SUPPLEMENTARY CUSTODIAN AGREEMENT
IN RESPECT OF QFII SERVICES
THIS AGREEMENT is made the [day] day of [month] Two Thousand and Six
BETWEEN
(1) THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, a company
incorporated in Hong Kong and having its principal place of business at
0 Xxxxx'x Xxxx Xxxxxxx, Xxxx Xxxx (the "BANK");
(2) XXXXXX XXXXXXX INVESTMENT MANAGEMENT INC., a company incorporated in
the State of Delaware and having its principal place of business at
0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000 ("MSIM" or the
"QFII APPLICANT");
(3) XXXXXX XXXXXXX CHINA A SHARE FUND, INC., a corporation organized under
the laws of the State of Maryland (the "FUND"); and
(4) JPMORGAN CHASE BANK, N.A., a national banking association and having a
principal place of business at 0 Xxxxx Xxxxxxxxx Xxxxx, Xxx Xxxx, Xxx
Xxxx 00000 (the "GLOBAL CUSTODIAN").
WHEREAS
(A) The Fund is a closed-end management investment company organized under
the Investment Company Act of 1940, as amended.
(B) The Fund has appointed the Global Custodian as custodian for the Fund's
assets pursuant to a Global Custodian Agreement dated [o], 2006 (the
"GLOBAL CUSTODIAN AGREEMENT").
(C) By an agreement dated May 19, 1993, the Global Custodian has appointed
the Bank as its sub-custodian for the investments of its customers,
including those of the Fund, in permitted PRC securities
("SUB-CUSTODIAN AGREEMENT").
(D) The Fund has appointed MSIM as its investment manager, which has
received a securities investment business license as a qualified
foreign institutional investor ("QFII") so as to be able to invest in
the PRC ("QFII LICENSE").
(E) Pursuant to the terms of the regulations issued by the State
Administration of Foreign Exchange ("SAFE") and the China Securities
Regulatory Commission ("CSRC") governing the application for a QFII
License and investment quota as well as the administration of the
investments of a QFII in the PRC (the "INVESTMENTS"), MSIM must appoint
a local custodian to submit its applications for a QFII License and
investment quota.
(F) MSIM wishes to appoint the Bank for the purpose of submitting MSIM's
applications for a QFII License and investment quota.
(G) The Global Custodian wishes to appoint the Bank as the local custodian
for the Fund's assets under the QFII scheme in the PRC pursuant to the
terms set out in the Sub-Custodian Agreement and as supplemented by
this Agreement.
IT IS HEREBY AGREED AS FOLLOWS:
1. DEFINITIONS
-----------
"APPLICABLE LAWS" means, with respect to any person, any laws, rules,
regulations, notices, directives or orders of any governmental or
regulatory authority that are applicable to, and enforceable against,
such person, including trading and other rules of the Shanghai and
Shenzhen Stock Exchanges, as may be issued and amended from time to
time.
"CSDCC" means the China Securities Depository and Clearing Corporation
Limited.
"FOREIGN EXCHANGE REGULATIONS" means the Provisional Regulations on
Foreign Exchange Administration of Domestic Securities Investments by
Qualifying Foreign Institutional Investors promulgated by SAFE on [28
November 2002 and effective on 1 December 2002], as amended from time
to time.
"FOREIGN OWNERSHIP LIMIT" means the relevant percentage limits imposed
under the Relevant Regulations on the maximum holdings that a QFII on
its own and that QFIIs in the aggregate may have in a particular
security or securities.
"LOSS" or "LOSSES" means all losses, liabilities, costs (including
legal costs), charges, expenses, penalties, judgments, awards, claims
and demands.
"NOTICE" means the Circular on Relevant Issues Concerning Depository
and Clearing Business in relation to Securities Transactions in the PRC
by Qualifying Foreign Institutional Investors issued by CSRC on 4 July
2003 addressing certain issues in relation to erroneous transactions in
securities, as amended from time to time.
"OVER-PURCHASE" means the situation where the balance of the Fund's RMB
Special Account (as defined in Section 4) on a Trading Day is less than
the net settlement amount payable by the Bank on the Fund's behalf at
the end of such Trading Day.
"PBOC" means the People's Bank of China, and for the avoidance of
doubt, includes references to the China Banking Regulatory Commission
where applicable.
"PRC" means the People's Republic of China, excluding for these
purposes the Hong Kong and Macau Special Administrative Regions and
Taiwan.
"QFII REGULATIONS" means the Measures on the Administration of the
Domestic Securities Investment of Qualifying Foreign Institutional
promulgated by the CSRC and the PBOC on 24 August 2006 and effective on
1 September 2006, as amended from time to time.
"RELEVANT REGULATIONS" means collectively the rules, as amended from
time to time, formulated specifically to deal with QFII-related
activities or which are directly relevant to the conduct of such
activities, including the QFII Regulations, the Notice on the
implementation of QFII Regulations issued by the CSRC on 24 August
2006, the Foreign Exchange Regulations, the Detailed Implementing Rules
for the Registration and Settlement Related Businesses of China
Securities Depository & Clearing Corporation Limited in relation to
Securities Investments by Qualifying Foreign Institutional Investors in
the PRC approved by the CSRC and promulgated on 1 December 2002, the
Detailed Implementing Rules of the Shanghai
2
Stock Exchange on Securities Transactions by Qualifying Foreign
Institutional Investors issued by the Shanghai Stock Exchange and
effective on 1 December 2002, the Detailed Implementing Rules of the
Shenzhen Stock Exchange on Securities Transactions by Qualifying
Foreign Institutional Investors issued by the Shenzhen Stock Exchange
and effective on 1 December 2002, and the Notice, together with any
additional rules, regulations, orders, notices or directives or
directions issued from time to time in relation to any of the
activities contemplated by this Agreement.
"RMB" means the lawful currency of the PRC.
"TRADING DAY" means any day on which the Shanghai and/or the Shenzhen
Stock Exchange(s) is/are open for trading.
2. APPOINTMENT
-----------
2.1 The Global Custodian hereby appoints the Bank and the Bank hereby
accepts such appointment to act as the local custodian for the
Fund's assets in the PRC pursuant to the Relevant Regulations and
Applicable Laws and on the terms set out in the Sub-Custodian
Agreement and herein.
2.2 The parties acknowledge that the securities in the securities
accounts established pursuant to Section 5 below belong to the
Fund and not MSIM and that MSIM is a party to this Agreement and
agrees to act under the terms and conditions of this Agreement
only for the purpose of performing its obligations under the
Relevant Regulations and not for any other purpose.
2.3 The parties hereto agree and acknowledge that the assets of the
Fund held in the PRC pursuant to the QFII License of MSIM shall
be held in custody by the Global Custodian through the Bank as
its sub-custodian in accordance with the respective terms of the
Global Custodian Agreement and the Sub-Custodian Agreement as
supplemented by this Agreement and in accordance with the
Relevant Regulations and Applicable Laws of the PRC.
3. APPLICATION FOR QFII
--------------------
3.1 MSIM hereby requests that the Bank submit to SAFE and CSRC all
such documents as MSIM has provided to the Bank, pursuant to the
QFII Regulations, so that MSIM may obtain a QFII License and
related investment quota, and further requests that Bank perform
all duties related to the applications for such license and
investment quota as are required by the Relevant Regulations and
Applicable Laws.
3.2 The Bank will make a submission after confirming that it has
received all of the required documents and will report promptly
to MSIM through the Global Custodian on advice of rejection or
approval of the QFII License and investment quota.
3.3 MSIM shall take all responsibility for ensuring that the
documents comply with the requirements of the QFII Regulations
and warrants that all information provided and any declarations
made are true and correct and the Bank shall have no
responsibility to check the same. The Bank undertakes no duties,
other than those set forth in this Agreement, with regard to the
above-mentioned applications, and does not guarantee that the
applications will be approved.
3
3.4 If any documents and reports to be submitted by MSIM to SAFE or
CSRC or other relevant authority are not prepared in Chinese,
MSIM shall provide Chinese translations. Upon the request of
MSIM, the Bank may forward documents or reports not in Chinese to
a translator acceptable to MSIM for translation. The Bank will
use its best efforts to appoint a professional reputable
translator but for the avoidance of doubt, the parties hereby
agree that any translator so appointed is not an agent of the
Bank and that MSIM shall be fully responsible for such
appointment as a principal including the payment of fee for the
translation. The Bank undertakes no duties and has no
responsibility or liability for any discrepancies, inaccuracies
or errors in the translation.
4. OPENING OF AND OPERATION OF RMB SPECIAL ACCOUNT
-----------------------------------------------
4.1 On approval of MSIM's application to SAFE for an investment quota
and on the provision to the Bank of a copy of its Foreign
Exchange Registration Certificate, the Bank shall open and
maintain one designated RMB account for the Fund ("RMB SPECIAL
ACCOUNT") in the joint names of the Fund and MSIM or otherwise as
required by SAFE and shall, upon instructions from MSIM, open and
maintain additional RMB Special Accounts as permitted or required
by SAFE and maintain the required records in accordance with the
provisions of the Foreign Exchange Regulations.
4.2 The Fund or MSIM on behalf of the Fund shall remit proceeds and
apply for repatriation of assets in accordance with the
applicable Foreign Exchange Regulations.
4.3 The Bank shall, in accordance with the Foreign Exchange
Regulations, supervise the activities of MSIM and the Fund so as
to monitor compliance with the Foreign Exchange Regulations. In
the case of any instructions being given by MSIM through the
Global Custodian which if acted upon by the Bank would place
MSIM, the Fund or the Bank in breach of the Foreign Exchange
Regulations, the Bank shall not be obliged to act on those
instructions. If the Bank chooses not to act on such
instructions, the Bank shall give MSIM and the Fund through the
Global Custodian prompt notification of its refusal to so act and
shall have no responsibility or liability to MSIM or the Fund for
any losses direct or indirect suffered as a consequence of the
Bank refusing to act on any such instructions.
4.4 In the case of any breach of the Foreign Exchange Regulations,
MSIM and/or the Fund will immediately rectify the position and
promptly pay any fine imposed by SAFE. MSIM and the Fund
acknowledge that, in the case of any breach of the Foreign
Exchange Regulations, the Bank may have its qualification as a
PRC custodian cancelled.
4.5 MSIM and the Fund acknowledge the Bank's obligation to make
reports to SAFE and/or CSRC as required by the Relevant
Regulations or Applicable Laws and to comply with any
investigation by SAFE and/or CSRC and MSIM and the Fund agree to
facilitate the making of any such report by the Bank and to
co-operate with any such investigation as necessary.
4.6 The Bank will close the RMB Special Account in the event of a
material breach of the Relevant Regulations or Applicable Laws,
including but not limited to the occurrence of any of the events
specified in Article 17 of the Foreign Exchange Regulations
including those regarding the proper disposition of assets. MSIM
shall promptly inform the Bank in the event of any transfer of
the investment quota of MSIM, the dissolution or filing of any
action to commence the winding-up of MSIM or the Fund or the
taking over of any assets of MSIM or the Fund by a receiver.
4
5. OPENING OF AND OPERATION OF SECURITIES ACCOUNT
----------------------------------------------
5.1 The Fund or MSIM on behalf of the Fund shall open an account with
one or more domestic securities companies (each, a "Broker") and
shall advise the Bank accordingly. MSIM shall advise the Bank
through the Global Custodian of any change in the appointment of
any Broker.
5.2 The Bank shall make an application to the CSDCC for a securities
account to be opened at each branch of the CSDCC in the joint
names of MSIM and the Fund or otherwise as required by the CSRC
and CSDCC and shall, upon instructions from MSIM through the
Global Custodian, apply to open additional securities accounts.
MSIM shall provide the Bank with all relevant documents and
information required by the Bank for the purposes of such
application.
5.3 The Fund and MSIM shall comply with the provisions of the
Relevant Regulations and Applicable Laws with regard to its
Investment and any securities account, and shall not give
instructions to any Broker which, if acted upon, would result in
a breach of such Relevant Regulations or Applicable Laws by the
Fund, MSIM or the Bank.
5.4 The Fund and MSIM acknowledge that the Bank is responsible to the
CSDCC for settlement of any and all transactions which are placed
by any Broker on the instructions of MSIM regardless of whether
the settlement of the same will result in any breach of the
Relevant Regulations or Applicable Laws.
5.5 In the event that the Fund or MSIM breaches any of the Relevant
Regulations or Applicable Laws with regard to its Investments or
any of its securities accounts, the Fund or MSIM shall promptly
cure such breach in a manner consistent with the Relevant
Regulations and Applicable Laws. The Fund and MSIM acknowledge
that, in the event of its failure to promptly cure any such
breach, the Bank may be obligated by the Applicable Laws to do
so.
6. PREVENTION OF OVERDRAFT AND OVERSELLING
---------------------------------------
6.1 The Fund and MSIM acknowledge that the short sale of securities,
or Over-purchase of securities, or the failure to settle
securities transactions, is prohibited by the Relevant
Regulations. The Fund and MSIM agree not to give any instructions
to any Broker where it knows or ought reasonably to know that
there is insufficient RMB credited to its RMB Special Account(s)
or insufficient securities in its securities account to permit
settlement from the Fund's accounts.
6.2 On each Trading Day, the Bank shall provide MSIM with a statement
of the balance of RMB available for trading activities prior to
market opening on such Trading Day, along with a statement of the
balance of the securities held by the Bank on behalf of the Fund
(collectively, the "AVAILABLE BALANCE"). The Bank shall also
provide the Available Balance to each Broker at the request of
each such Broker prior to market opening on such Trading Day. The
statement relating to RMB and securities shall be based on the
available CSDCC securities trading and clearing data and the
settlement instructions received from the Global Custodian on
behalf of the Fund and/or MSIM and details of the executed orders
received from MSIM and/or the relevant Broker. All RMB and
securities balance statements shall be delivered before such
deadline and by such means as shall be agreed to by the Fund,
MSIM, the relevant Broker and the Bank.
5
6.3 MSIM shall request that the relevant Broker:
6.3.1 obtain the Available Balance from the Bank prior to the
opening of the market on each morning of a Trading Day in
accordance with the Notice, provided that the Bank shall
be under no obligation to communicate with or provide any
information to the Broker other than the Available
Balance;
6.3.2 recalculate the Available Balances immediately after
execution of any trade on any Trading Day; and
6.3.3 take all reasonable actions necessary to ensure that any
proposed sale or purchase of securities by MSIM does not
result in an Over-purchase or short sale of securities,
including but not limited to the actions set forth in the
Notice and in this Agreement.
6.4 The Fund and MSIM acknowledge that, in the event that the
settlement of any trade results in the RMB Special Account
becoming overdrawn, a penalty may be imposed on the Bank pursuant
to the Relevant Regulations. The Fund and MSIM agree to promptly
cure such overdraft and, provided that it did not arise as a
result of any negligence or willful misconduct on the part of
Bank, to indemnify the Bank for any and all Losses suffered by it
which are the direct result of the overdraft. This Section 6.4
shall survive the termination of this Agreement.
6.5 In the event that the Fund or MSIM on behalf of the Fund enters
into a short sale in violation of the Relevant Regulations it
shall, unless otherwise advised by the Bank, purchase sufficient
securities to close its short position within the time frame
specified by CSDCC. Nothing in this Section 6.5 shall be
construed to limit any rights that Bank may have pursuant to this
Agreement.
6.6 The Fund and MSIM shall ensure that substantially similar
provisions as set out in this Section 6 are reflected in the
agreement entered into with each Broker, and which are consistent
with the requirements of the Notice.
7. ERRONEOUS TRANSACTIONS
----------------------
7.1 The Fund or MSIM shall provide the Bank through the Global
Custodian settlement instructions with respect to each trade, and
shall request that each Broker provide the Bank with reports
listing the trades that such Broker has executed on behalf of the
Fund on each Trading Day. All such instructions and reports shall
be provided within such time frame and in such formats as may be
agreed to among the Fund, MSIM, the Bank and each Broker. Absent
the Bank's negligence or willful misconduct, in no event shall
the Bank be liable for any Losses incurred by MSIM as a result of
any acts or omissions of MSIM, any Broker, CSDCC, CSRC, SAFE, the
stock exchanges, CSDCC's clearing bank or any other relevant PRC
authorities. The Fund and MSIM shall indemnify the Bank for and
hold the Bank harmless against any Losses incurred by the Bank as
a result of any erroneous transactions executed by the Broker on
the Fund's behalf or any failure of settlement in or from the
Fund's accounts not due to the Bank's negligence, willful
misconduct or breach of this Agreement. The provisions of this
Section 7.1 shall survive the termination of this Agreement.
6
7.2 In the event that there is a discrepancy between the settlement
instructions provided by the Global Custodian on behalf of MSIM
to the Bank, the report of the Fund's executed trades provided by
a Broker to the Bank or the securities and trading data provided
by CSDCC to the Bank, the Bank shall notify the Global Custodian
and MSIM through the Global Custodian prior to the deadline for
such notice agreed among the Global Custodian, the Bank and the
Fund or MSIM on behalf of the Fund, provided, however that the
Bank shall have no obligation to provide notice prior to such
deadline if it does not receive instructions from the Global
Custodian or reports from a Broker or CSDCC in a timely fashion.
7.3 MSIM shall promptly notify the Global Custodian and the Bank in
the event that MSIM becomes aware of any discrepancy between its
trading instructions to a Broker and the trades executed by a
Broker on the Fund's behalf. MSIM agrees that if any such
discrepancies cannot reasonably be resolved during the Trading
Day on which the relevant trade or trades occurred, all
settlement of securities and cash will be conducted in accordance
with the securities trading and clearing data maintained by
CSDCC. MSIM on behalf of the Fund agrees that it will make
commercially reasonable efforts to resolve any such discrepancy,
and to promptly notify the Bank of the terms of any such
resolution.
7.4 In the event of any erroneous transaction involving the Fund's
accounts, the Fund or MSIM on behalf of the Fund and the Bank
shall follow the rectification procedures set forth in the Notice
and provided as Schedule 1 hereto and, to the extent not
inconsistent with the Notice, such additional rectification
procedures as may be contained in this Agreement or from time to
time agreed to by MSIM on behalf of the Fund and the Bank
(collectively, the "RECTIFICATION PROCEDURES"). MSIM shall
request that the Broker adhere to such Rectification Procedures
and cooperate with the Bank as necessary to resolve any erroneous
transaction including sending the Bank a written explanation or
confirmation for rectification, financial reporting or audit
purposes. Prior to the resolution of any erroneous transaction,
the Bank shall hold the relevant assets pursuant to the terms of
this Agreement, as if duly owned by the Fund.
7.5 MSIM on behalf of the Fund shall request that Broker shall adhere
to the Rectification Procedures throughout the term of this
agreement and shall also endeavour to ensure that during the term
of this Agreement there will not be permitted to exist any
material inconsistency between the Rectification Procedures as
agreed under or pursuant to this Agreement and any error
identification or rectification procedures agreed under or
pursuant to any agreement between the Fund, MSIM and each Broker.
8. REPORTS
-------
8.1 The Fund and MSIM on behalf of the Fund acknowledge that the Bank
is required to prepare a report on MSIM's and the Fund's
QFII-related securities investment activities (the "REPORT") and
to submit the same to CSRC and SAFE within three months after the
end of each PRC financial year.
8.2 The Bank shall provide a draft copy of the Report to MSIM for
MSIM's review and approval, and shall advise MSIM of the date
when the Report must be submitted to SAFE and CSRC. MSIM shall,
at [the Fund's] expense, have such Report audited by an
accountant registered with the PRC. Provided that neither the
audit nor MSIM's review discloses any inaccuracies or other
irregularities in the Report, MSIM on behalf of the
7
Fund shall approve it and instruct the Bank to submit such Report
to SAFE and CSRC. In the event that the Report contains errors,
inaccuracies or other irregularities which were not caused by
MSIM or a Broker or MSIM's auditor or in the event that the Bank
receives timely notice of MSIM's approval of the Report but fails
to submit it to SAFE or CSRC within the time period specified in
the Relevant Regulations, the Bank shall correct such errors,
inaccuracies or other irregularities at its own expense, and
shall indemnify MSIM and the Fund for any Loss arising out of
such error, inaccuracy or irregularity, or from the Bank's
failure to timely file the Report with SAFE or CSRC.
9. DISCLOSURE TO BROKER
--------------------
The Fund and MSIM on behalf of the Fund hereby authorize the Bank
to supply and grant to each Broker (including such Broker's
directors, officers, employees or agents) access to any
information in respect of the Fund's Available Balance, sales and
purchases of securities held by the Bank such as may be required
to facilitate the trading, transfer, clearing and/or settlement
of cash and securities in relation to its QFII activities. The
Fund hereby directs the Bank to transmit to each Broker, prior to
the start of trading on each Trading Day, a statement of the
Available Balance as contemplated by Section 6.2.
10. INVESTMENT RESTRICTIONS AND FOREIGN OWNERSHIP LIMIT
---------------------------------------------------
10.1 Both the Fund and MSIM acknowledge that the Fund's investment
quota to the QFII License granted to MSIM may be invested only
within the relevant Foreign Ownership Limit. The Fund and MSIM
are required to comply with the Relevant Regulations and the
Applicable Laws then in effect and any guidelines relating to
forbidden investment practices issued by the CSRC, PBOC and SAFE.
The Bank shall assist the Fund or MSIM on behalf of the Fund in
monitoring compliance with the relevant Foreign Ownership Limit.
If the Fund or MSIM on behalf of the Fund executes a transaction
prohibited by the Relevant Regulations or the Applicable Laws,
the Bank, upon becoming aware of such activity, shall advise the
Fund and MSIM as soon as reasonably practicable of such potential
violation and of the necessary actions and steps to be taken by
the Fund and MSIM to remedy such error.
10.2 The Bank shall monitor the relevant Foreign Ownership Limit as
from time to time announced by the Stock Exchange or CSRC or any
other official information sources and the holdings of the Fund
and advise the Fund, MSIM and the Global Custodian as soon as
practicable upon (i) becoming aware of any potential violation or
as or when the Fund's holdings near the Foreign Ownership Limit
for any particular security or (ii) becoming aware of any
instruction issued by the Global Custodian, the Fund or MSIM that
will trigger the relevant reporting requirement under the
Relevant Regulations or Applicable Laws or will result in any
breach of any Foreign Ownership Limits. Under such circumstances,
the Bank will assist the Fund and MSIM in completing and filing
any regulatory reports and/or public announcements.
11. REPRESENTATIONS AND WARRANTIES
------------------------------
11.1 The Bank represents and warrants that it will:
(a) hold the assets of the Fund separate from its own assets
and ensure that the assets of the Fund are separately
recorded on the books and records of the Bank as belonging
to the Fund;
8
(b) at all times maintain its status as a custodian approved by
CSRC, SAFE and PBOC;
(c) comply with all the Relevant Regulations and Applicable
Laws in performing its obligations under this Agreement;
and
(d) maintain a RMB settlement clearing payment reserve account
with CSDCC and a special clearing account with a clearing
bank of CSDCC in accordance with the Relevant Regulations.
11.2 The Fund and MSIM each separately represent and warrant that:
(a) it will comply with all the Relevant Regulations, and any
other laws of other jurisdictions to which the Fund and/or
MSIM is subject and Applicable Laws in performing its
obligations under this Agreement and with regard to the
Investments and QFII activities in general;
(b) it will advise the Bank of all information necessary for
Bank to comply with the Relevant Regulations or other
Applicable Laws with regard to the Fund's account,
including but not limited to:
(i) any change in the appointment of any Broker;
(ii) any issue raised in connection with the license
review of MSIM;
(iii) the imposition of any penalties against the Fund or
MSIM as the case may be; and
(iv) all material information or events relating
specifically to MSIM and/or the Fund that the Bank
needs to know and reasonably requests from MSIM or
the Fund in order to comply with the Relevant
Regulations or Applicable Laws.
12. INDEMNITIES/LIMITATION ON LIABILITY
-----------------------------------
12.1 The Bank must at all times use reasonable care and diligence in
the discharge of its duties under this Agreement and shall be
liable to the Fund, MSIM and/or the Global Custodian for any
Direct Losses arising from the Bank's negligence, fraud, bad
faith, willful misconduct, recklessness or breach of this
Agreement. This indemnity shall continue notwithstanding the
termination of this Agreement.
12.2 The Bank shall not be liable for any Loss to the Fund or MSIM
directly related to the transfer, clearing or settlement in
respect of the Investments that is the result of causes beyond
the control of Bank, and not arising out of Bank's negligence,
fraud, bad faith, willful misconduct, recklessness or breach of
this agreement, including any acts, errors, default or omissions
of the CSDCC, CSRC, SAFE, the stock exchanges, the clearing bank
of CSDCC, and other related local authorities (the "RELEVANT
AUTHORITIES"), any Broker, the Global Custodian or MSIM.
12.3 The Fund and/or MSIM on behalf of the Fund hereby undertake to
ratify and confirm whatever the Bank may do in accordance with
any instructions received from the Global
9
Custodian, in compliance with the requirements under the Relevant
Regulations and Applicable Laws and in the proper performance or
exercise of its powers. The Fund and MSIM hereby declares and
covenants at all times hereafter well and sufficiently to
indemnify and hold the Bank harmless from and against all Direct
Losses suffered by the Bank arising out of or in connection with
the proper performance or exercise of its said powers or services
or any actions taken by the Relevant Authorities against the Bank
arising from breach of any Relevant Regulations and Applicable
Laws by the Fund and/or MSIM or any erroneous transactions
executed by the Broker or failure of settlement, provided,
however, that the Fund and MSIM shall have no duty to indemnify
the Bank for any Losses arising out of the Bank's negligence,
fraud, bad faith, willful misconduct, recklessness or breach of
this agreement
12.4 The parties acknowledge that the Global Custodian and the Bank
may take any action which the Global Custodian or the Bank, in
its sole and absolute discretion, considers appropriate so as to
comply with any applicable law, regulation, request of a public
or regulatory authority or any policy of the Global Custodian
and/or the Bank which relate to the prevention of fraud, money
laundering, terrorism or other criminal activities or the
provision of financial and other services to any persons or
entities which may be subject to sanctions (collectively
"RELEVANT REQUIREMENTS"). Such action may include, but is not
limited to, the interception and investigation of transactions in
relation to the assets of the Fund (particularly those involving
the international transfer of funds) including the source of or
intended recipient of funds paid in or out in relation to the
Fund and any other information or communications sent to or by
the Fund or MSIM on the Fund's behalf. Such action undertaken by
the Global Custodian and/or the Bank may delay or prevent the
processing of instructions, the settlement of transactions in
respect of the Fund or the Global Custodian's and/or the Bank's
performance of its obligations under this Agreement. Where
legally permitted, the aforementioned delay and/or prevention
shall be notified, as the case may be, by the Global Custodian to
MSIM on behalf of the Fund or by the Bank to the Global Custodian
and MSIM on behalf of the Fund. Neither the Global Custodian nor
the Bank shall be liable for any Loss (whether direct or
consequential and including, without limitation, loss of profit
or interest) or damage suffered by any other party hereto arising
out of or caused in whole or in part by any actions which are
taken by the Global Custodian or the Bank to comply with the
Relevant Requirements (including, without limitation, those
actions referred to in this Section 12.4).
13. THE EFFECT OF THE SUB-CUSTODIAN AGREEMENT
-----------------------------------------
The parties hereby acknowledge and agree that this Agreement shall
apply to the Fund's Investments under the QFII regime in the PRC only
and without prejudice against any rights or obligations of the Bank and
the Global Custodian under the Sub-Custodian Agreement and that in
respect of any matter or services not provided for herein the terms of
the Sub-Custodian Agreement shall apply. In the event that there is any
inconsistency or conflict between the terms of this Agreement and the
Sub-Custodian Agreement, the terms of this Agreement shall prevail with
regard to the Fund's Investments.
14. INSTRUCTIONS
------------
14.1 The Fund and MSIM hereby acknowledges and agrees that in respect
of all matters referred to herein, the Bank shall look to the
Global Custodian for instructions to be given in accordance with
the terms of the Sub-Custodian Agreement and the Fund and MSIM
shall not be entitled to give the Bank directly any instructions
in respect of any matter
10
herein including the repatriation of funds. The Global Custodian
shall immediately on receipt of any such instruction from the
Fund or MSIM issue identical instructions to the Bank whereupon
the Bank shall act upon such instructions.
14.2 The Fund and MSIM agree that the Global Custodian shall act as
its agent in any negotiations with Bank regarding the QFII
License, and also for the purpose of transmitting any
communications related to such agreement between Funds, MSIM and
Bank (including but not limited to the situations where the Bank
is required under this Agreement to report to or give
notification to the Fund, MSIM or the Global Custodian (as the
case may be), or to seek clarification from the Fund, MSIM or the
Global Custodian (as the case may be)). Any such communication
addressed to the Fund or MSIM on the Fund's behalf, and
transmitted by Bank to the Global Custodian, shall be deemed to
be delivered to the Fund or MSIM on the Fund's behalf, provided,
however, that the Bank shall provide reasonable time (as
permitted by the actual situation) for the Global Custodian or
Fund or MSIM on the Fund's behalf to respond to such
communications (if response thereto is required) taking into
consideration the reasonable time needed for the Global Custodian
to transmit such communication to the Fund or MSIM, unless Bank
is prohibited from doing so by any Appropriate Laws and Relevant
Regulations. The Global Custodian shall on receipt of any such
notification, report and communication promptly forward the same
to the Fund and/or MSIM (as the case may be).
14.3 Notwithstanding the foregoing, the Bank has the discretion to
make any claim for indemnification as provided in this Agreement
against the Fund directly and to give notice to the Fund directly
in relation to such claim.
15. FEES
----
The Fund shall pay fees, charges and expenses through the Global
Custodian to the Bank for the services mentioned in this Agreement as
agreed between them from time to time.
16. EFFECTIVE DATE
--------------
This Agreement shall become effective as of its execution by the
parties.
17. VARIATION
---------
The Fund and MSIM acknowledge that the Relevant Regulations and
Applicable Laws are subject to modification or changes from time to
time. All references to such regulations or provisions thereof
specifically mentioned in this Agreement shall include any subsequent
changes, supplements or replacement of such regulations or laws or
relevant provisions. The Bank may also change, vary or amend the terms
of this Agreement with the consent of the Global Custodian, Fund and
MSIM, which consent shall not be unreasonably withheld if the changes,
replacements or amendments are necessary as a result of any changes to
the Relevant Regulations or Applicable Laws.
11
18. TERMINATION
-----------
This Agreement may be terminated:
(a) by Bank immediately without prior notice to the Fund or MSIM if
the Fund or MSIM fails to comply with any of the provisions of
this Agreement or any of the representations and/or warranties
contained in this Agreement shall cease to be true and correct
and/or MSIM's QFII License or Foreign Exchange Registration
Certificate become invalid or subject to revocation by the
Relevant Authorities provided that the Bank shall follow
applicable procedures in relation to the closure of accounts as
laid down in the Foreign Exchange Regulations or other relevant
regulations; or
(b) by any one of the parties hereto upon sixty (60) days' prior
written notice to the others, sent by certified or registered
mail to the address set forth herein or to such other address as
may be from time to time be notified by any party to the other
party in accordance with Clause 20.
19. PREVAILING EFFECT OF RELEVANT REGULATIONS
-----------------------------------------
19.1 The Fund, MSIM, the Global Custodian and the Bank hereby
undertake that they will abide by all the Relevant Regulations
and other Applicable Laws in performing their respective
obligations under this Agreement notwithstanding any
inconsistency between these and the provisions of this Agreement
and/or the Global Custodian Agreement and/or the Sub-Custodian
Agreement.
19.2 The Fund, MSIM and Bank agree that, in the event that any
provision of this Agreement conflicts with any provision of the
Applicable Laws or Relevant Regulations, the provision of the
Applicable Laws or Relevant Regulations, as appropriate, shall
control and both parties further agree to change, vary or amend
the terms of this Agreement in good faith, if necessary, to bring
them in line with the requirements of the Relevant Regulations
and/or Applicable Laws.
20. NOTICES
-------
20.1 All notices and other communications under this agreement between
the Bank and MSIM on the Fund's behalf shall be transmitted
through the Global Custodian as agent of the Fund and MSIM.
Instructions shall be in writing, in the English language. Notice
may be delivered either by fax (provided that a fax indemnity in
form satisfactory to the Bank has been provided by the Fund or
MSIM to the Bank), courier/messenger or prepaid post, SWIFT,
telex or telegram. The addresses and contact details of the
parties are as follows:
BANK:
Address: [o]
Fax: [o]
Telephone: [o]
SWIFT Address: [o]
12
GLOBAL CUSTODIAN:
Address: [o]
Fax: [o]
Telephone: [o]
SWIFT Address: [o]
MSIM: [o]
Address: [o]
Fax: [o]
Telephone: [o]
SWIFT Address: [o]
20.2 During the term of this Agreement, any party shall have the right
to change its address or other details for receiving notices at
any time, provided that the other parties are given prior written
notice of such change.
21. LAW AND JURISDICTION
--------------------
This Agreement shall be construed in accordance with the same law that
governs the Sub-Custodian Agreement. Any dispute shall be submitted to
the non-exclusive jurisdiction of such courts as are specified in the
Sub-Custodian Agreement.
22. EXECUTED VERSIONS
-----------------
This Agreement is prepared and executed in both Chinese and English
versions. In the event of any inconsistency or ambiguity as between the
Chinese and English language versions of this Agreement, the English
version shall at all times prevail.
13
Schedule 1
Rectification Procedures
1. In case of any Over-purchase of securities, the Fund, MSIM and the Bank
agree to deal with such Over-purchase in accordance with the following
provisions:-
(a) in the event that any of the foregoing parties discovers that
there has been Over-purchase, it shall inform the other party
and the Broker of the same at the earliest possible
opportunity so as to ascertain which party is liable for the
error resulting in the Over-purchase as soon as possible;
(b) the Bank shall report the Over-purchase to the CSRC and CSDCC
at the earliest possible opportunity;
(c) if an Over-purchase is caused by an error of the Bank, the
Bank shall assume liability for delivery and settlement in
respect of the over-purchased securities pursuant to the
provisions of the Notice and shall be entitled to dispose of
and retain the earnings of the over-purchased securities. The
Bank may appoint a broker to dispose of such over-purchased
securities. The Bank shall bear any transfer fee, stamp duty
or any other costs, charges or interest in connection with
such Over-purchase;
(d) if an Over-purchase is caused by reasons attributable to the
Broker, the Bank and the Broker shall go through the
procedures for a non-trading transfer of the over-purchased
securities with CSDCC by such prescribed or agreed deadline
not later than the next Trading Day ("T+1 DAY") pursuant to
the provisions of the Notice so as to transfer the
over-purchased securities to the Broker and to allow the
transfer by CSDCC of the funds with an amount equivalent to
the value of the over-purchased securities from the clearing
reserve account of the Broker to the clearing reserve account
of the Bank. The Broker shall bear any transfer fee, stamp
duty or any other costs, charges or interest in connection
with such Over-purchase;
(e) [in the event that the act of Over-purchase is incurred due to
reasons attributable to the Fund or MSIM, the procedures set
out in subparagraph 1(d) above will be followed. The Fund,
MSIM and the Bank acknowledge that a Broker shall be required
to dispose of the over-purchased securities on the
instructions of the Fund or MSIM. If the proceeds obtained
after the disposal of the over-purchased securities are
insufficient to cover the over-purchased amount and the
relevant expenses in full, the Fund shall bear the shortfall
and make payment to the relevant Broker;]
(f) if, by 12:00 p.m. on T+1 Day, the Fund, MSIM, the Bank and the
Broker fail to determine the reasons for such Over-purchase of
securities or fail to ascertain the party who is liable for
the error resulting in the Over-purchase, the Broker shall be
the Designated Party (as defined below) to be responsible for
dealing with the over-purchased securities in accordance with
the provisions of the Notice; and
(g) [if, prior to 12:00 on T+3 Day, the Fund, the Bank and the
Broker still cannot determine the party responsible for the
over-purchased order, any income or gains from the disposal of
the over-purchased securities in question shall be used to set
off against any costs, fees and expenses reasonably incurred
by the Broker for effecting delivery of the over-purchased
securities in accordance with paragraph (f) above. Any surplus
income or gains after such set off will be shared equally
between the Fund and the Broker.
14
However, if the income or gains are insufficient to cover the
costs, fees and expenses reasonably incurred by the Broker in
effecting delivery of the over-purchased securities, the Fund
and the Broker shall share such costs, fees and expenses
equally. If, at any time, a party is determined to be the
ultimate responsible party for the over-purchased order, such
party shall immediately pay to the other party the amount the
other party had paid in sharing the costs, fees, and expenses,
or the first party shall pay any income or gains it previously
received to such party, as the case may be.]
2. The Fund and MSIM shall provide and shall procure the Broker to provide
all information, relevant documents or reports in a timely manner to
allow sufficient time for the Bank to make any application for a
non-trade transfer as mentioned in paragraph 1 above within such time
limit as is prescribed by the Notice.
3. MSIM and the Bank agree that the Broker shall be the party responsible
for undertaking the delivery and acceptance of responsibilities to
CSDCC in respect of any Over-purchase of securities for whatever
reasons as required under the Notice (the "DESIGNATED PARTY"). For such
purposes, MSIM shall procure the Broker to maintain sufficient funds in
its clearing reserve account with CSDCC in order to complete any
non-trade transfer pursuant to sub-paragraphs 1(d), (e) and (f) above.
4. The Fund, MSIM and the Bank acknowledge that in the case of an
Over-purchase of securities, whether due to the fault of MSIM, the
Broker, the Bank and/or if the Bank or the Broker fails to assume the
responsibilities for delivery and acceptance of the over-purchased
securities in accordance with sub-paragraphs 1(d), (e) and (f) above or
otherwise as provided in the Notice, CSDCC shall have the right to
retain and/or sell any securities in MSIM's securities account in
accordance with the provisions of the Notice, as may be amended from
time to time.
5. The Fund, MSIM and the Bank further acknowledge that in the event that
there is a short sale of securities executed by the Broker on behalf of
MSIM, the CSDCC is entitled to retain the proceeds of the short sold
securities and to use such proceeds to buy in the same amount of
Securities as the short sold securities in accordance with the Relevant
Regulations.
15
IN WITNESS whereof the parties hereto have caused this Agreement to be duly
executed the day and year first above written.
SIGNED by:
for and on behalf of:
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED
in the presence of:
SIGNED by:
for and on behalf of:
XXXXXX XXXXXXX INVESTMENT MANAGEMENT INC.
in the presence of:
SIGNED by:
for and on behalf of:
XXXXXX XXXXXXX CHINA A SHARE FUND, INC.
in the presence of:
SIGNED by:
for and on behalf of:
JPMORGAN CHASE BANK, N.A.
in the presence of:
