SZSE co-organized three training sessions on investor protection for over 760 brokerage representatives with member securities firms in Yinchuan, Jinnan and Chengdu in collaboration with respective provincial branch offices of CSRC in mid-June, 2012. The training sessions were themed Transparency, Rationality and Suitability with a focus on enhancement of investor protection and investor suitability programme for the multi-tiered market system.
Ms. Song Liping, President and CEO of SZSZ, emphasized the importance of Investor Suitability Programme in her speech at the Yinchuan training session on June 15th. Since the Investor Suitability Management Programme was fully implemented in the ChiNext Market, CSRC has placed investor suitability requirements on margin trading and stock index futures, making it a basic institutional arrangement for Chinese capital market. The Investor Suitability Programme is aimed providing fundamental protection for investors. At the moment, the Investor Suitability Program is closely linked to sound development in critical reforms like IPO rules, delisting of public Issuers and private placement of SME bonds. President Song called for a sense of urgency in market participants to enhance understanding of the Investor Suitability Programme’s fundamental role in maintaining stability in the capital market, promoting financial innovations, and improving the capital market services for weaker sectors of the real economy including SMEs and micro-businesses.
At the training sessions, SZSE reiterated requirements for member securities firms to deepen the Investor Suitability Programme. The capital market faces fresh opportunities as unveiled by the recent Financial Innovation Conference. Securities firms are encouraged to implement the spirit of the Conference by accelerating product, business and mechanism innovations, providing differentiated services for investors of different asset sizes and risk-bearing capacity and facilitating sound transformation from savings into investment. On the other hand, securities firms should also strike a balance between the innovation, compliance management and risk control and incorporate Investor Suitability Programme in the entire business process from product development, sales to transaction. First, securities firms should improve client classification management and strengthen targeted self-regulatory management over different types of clients. Second, securities firms should expand product lines in response to diversified investor demands; Third, securities firms should constantly improve the effectiveness and relevance of risk disclosures.
Recently the Supreme Court and the Supreme People's Procuratorate of China issued Judicial Interpretation of Insider Trading. At the training sessions SZSE accentuated the danger of insider trading in violating the basic principles of the securities market, breaking market order, infringing on investors’ rights to know and asset interests and eroding the foundation of public markets. Securities firms are called upon to enhance compliance management, strengthen insider information registration practices and information firewalls, enhance insider information supervision and professional ethics, prevent conflicts of interests and insider trading and fulfill their fiduciary obligations to investors.
SZSE also emphasized the urgency to cultivate a “stock ownership” culture and promote value investment mentality among retail investors. Statistics show that retail investors lack consciousness of demanding investment returns through dividends. First, retail investors tend to hold low-dividend-yield shares. Institutional investors hold over 80% of stocks with dividend yield above 2% while retail investors hold only 20% of such stocks. Institutional investors hold 40% of shares with dividend yield below 0.5% while retail investors hold 60%. Second, retail investors receive apparently much smaller divided earnings than their institutional counterparts. For the same amount market-cap value, retail investors receive markedly smaller dividend than institutional investors. Take 2009 for an instance. Though retail investors’ holdings accounted for 36% of the total market capitalization, they only received 29% of the total dividend returns. At the training sessions, SZSE called for joint efforts of securities firms to avidly promote the philosophy of value investment and long-term investment in retail investors and to establish a sound “stock ownership” culture in the capital market.
So far, SZSE has co-organized a series of similar training sessions in collaboration with eight CSRC local branch offices. SZSE also held ChiNext Listed Companies’ Open Day Programme, where investors were invited to take site visits and have face-to-face conversations with corporate executives. While investors had the opportunity to have first-hand understanding of listed companies’ business models and risk profiles, the latter could also gain a better understanding of their investors and public demand of information disclosure. These activities are designed to improve market transparency and solidify foundation for the market’s self-regulation. .
