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Q: Recently, it was noticed in the market that some listed companies released the announcements on shareholders’ participation in the ETF units subscription. Can you give us some basic information about business?
A: As the index funds traded on the exchanges, the ETFs, the units of which can be traded on the secondary market, are characterized by the unique physical subscription, purchase and redemption mechanism, and various advantages such as high transparency, convenient trading and low costs. With the rapid development in recent years, the ETF has become an important instrument of equity asset allocation for investors. As one of the three conventional ways of subscription for ETFs (online cash subscription, offline share subscription and physical subscription), the share subscription means that investors can use a single or multiple index constituents to subscribe for ETF units during the fundraising period, which will help the fund managers reduce costs of opening positions within the weights of the constituent stocks, optimize the asset allocation of the investors, expand the size of the stock ETFs, and attract the participation of more medium and long-term funds in the market through the investment in ETFs.
Q: Some market participants are worried that the subscription of ETF units by the shareholders of listed companies has the hidden danger of shareholding lessening in disguised form. What do you make of the issue?
A: Specific requirements for the shareholding lessening by the shareholders of the listed companies have been made in the "Several Provisions on Shareholding Lessening by Shareholders and Directors, Supervisors and Executives of Listed Companies" and the "Detailed Implementation Rules of Shanghai Stock Exchange for Shareholding Lessening by Shareholders and Directors, Supervisors and Executives of Listed Companies" (the “Shareholding Lessening Rules” for short). In order to prevent the market participants from reducing their shareholdings in disguise or through violations, the SSE will strictly supervise the subscription of the ETFs with the shares by the shareholders of listed companies in accordance with the rules for shareholding lessening. Specifically, the shares used by a shareholder of a listed company to subscribe for the ETF units shall be included in the limit for shareholding lessening specified in the rules for shareholding lessening, and calculated in combination with the shares reduced by the shareholder on the secondary market, and the total shall not be more than the shareholding lessening limit for the current period. In addition, the participants shall also promise not to transfer the ETF units obtained through subscription with shares within a certain period of time. In the actual operations, the SSE adopts the measures such as the fund managers and shareholders making promises in advance, and the SSE carrying out inspections in advance and in process and implementing post-event supervision, so as to ensure that the number of shares used by a shareholder to subscribe for ETFs does not exceed the limit required by the rules for shareholding lessening. Therefore, the subscription of ETFs with shares by the relevant shareholders of listed companies does not involve the circumstances of shareholding lessening in disguised form or through violations.
Q: Can you briefly analyze the impact of subscription of ETFs with shares on the market?
A: The subscription of ETFs with shares can alleviate the impact of direct shareholding lessening by investors on the market to a certain extent, and is more conducive to the stability of the secondary market. The subscription of ETFs with shares can aggregate the shares held by a large number of investors so as to reduce the costs in the period of opening positions. Actually, at present most investors who participated in the subscription of ETFs with shares hold the ETF units for a long time after the subscription without carrying out shareholding lessening in large amounts, and some investors have further increased their holdings. The fund manager also mostly adopted relatively moderate paces of adjusting their positions, and bought other constituent stocks while gradually selling the subscribed shares. As a result, the funds do not flow out of the market on the whole. Therefore, compared with the investors directly selling the shares held by them in the secondary market through auction or bulk transfer, the subscription of ETFs with shares has smoothed the impact on the stock prices, which is more conducive to the stability of the secondary market.
Q: What follow-up arrangements does the SSE have for regulating and developing the ETF business?
A: Going forward, the SSE will, in accordance with the deployment and requirements of the China Securities Regulatory Commission, further strengthen the supervision of the regulated ETF operations, improve the basic systems, continue to enrich the products, optimize the market mechanism, ensure the healthy development of the ETF market, protect the interests of investors, and strive to build a regulated, transparent, open, dynamic and resilient capital market.
