Qualified Domestic Institutional Investor (QDII)
What Is a Qualified Domestic Institutional Investor? (QDII)
A qualified domestic institutional investor or QDII is a institutional investor that has met certain capabilities to invest in securities outside of their nation of origin. Institutional investors can be organizations or groups of investors that have a lot of money accessible to invest. QDII programs empower large domestic investors to invest in securities in foreign markets. Instances of institutional investors that could try to turn into a QDII incorporate insurance companies, banks, funds, and investment companies.
Well known QDII programs come from the People's Republic of China, where the vitally regulatory body, the China Securities Regulatory Commission (CSRC), on occasion grants a limited road for institutional investors to invest in foreign-based securities. A comparable outbound investment initiative in China is the Qualified Domestic Limited Partnership (QDLP).
Figuring out Qualified Domestic Institutional Investor (QDII)
QDII programs are useful where the capital markets are not yet completely open to all investors. Presented in April 2006, China's QDII programs permit five types of Chinese elements to invest abroad: insurance companies, banks, trust companies, funds, and securities firms.
Elements must apply and receive endorsement for a license before they are permitted to make investments in the overseas markets for both themselves or for retail clients. Once approved, they can make investments in fixed income, equities, and derivatives in determined overseas markets. China's State Administration of Foreign Exchange (SAFE) is responsible for supporting participants to enter the QDII program and for endorsing the investment quota amount permitted every participant.
The 2015 China Stock Market Crash
SAFE stopped the QDII quotas after the 2015 stock market crash in China, which prompted major capital outpourings. Several factors contributed to the market downturn, including exorbitant margin loans from Chinese financiers. This energized an enormous run-up in the market. A subsequent uptick in margin calls on borrowed positions prompted a descending spiral of selling and increased volatility.
Following two years, China started to grant licenses to global asset managers under the Qualified Domestic Limited Partnership (QLDP) program (like QDII). These foreign managers were permitted to fund-raise in China for investment overseas during a six-month period. Firms included JPMorgan Chase, Standard Life Aberdeen, Manulife Financial, Allianz, BNP Paribas, AXA, and Robeco and Mirae Asset. The movement flagged strength in the Chinese economy and made ready for the restoration of QDII.
Changed Requirements for Qualified Domestic Institutional Investor (QDII)
In 2018, Chinese regulators started to make several updates to these programs. For instance, an institution's QDII quota has a cap of 8% of its fund assets, excluding money market funds. What's more, in the event that an institution has utilized under 70% of its existing allocation, it won't be eligible to apply for another quota.
In April 2018, SAFE said that it was thinking about additional changes to its QDII program following its economic recovery. Outstandingly, 24 firms received new QDII quotas of $8.34 billion. Of the group of 24 firms, 12 are existing QDII investors, and the excess ones are recently qualified.
The move brought total outstanding QDII quotas to more than $98.3 billion. Chinese President Xi Jinping said he would keep on opening up China's economy to other outbound investment programs as financial markets have balanced out and regulators are less worried about capital flight.
Qualified Foreign Institutional Investors (QFII)
Like the QDII program is the Qualified Foreign Institutional Investor (QFII) program. QFII permits certain licensed international investors access to central area China's stock exchanges to buy and sell stocks. Prior to 2002, investors from foreign nations were kept from buying and selling stocks on Chinese exchanges. The QFII program lifted these tight capital controls and gave a foreign institutional investors the authorization to trade on the Shanghai and Shenzhen exchanges.
- Once approved, elements are permitted to make investments in the overseas markets for both themselves or for retail clients.
- Elements that need to take part in the QDII program must initially receive endorsement from China's State Administration of Foreign Exchange (SAFE), which is additionally responsible for laying out the investment quota amount permitted every participant.
- A qualified domestic institutional investor (QDII) is an institutional investor that meets capabilities to invest in securities in foreign markets.
- Firms can make investments in equities, fixed income, and derivatives in determined overseas markets.
- QDII programs began in China in 2006 and permit five types of Chinese elements to invest abroad: insurance companies, banks, trust companies, funds, and securities firms.