Shanghai Stock Exchange's Xu Ming: Perfect Integrity System To Ensure 5 Innovations

"The capital market is highly dependent on integrity. Integrity is not only an ethical norm of the capital market, but also a principle in all commercial activities. The integrity principle underpins the innovation in the capital market", said Vice President Xu Ming of the Shanghai Stock Exchange (SSE) at the 3rd SSE Legal Forum on December 8, "Furthermore, a sound systematical design is key for innovation to ensure the integrity principle".

Data in these years show that driven by the development of a series of infrastructures, both the interior and exterior environments for the development of the capital market have been constantly improved, which has paved the way for accelerating the innovation in the market. China's capital market has embarked on a new stage of innovative development, in which innovation has become a keynote of the development of China's capital market.

In this regard, Xu analyzed the 5 aspects about propelling innovation in the future capital market as follows:

Firstly, innovation is required for the market system. In vertical terms, a multi-tiered market, to be established and bettered step by step, will consist of the main board market, the SME board market, the growth enterprise board market, the national over-the-counter market (the third market), the regional over-the-counter market (the fourth market) and the OTC market, while the board switch mechanism will be established in due course and improved constantly. The multi-tiered market will be gradually built, with securities stratified by their own characteristics in the same market.

Horizontally speaking, stock, bond, wealth management and derivatives markets and others will be built up to realize the synchronized development of the on-floor market and the over-the-counter market with a full range of investment tools of stocks and bonds, funds, spot goods and derivatives, thus changing the comparatively limited market varieties in terms of the market structure and layer, as China's capital market is mainly comprised of the exchange on-floor market, the stock market and the spot market.

Secondly, innovation on the market trading varieties will be encouraged. A review of the data shows that the capital market has consecutively developed new trading varieties including ETFs, warrants, stock index futures, and SME private placement bonds. However, compared with the huge amount of bank savings and enormous demand for investment and wealth management, the problem of limited investment channels and varieties is still salient.

"So, we should accelerate innovation for the development of more investment varieties by means including steadily launching assets management products and securities derivatives such as stock options", said Xu.

Thirdly, trading manners in the market are also in need of innovation. Xu said, "Intense research are required on common trading manners in mature markets, such as market-maker trading, program trading, algorithmic trading, and high frequency trading, while innovation on trading mechanism should also be pushed forward on proper occasions".

Besides, innovation on market regulation and market-based legal system is also needed. "Further amendments to the 'Securities Law' and the 'Company Law' should be resumed as soon as possible, while the enacting process of the 'Futures Law' should be accelerated. And efforts should be made to improve supporting judicial interpretations, laws, rules, and market business regulations", claimed Xu.

It is worth special mentioning that the integrity principle is the foundation for the market innovation, while a systematical design is of utmost importance to ensure this principle. "In the process of market innovation, the systematical design for integrity-building should at least be reflected on the following three aspects: a system of detailed information disclosure, a sound regulatory system, and a strict accountability system", said Xu.

With regard to the information disclosure system, Xu suggested that every innovation business need to specify the main body, content and time limit of information disclosure, especially the content, characteristic, legal relationship, risk, and other issues related to the business. Renewed efforts should be made to boost the information disclosure of innovation businesses, with an aim of ensuring the authenticity, accuracy, completeness, timeliness, and impartiality of innovation businesses.

When it comes to the accountability system, Xu said, "Accountabilities on relevant products, service providers, intermediaries, market participants, and others should be strengthened. Moreover, pains should be taken to establish a reputation constraint mechanism and punish law-breakers for their dishonest deeds".