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On January 12, 2018, Shenzhen Stock Exchange ( “SZSE”) released the Replies to Inquiries of Investors II regarding the Rules on Implementation of Share Decreasing by Shareholders, Directors, Supervisors and Senior Management of Listed Companies as issued by SZSE (“Replies to Inquiries of Investors”) to further explain the issues of market participants’ concern and help them understand relevant provisions on effective share decreasing, ensuring that such decreasing by relevant parties is in compliance with laws and regulations.
Following the release of the Rules on Share Decreasing by Shareholders, Directors, Supervisors and Senior Management of Listed Companies by China Securities Regulatory Commission (“CSRC”), SZSE issued the Rules on Implementation of Share Decreasing by Shareholders, Directors, Supervisors and Senior Management of Listed Companies (“the Implementation Rules”) on May 27, 2017, together with the replies to relevant inquiries of investors. Since its release, the Implementation Rules has attracted considerable attention from market players, who raised a fair number of questions on its interpretation and application. Under the guidance of CSRC, SZSE timely collected, carefully sorted out, summarized and studied relevant inquiries before finalizing the Replies to Inquiries of Investors II.
An officer from SZSE expressed that the Replies to Inquiries of Investors has specified 16 issues regarding application of the Implementation Rules, mainly covering the following 4 aspects: first, how to apply the Implementation Rules to special matters such as assets purchase via share offering and fund-raising via share offering, employee stock ownership plan, equity incentive, compulsory judicial enforcement, performance of the equity pledge agreement, equity donation and etc. Second, the interpretation of specific provisions of the Implementation Rules, such as the application of centralized bidding by shareholders who are reducing their shareholding to less than 5%, restrictions on the percentage of shares sold via block trades within any 90 consecutive natural days, the application of the Implementation Rules to share decreasing by major shareholders and equity transfer by agreement, as well as the decreasing sequence for equity transfer under a mixed-shareholding agreement. Third, the retroactivity of the Implementation Rules. For example, the applicability of the Implementation rules in the event that relevant parties were forbidden from decreasing shares prior to the release of the rules and the applicability of the rules to directors, supervisors and senior management who have left the listed companies. Fourth, whether share transfer between concert parties shall be construed as share decreasing and whether the Implementation Rules is applicable to preferred shares.
The officer pointed from SZSE out that since the Implementation Rules was put into force, share decreasing by shareholders, directors, supervisors and senior management in Shenzhen Market is in order and transparent, and the general decreasing scale is stable. The loopholes in block trading for “bridging decreasing” are fixed, and the daily amount of shares reduced via block trading is down by 44% than before the release of the Implementation Rules. With share decreasing behaviors of shareholders, directors, supervisors and senior management effectively restricted, the daily amount of shares reduced is down by 60% on the part of shareholders and by 42% on the part of directors, supervisors and senior management than before.
Next, SZSE shall continue to keep an eye on the new issues that arise during the enforcement of the Implementation Rules and shall duly interpret the rules to ensure that such rules on share decreasing are effectively enforced. Meanwhile, SZSE shall enhance regulation on share decreasing by relevant parties to ensure the smooth operation of the market, and adopt self-disciplinary regulatory measures or impose penalties at the finding of any violation of the decreasing rules and report the severe cases to CSRC.
