DEFINITION of 'Qualified Domestic Institutional Investor - QDII'

An institutional investor that has met certain qualifications to invest in securities outside its home country. The most popular QDII program comes from the People's Republic of China, where the main regulatory body (the China Securities Regulatory Commission) may grant a limited avenue for institutional investors such as banks, funds and investment companies to invest in foreign-based securities.

The overall restrictions on ownership are in place for several reasons, including currency conversion concerns in nations where the currency is not free-floating.

BREAKING DOWN 'Qualified Domestic Institutional Investor - QDII'

QDII programs are used in places where the capital markets are not yet completely open to all investors. For example, any institutional investor in China that obtains approval to be a QDII may invest up to 50% of net assets into allowable foreign securities, so long as not more than 5% is invested in any one security. Only certain foreign markets are eligible for investment, including Britain and Hong Kong.

The QDII program in China was set up partly to provide the growing number of domestic investors with a place to park their funds; only a few hundred local stocks are listed on the Shanghai and Shenzhen stock exchanges.

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