CHINA Trends and Developments Contributed by: Ping Zhang, Xining Dai and Moxi Zhang, Zhong Lun Law Firm
Open-end fund flexibility Open-end private securities funds are encour - aged to not set pre-warning or stop-loss thresh - olds, in principle. These provisions collectively reflect the regula - tory focus on maintaining stability, promoting prudent management and ensuring compliance within the private securities investment funds sector. The Rise of the Stock Distribution Pilot Policy In 2024, the CSRC, in collaboration with the AMAC, expanded the stock distribution pilot policy (which had previously been limited to a few cases) to cover a broader range of funds and investors. The stock distribution pilot policy allows funds to directly transfer their held listed securities into the stock accounts of their investors, providing an innovative exit mechanism. This approach helps funds and investors mitigate the adverse effects of recent short-term fluctuations in Chi - na’s stock market, and facilitates the smooth liquidation of funds nearing the end of their term.
For PE and VC funds, in-kind stock distribution to investors must comply with sell-off regulations, and can utilise block trading quotas for such dis - tributions. These funds must also adhere to the “reverse linkage” policy – which means that, the longer an investment fund holds its equity stake in an unlisted company, the shorter the lock-up period for the public company shares obtained by it through mergers and acquisitions and share swaps. Shares distributed in kind to investors become freely tradable stocks, and subsequent disposal of these shares is no longer subject to sell-off restrictions. This policy represents a significant step in enhancing flexibility and innovation in fund exit strategies, while maintaining regulatory compli - ance and market stability.
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