Recently, Shenzhen Stock Exchange (SZSE) promulgated the guidelines on information disclosure of the three sectors of civil blasting, jewelry, and software & IT services (“the Guidelines”). This is another important move SZSE took to fully implement the spirit of the National Financial Work Conference and the 2018 China Securities Regulatory Commission Working Conference, to continuously improve the self-regulatory rule system for a multi-tiered capital market, and to consistently improve the quality of information disclosure of listed companies.
In recent years, SZSE has been constantly promoting the comprehensive and strict law-based supervision, playing the front-line supervision function, and fully implementing the industry regulation model centering on information disclosure and oriented with investors’ needs. So far, 19 guidelines on industrial information disclosure have been issued by SZSE, covering sectors including but not limited to husbandry and aquaculture, solid mineral resources, real estate, seedling and planting, construction machinery, decoration, civil engineering and construction, express service and retail.
The publication of the Guidelines is an important phase of the regulatory practice for SZSE. Considering the varieties and distinctive features of the three said industries, SZSE gives full play to its experience advantages in industrial supervision, conducts in-depth studies on common issues in the industries, actively explores key issues that investors need to understand urgently, delegates more powers while improving regulation with emphasis on improving the effectiveness and pertinence of information disclosed by listed companies.
The Guidelines has three features:
Firstly, it requires the listed companies to present a complete picture of its business operations and disclose its business overview from multiple perspectives of financial and non-financial information, qualitative and quantitative, value and risks by considering its industry-specific operation characteristics, so as to avoid meaningless and unspecific information.
Secondly, it requires the listed companies to dig deep into their industry characteristics for improving the depth and accuracy of the information disclosed. For instance, for civil blasting industry, the Guidelines strengthens the disclosure requirements on production capacity, permits and qualifications, and safety production issues in consideration that the listed companies in this sector are greatly affected by the macro economy and are strictly regulated by the government. As for the jewelry industry, the Guidelines reinforces the disclosure requirements on diverse business modes, stores, and inventory information in consideration that the listed units in this sector are featured by diversified business models, scattered stores, and relatively high unit price for inventory. As for the software & IT services industry, the Guidelines enhances the disclosure requirements on capitalization of R&D investment, labor cost information, customer industry policies, and changes in gross margins in consideration that the companies in this sector face issues like huge R&D expenditures, high labor costs, disparate customer industries, and large differences in gross margins.
Thirdly, it requires the listed companies to take into account both the disclosure effect and the disclosure cost, balance scale and measure between the disclosure necessity and the disclosure cost, reasonably distinguish the disclosure scope and content of periodic reports from those of extraordinary reports, and set standards on the importance of information to be disclosed, so as not to overly increase the pressure on listed companies and to avoid information redundancy. In the meantime, SZSE encourages listed companies to disclose relative information voluntarily.
The principle of “formulating regulations via soliciting public opinions” is fully expressed during the formulation of the Guidelines. SZSE publicly solicited opinions from listed companies and invited securities industry analysts to participate in the formulation by brainstorming and absorbing reasonable suggestions. In addition, SZSE conducted online survey on its official website in which more than 1000 investors participated. According to the survey result, up to 90% investors believe that the Guideline would help them know about the financial related conditions of listed companies for making better investment decisions, and wish that more disclosure guidelines for more sectors will be rolled out in the near future.
An SZSE official indicated that the open, transparent, efficient and quality disclosure is the foundation and guarantee for optimizing resources allocation in the capital market. SZSE will constantly deepen the philosophy of comprehensive and strict law-based supervision and set its foothold on carrying out in-depth study of industrial features and summarizing regulatory experience. To that end, SZSE will keep perfecting the building of rule systems on information disclosure by industries, urge public companies to consistently improve disclosure quality and intensify their senses of disclosure duty, thus protecting investors’ legitimate rights and interests and driving the sound development of the SZSE multi-tiered capital market.
