have the option to maintain the status quo, which is open all the offshore funds to invest up to 40% of the mainland within a year.

The FSC has adopted the “Plan to Encourage Stronger Business Ties in Taiwan for Offshore Funds” since February 2013. Under the terms of the Plan, if an offshore fund entity meets the assessment criteria for (a) increasing its investment in Taiwan; (b) assisting in upgrading the scale of asset management in Taiwan; and (c) improving the quality of its services to Taiwan investors, it will benefit from the related incentive measures. The key incentives under the plan include the following: (1) requirements regarding the minimum size of a master agent’s staff can be relaxed; (2) reviews of applications to launch offshore funds can be expedited; (3) limits on the permissible number of offshore funds per application can be relaxed; and (4) an offshore fund institution is allowed to introduce new types of funds to the Taiwan market.

The FSC has relaxed upper limit for ordinary offshore funds from 10% to 20%of their net asset value in the Chinese equities market this January. For those participated in “Plan to Encourage Stronger Business Ties in Taiwan for Offshore Funds” last year, the government granted the ceiling from 30% to 40%. Yet as the seven offshore funds institutions, including Alliance Bernstein Taiwan Ltd, Allianz Global Investors Taiwan Ltd, Schroder Investment Management Taiwan, Eastspring Investments, JPMorgan Asset Management Taiwan Ltd, Fidelity Investment Taiwan Ltd and Franklin Templeton Investments, permitted to join the plan already enjoyed the 30% rate since last October, the new fund consisting 40% preferential rate of their net asset value in the Chinese market permanently will hit on the road this October at the earliest. Funds that apply for Plan to Encourage Stronger Business Ties in Taiwan for Offshore Funds this year in June and obtain the permission in September will entitle to benefit from the new policy.

According to the deputy of Securities and Futures Bureau under FSC, the policy is initiated by the suggestion of securities industry. As the FSC originally turned a green light on permitting offshore funds institutions under Plan to Encourage Stronger Business Ties in Taiwan for Offshore Funds to invest mainland China for 40% within a year, if the institutions fail to meet the condition of this incentive program in the forthcoming year, all offshore funds that invest more than 20% in China must be removed, in other word, to suspend the acceptance of new purchases. Hence, the industry hope the government can allow a single fund that can permanently invest in the mainland ceiling to 40%.

Meanwhile, to encourage small-and-medium Funds to take part in the Plan to Encourage Stronger Business Ties in Taiwan for Offshore Funds, the FSC relax three thresholds. The first is the size of the money market fund will not be considered when calculating the top one-third of the management assets. This could remove the barrier of large domestic investment institutions which foreign fund players find it difficult surpass in the short term.

The second measure is asking the original offshore fund institutions to maintain a positive growth rate of the market scale within a year, while the old standard required the institutions to have a 5% or more of the growth rate of the market scale on average.

The third is to add a condition that the overseas fund institutions manage assets of more than 10 billion NTD in Taiwan and exceed the average investment amount of the overseas funds of the institution for within a year. That is to say, if a foreign fund agency manages over of 12 billion NTD of offshore funds form Taiwanese investor, the agency then meets the standard and enjoy the benefit that the government has offered under Plan to Encourage Stronger Business Ties in Taiwan for Offshore Funds.

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FSC Amends “Incentive Plan for SITE” to Motivate Small-and-medium Size Investment Enterprises

In order to encourage investment institutions jointly participate in the development of the asset management market in Taiwan, and to enhance the quality and scope of services provided in Taiwan, the FSC issued another ruling on February 26, under which the restriction imposed on the applying Incentive Plan for Securities Investment Trust Enterprise (SITE) is amended to be more flexible. In summary, those who meet the criteria may apply for raising a credit fund that is not subject to the current investment securities and other restrictions, so can even apply for issuing ETF links funds other than Taiwan Stock. FSC hopes to spur the interest of small-and-medium size investment institution to apply for the plan.

A securities investment trust enterprise meeting the conditions set forth in the Incentive Plan for SITE may specify the types, scope, and a ratio of domestic/offshore securities in its trust deed upon the FSC’s approval for its own investment strategy purpose. This will not be subject to relevant investment restrictions set forth in the said regulations. For example, an emerging market bond fund can invest 40% of the high-yield debt limit, and this is not subject to the restriction.

The FSC has now allowed investment enterprise to apply for issuing the ETF Link Fund under Incentive Plan for SITE. The ETFs that have been invested in the investment business are no longer limited to the domestic component ETF, that is, for example, the bond ETF can also be linked to the fund.

Another the key point of amendment is the adjustment of R&D evaluation index. Adding a condition that the staff number of investment research teams must account for 20% of the company’s total number of employees will benefit small-and-medium size securities investment trust enterprise when applying for the incentive project. Couple with this, the FSC deleted the previous requirement of an annual growth rate of 5% for market scale and simply requires them to grow year by year.

Regarding the evaluation index for self-investment ability, for those who have a certain economic scale and a significant number of investment research teams, the FSC set up the benchmark of having 75 personnel investment research team on average in three years. However, the requirements for the growth of the number of personnel and the fund’s are deleted. Enterprises having the asset size of the rank the top 1/4 of the investment industry in Taiwan in the latest one year are all eligible to apply for the Incentive Plan for SITE.

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