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Recently, SZSE sought the market opinions on the Implementation Rules of Shenzhen Stock Exchange on the Share Repurchase of Listed Companies (hereinafter referred to as the Implementation Rules) . This is SZSE's powerful move to implement the spirit of national rules and regulations, such as the NPC Standing Committee's decision on amending Company Law, the CSRC, Ministry of Finance and SASAC's Opinions on Supporting the Share Repurchase of Listed Companies, and the CSRC's Notice on Earnestly Studying and Implementing the Standing Committee of National People's Congress' Decision on Amending the Company Law of the People's Republic of China, to perfect relevant supporting systems in a timely manner, and to practically respond to market demands in an aim to support and standardize the law-based share repurchase of listed companies.
New policies on share repurchase keep market expectations stable and listed companies' share repurchase sets a new record
Share repurchase is the act of a company to acquire its outstanding shares under certain circumstances. From the view of overseas mature markets' legislation and practice, the share repurchase system of listed companies is a fundamental institutional arrangement of the capital market, playing important roles in optimizing capital structure, stabilizing corporate stock price, increasing corporate investment value and rewarding investors. Apple Inc., Tencent and other companies have implemented multiple share repurchase to boost their shares and give returns to investors. In particular, during the irrational market down, share repurchase is conducive to reinforce investor confidence, release positive signals to the market and bring stock price back to the reasonable value.
Since 2018, more than 100 SZSE-listed companies have taken initiative in repurchasing shares, creating new records in terms of both the repurchase scale and the number of companies conducting share repurchase. Therefore, perfecting the share repurchase system in domestic market is of remarkable significance to improve the endogenous stability mechanism and propel the sound stable growth of the market. The amendments not only enable more flexibility and convenience to share repurchase, but also stimulate the activeness of listed companies to repurchase shares.
Developing and releasing repurchase implementation rules to perfect the supporting system arrangements
In order to support and regulate the share repurchase of listed companies and specify the implementation procedures and information disclosure requirements, SZSE takes into account the requirements of upper-level law and the daily regulatory practice to formulate the Implementation Rules based on the 2018 Guidelines of Shenzhen Stock Exchange for the Share Repurchase via Central Bidding by Listed Companies. The amendments mainly include the following aspects:
First, expanding the applicable scope of share repurchase and specifying the requirement that "the repurchase is out of the necessity for maintaining the value of listed companies and the rights and interests of shareholders". The following circumstances are added to expand the purpose of share repurchase: decrease of the company registered capital, usage in employee stock ownership plan or equity incentive, debt-to-equity conversion of convertible corporate bonds, and maintenance of the value of listed companies and the rights and interests of shareholders. Meanwhile, the specific standards of "the necessity for maintaining the value of listed companies and the rights and interests of shareholders" are clarified to define that the implementation period for such share repurchase should not exceed 3 months for the effect of repurchase.
Second, simplifying the review procedure for specific repurchase and standardizing the proposing procedure. For share repurchase used in employee stock ownership plan or equity incentive, debt-to-equity conversion of convertible corporate bonds and maintenance of the value of listed companies and the rights and interests of shareholders, the corporate articles of association or authorization granted to the board should be enough for implementation. For share repurchase proposed by directors, controlling shareholders or de factor controllers to the board, the proposals should be specific, clear, reasonable and feasible in line with the company’s actual situation. Besides, the proposing procedure and the disclosure requirements for the repurchase should be standard. Companies should convene a board meeting after receiving proposals as soon as possible, and announce the proposing content and the board resolution at the same time.
Third, detailing requirements on the information disclosure and plan change of share repurchase, and requiring companies to make reasonable arrangements for daily repurchase amount. If the share repurchase has multiple purposes, the repurchase number and the range of repurchase amount of each purpose should be defined in the repurchase plan. No alternation or termination is allowed unless there are adequate and proper causes after the company’s disclosure of the repurchase plan. Besides, change in the purpose of share repurchase is forbidden in case of share repurchase out of the necessity for maintaining the value of listed companies and the rights and interests of shareholders and for decrease of registered capital. The number of repurchased shares every 5 trading days, except for the circumstance of “necessary for maintaining the value of listed companies and the rights and interests of shareholders”, can not exceed 25% of the total transaction volume during the 5 trading days period prior to the implementation of the first share repurchase. But repurchase volume under 1 million shares every 5 trading days is an exception.
Fourth, defining the source of funds to be used for repurchase, and viewing share purchase via cash payment as cash dividend. The funds that listed companies can use for share repurchase include proprietary funds, raised funds from preferred stock offering and bond issue, surplus raised funds from the offering of common stocks, remaining funds from the projects financed with raised funds, raised funds legally changed to permanently supplement working capital, loans from financial institutions, and other legitimate funds. The cash paid by companies for the share repurchase of the year will be considered as cash bonus and consolidated with the cash bonus of the annual profit distribution.
Fifth, clarifying the requirements and restrictions on lessening the repurchased shares. The shares to be repurchased for maintaining the value of listed companies and rights and interests of shareholders can be reduced via centralized biding in 6 months after the announcement of share repurchase results regarding share changes. Pre-disclosure of the share lessening shall be made 15 trading days in advance and the window period restrictions shall be followed to perform the duty of information disclosure about the decrease process. Meanwhile, the amount of daily shareholding decrease should not be greater than 25% of the average daily transaction volume during the 20 trading days prior o the pre-disclosure date, except for the daily decrease amount under 200,000 shares. Moreover, under such circumstance, the company directors, supervisors, senior management, controlling shareholders and their persons acting in concert, as well as de facto controllers shall not directly or indirectly decrease shareholding during the share repurchase period .
Strengthening daily supervision over share repurchase to seriously punish illegal behaviors
The Implementation Rules states that there should be a standard and effective internal control system for corporate share repurchase to prevent illegal behaviors such as insider trading, market manipulation and benefit transfer. Also, it specifies the due obligations of large shareholders, directors, supervisors, senior management and securities service institutions.
An SZSE officer expressed that SZSE will take into account its regulatory practice to constantly improve relevant supporting rules and regulatory measures so that it will provide sound institutional guarantee for listed companies' standard and efficient implementation of share repurchase. Furthermore, SZSE will reinforce the daily supervisor over share repurchase, amplify the information disclosure requirements on the same, focus on preventing market risks, and seriously crack down on such securities violations as insider trading and market manipulation, thus practically safeguarding minority investors' interests.
The deadline for the opinion solicitation is 30 November 2018. According to the market feedback, SZSE will further perfect the Implementation Rules. When it is officially introduced, the original Guidelines of Shenzhen Stock Exchange for the Share Repurchase via Central Bidding by Listed Companies will be abolished at the same time.
