SHANGHAI -- China's top insurance regulator has issued regulations that govern direct investment of insurance funds in the local stock markets.

The rules, which take effect immediately, outline the process for membership of China's stock markets for insurance institutional investors, including insurers and insurance asset-management firms, as well as procedures for entrusting funds for investment and clearing trades.

The rules, posted on the China Insurance Regulatory Commission Web site Tuesday, follow the provisional regulations issued in October allowing insurance firms to enter the stock market.

Insurance institutional investors can diversify risk if they directly buy and sell shares and this will also increase the participants in the stock market, the CIRC said.

It said insurance firms and insurance asset-management firms are preparing to make stable, long-term investments that will help develop the stock market.

Insurance institutional investors also can open accounts for investing in bonds and funds listed on the domestic stock exchanges, the CIRC said.

The rules limit the value and volume of shares in which insurance institutional investors can invest depending on the type of investment account that is opened, said the regulator.

Foreign insurance companies with branches in China can also apply to directly invest in local stocks, it said.