On April 30th, the China Securities Investment Fund Industry Association issued the "Private Equity Securities Investment Fund Operation Guidelines". The "Operation Guidelines" cover various aspects of private equity securities funds, including fundraising, investment, and operations, highlighting problem orientation and risk orientation, and scientifically setting differentiated regulatory requirements. In response to the previous situation where private equity securities funds engaged in leverage trading through DMA, the "Operation Guidelines" clearly require that private equity securities funds participating in DMA business must not exceed 2 times leverage, further controlling the level of business leverage. Additionally, the "Operation Guidelines" specify that the nominal principal value of contracts for snowball structure derivatives in which private equity securities funds participate must not exceed 25% of the fund's net assets, aligning with the execution caliber of securities and futures brokerage firm private asset management plans participating in snowball structure derivatives to reduce regulatory arbitrage opportunities. Regarding the transitional arrangements for over-the-counter derivatives trading, considering that the association had already conveyed requirements such as limiting DMA business leverage multiples and controlling the concentration of investments in snowball structure derivatives to the market earlier, after the formal implementation of the "Operation Guidelines", private equity securities funds that do not comply with the terms of over-the-counter derivatives trading are not allowed to raise new funds or extend their operations. However, outstanding over-the-counter derivatives contracts can continue to operate until maturity without being affected. The original text continues: China Securities Investment Fund Industry Association Releases "Private Equity Securities Investment Fund Operation Guidelines" In order to strengthen self-discipline and management of private equity securities investment funds (hereinafter referred to as private equity securities funds), regulate the business of private equity securities funds, protect the legitimate rights and interests of investors, promote the healthy development of the private equity fund industry, maintain order in the securities and futures markets, under the guidance of the China Securities Regulatory Commission (hereinafter referred to as the CSRC), the China Securities Investment Fund Industry Association (hereinafter referred to as the Association) drafted the "Private Equity Securities Investment Fund Operation Guidelines" (hereinafter referred to as the "Operation Guidelines") and officially released them on April 30th. I. Background In recent years, the private equity securities fund industry has developed rapidly and played a positive role in serving the real economy, meeting the wealth management needs of residents, strengtheniThe starting time for the calculation of 10,000 yuan is set at January 1, 2025.As of the end of March 2024, the scale of private securities funds with less than 5 million yuan accounted for a very small proportion, including a large number of "shell" products that are essentially no longer in operation, managed by small-scale private fund institutions that do not have the ability to operate continuously, with a scale of only tens of billions of yuan. The relevant regulations have given such institutions ample time for adjustment and rectification, with a relatively small impact on the industry. Regarding the frequency of subscription and redemption openings and the lock-up period of shares In order to guide investors to invest rationally and hold for the long term, the exposure draft proposes that private securities funds can only be opened for subscription and redemption once a month at most, with a lock-up period of no less than 6 months. Market institutions generally believe that these requirements will affect the liquidity arrangements of product operations and limit the rights of investors to "vote with their feet." From the perspective of safeguarding investor interests, the Association has absorbed relevant opinions and relaxed the subscription and redemption opening frequency to once a week at most, and reduced the lock-up period requirement to 3 months. At the same time, private securities funds are allowed to replace the mandatory lock-up period arrangement by setting short-term redemption fees, returning the choice to the market. In addition, there is no mandatory requirement for subscription, redemption, and lock-up period arrangements for private securities funds that have been filed before the publication of the "Operational Guidelines." Regarding portfolio investment Previously, the private securities fund industry lacked standardized requirements for portfolio investment. In order to guide private fund managers to enhance their professional investment capabilities and diversify investment risks, the "Operational Guidelines" propose a double 25% portfolio investment requirement, based on the "Regulations on the Operation Management of Private Asset Management Plans of Securities and Futures Operating Institutions," which means that a single private securities fund should not invest more than 25% of its assets in the same asset, and the proportion of all private securities funds managed by the same private institution invested in the same asset should not exceed 25%. After soliciting industry opinions, the "Operational Guidelines" maintain the overall requirements for portfolio investment. In response to market institutions' feedback on the need for portfolio investment implementation considering changes in investment asset market value, clarification of calculation benchmarks for different types of assets, and adjustment arrangements after passive over-allocation, the Association has optimized relevant provisions, clarifying that investment ratios can be calculated according to the lower of cost or market value, supplemented the definition of "same asset," requirements for adjustment after passive over-allocation of investment ratios, etc., to facilitate industry implementation. Regarding over-the-counter derivative trading The "Operational Guidelines" require private securities funds to engage in over-the-counter derivative trading with the objectives of risk management and asset allocation, in order to standardize the overall risk exposure of single private securities funds participating in over-the-counter derivative trading from the perspectives of deleveraging and risk prevention. Since February 2024, the scale and leverage of private securities funds participating in long-short income swap (DMA) transactions have decreased, and risks have been alleviated. In response to the previous situation where private securities funds engaged in leveraged trading through DMA, the "Operational Guidelines" explicitly require that the leverage of private securities funds participating in DMA transactions should not exceed 2 times leverage, further controlling the level of business leverage. In addition, the "Operational Guidelines" stipulate that the nominal principal of contracts involved in the snowball structure derivatives by private securities funds should not exceed 25% of the net asset value of the fund, aligning with the execution standards of securities and futures operating institutions for private asset management plans participating in snowball structure derivatives, reducing regulatory arbitrage space. Regarding the transitional arrangements for over-the-counter derivative trading, considering that the Association has already conveyed requirements to limit the leverage multiple of DMA transactions and control the concentration of investment in snowball structure derivatives to the market, after the formal implementation of the "Operational Guidelines," private securities funds that do not meet the over-the-counter derivative trading provisions are not allowed to raise new funds or extend the maturity of existing investments. However, existing over-the-counter derivative contracts that have been opened can continue to operate until maturity without being affected by a mandatory requirement to adjust positions or sell. Transitional arrangements During the consultation process, industry institutions generally hoped for sufficient transitional arrangements. In order to ensure the smooth publication and implementation of the "Operational Guidelines," and to avoid causing impacts on the market, industry opinions have been fully absorbed, and the transitional arrangements have been significantly relaxed as follows: For existing funds that do not meet the requirements for portfolio investment, the transitional period has been extended to 24 months, allowing these funds to continue to open subscriptions and redemptions and operate investments normally during the transitional period; for private securities funds that still do not meet the relevant provisions after the transitional period, they can continue to operate investments until the contracts expire, without being allowed to raise new funds or extend the maturity of existing investments, and there is no mandatory requirement to adjust positions or sell, with minimal impact. Next, the Association will diligently implement the "Operational Guidelines," continuously optimize the filing and self-regulation management of private securities funds, and further promote the high-quality development of the private securities fund industry.