To implement the plans and decisions of the CPC Central Committee and the State Council on the reform of the ChiNext Board and piloting the registration-based system, Shenzhen Stock Exchange ("SZSE") has formulated or revised the rules to carry out the above reform and pilot according to the unified arrangement of China Securities Regulatory Commission ("CSRC"), the ideas of reform around "One Major Task and Three Coordinations" and the principles of "Transparent Reform in Joint Efforts through Opening-up". On April 27, SZSE released one rule for implementation and solicited public opinions on eight major rules focusing on review of issuance and listing on the ChiNext, securities trading and continuous regulation. SZSE spokesperson answered the following questions of reporters about the formulation or revision of the business rules.
I.Please Introduce SZSE's General Guidelines on the Institutional Arrangements of the Reform of the ChiNext Board and Piloting the Registration-based System.
A: The reform of the ChiNext Board and piloting the registration-based system is a move to thoroughly implement President Xi Jinping’s Thought on Socialism with Chinese Characteristics for a New Era, deepen capital market reform, improve basic capital market rules and enhance capital market functions. It is also an important measure of the CPC Central Committee to profoundly grasp "Domestic and International Situations", balance COVID-19 prevention & control and economic & social development and support the development of Guangdong-Hong Kong-Macau Greater Bay Area and pilot demonstration zone of socialism with Chinese characteristics and a crucial step in the implementation of the new Securities Law and the sweeping capital market reform, which is of great significance for building a regulated, transparent, open, vibrant and resilient capital market. The reform, keeping the abreast of the tide of development driven by innovation, creativity and originality, is mainly intended to serve growth-inclined innovative start-ups and prop up the deep infiltration of new technologies, new industries, new business forms and new models into traditional industries. As the pivot of the ChiNext Board reform, the pilot registration-based system will be synchronously applied in ChiNext Board IPOs, refinancing and merger & acquisition supported by related regulations and rules to be improved at the same time. The overall institutional design mainly observes the following three points:
First, deepening reform and fully implementing the new Securities Law. Referring to what is defined in the new Securities Law, the registration-based system, with the core of information disclosure, will be applied in IPOs, refinancing and M&As simultaneously towards the direction of market-based and law-based reform. The basic market rules governing issuance, underwriting, listing, information disclosure, trading and delisting will also be improved in sync with the pilot to shore up the optimization of market functions, so as to further stimulate market vitality and enhance the capacity of ChiNext Board to serve innovative start-ups.
Second, conducting cooperation to market-oriented allocation of capital elements. Science and Technology Innovation Board has been operating steadily on the whole since its opening. A series of basic rule reform withstood market tests. ChiNext Board reform is another important reform measure following Science and Technology Innovation Board. The effective institutional arrangement of the Science and Technology Innovation Board will be summarized, copied and promoted. The overall rule systems and contents of registration-based system of SZSE will be basically consistent with that of Shanghai Stock Exchange, and optimized and innovated based on its own characteristics. The market of ChiNext Board will be perfected to better play the decisive role of market in resource allocation.
Third, pursuing progress while ensuring stability and accumulating experience for promoting the registration-based system reform across the market. In ChiNext Board reform, the reform in increased and existing markets will be promoted at the same time for the first time. On the one hand, great efforts should be made to maintain rules stable and continuous, properly connect old and new rules, stabilize the expectations of existing listed companies and investors and maintain the healthy development of the existing market. On the other hand, efforts should be concentrated on making arrangements to cater to realistic development demand, further shore up weak spots in rules, promote the quality improvement of listed companies and actively explore institutional practice more commensurate with the development characteristics of innovative start-ups under the rule-of-law framework.
II.Please Introduce the Rules on Which Opinions Are Publicly Solicited.
A: Reform of the ChiNext Board and piloting the registration-based system is a comprehensive and systematic institutional reform. SZSE has promptly formulated and revised relevant business rules according to the unified arrangement of CSRC, providing powerful institutional guarantee for the implementation of reform. The business rules on which opinions are publicly solicited mainly involve the following three aspects:
First, business rules relating to issuance and listing review. To regulate issuance and listing review, the Rules Governing the Issuance and Listing Review of Shares on the ChiNext, Rules Governing Securities Issuance and Listing Review of Listed Companies on the ChiNext, and Rules Governing the Review of Major Asset Restructuring of Listed Companies on the ChiNext have been formulated, expressly specifying the review contents, method, procedures and responsibilities of parties concerned and self-regulation measures of ChiNext Board IPOs, refinancing and M&As, aiming to make review more market-oriented, and focusing on enhancing institutional inclusiveness and market effectiveness in light of actual conditions of existing listed companies. At the same time, the Measures on Administration of the Committee of Listing on the ChiNext and Work Rules for Industrial Consultation Expert Pool were formulated, clarifying the composition, duty performance requirements and responsibilities of the listing committee and expert pool and aiming to ensure the standard and efficient operation of the listing committee and reflect the moderate flexibility of the working mechanism of the expert pool.
Second, business rules relating to continuous regulation. Adhering to the principles of priority highlighting, problem solution and equal importance to the existing, the revised Rules Governing the Listing of Shares on the ChiNext reinforce the management concept based on information disclosure, carry out institutional reform requirements for listing, delisting and information disclosure, set diverse listing conditions, streamline delisting standards and process, set out the regulatory requirements on the enterprises of special equity structure and red chips, refine the equity incentive mechanism, perfect share reduction arrangement, heighten the information disclosure requirements on innovative start-ups and unprofitable enterprises and make information disclosure more targeted and effective.
Third, business rules relating to trading. Based on ChiNext Board market foundation and investor characteristics, the formulated Special Regulations on the Trading of Shares on the ChiNext and Special Regulations on Refinancing Securities Lending and Securities Refinancing Business on the ChiNext set forth institutional arrangements (such as limit-up/limit down of shares on the ChiNext, after-hour pricing and trading, initial trading mechanism after new share listing, subject matter scope of margin trading and refining mechanism) and aiming to further raise market pricing efficiency, step up market risk prevention & control, perfect the long-short balancing mechanism and advance the reform and innovation of ChiNext Board trading mechanisms.
III.Please Brief Main Principles and Characteristics of the Rules Governing the Issuance and Listing Review of Shares on the ChiNext, Rules Governing Securities Issuance and Listing Review of Listed Companies on the ChiNext and Rules Governing the Review of Major Asset Restructurings of Listed Companies on the ChiNext.
A: Although the rules governing the review of IPOs, refinancing and M&As apply to different objects, they have framework style and institutional arrangement in common. Their principles and characteristics are mainly reflected in the following three points:
Firstly, information disclosure-centered. Issuers are defined to assume the primary responsibility for information disclosure and ensure the authenticity, accuracy and completeness of the disclosure. Intermediaries as a "watchdog" should check the information disclosed by the issuers. While paying attention to issuance and listing conditions, we tightened information disclosure regulation, facilitated disclosure through inquiry and promoted the quality improvement of information disclosure to enable market entities to effectively analyze the investment value of issuers.
Secondly, open and transparent. "Transparent review" was conducted to meet "Two Expectations". First, the time frame is set for reviewing and responding to IPOs, refinancing and M&As. The time taken from corporate application, review, registration to listing is expectable. Second, we fully publicized review rules, information disclosure rules and review Q&As, and released acceptance, reply to inquiry and review results of the listing committee in detail to ensure strict and standard review and make review results more expectable.
Thirdly, market-oriented and law-based. First, we set more diversified and inclusive listing conditions, paid high attention to the continuous operation capacity of enterprises and require disclosing the matters affecting investors' value judgment. Second, we conscientiously implemented the requirements of the upper law, and established and refined relevant self-regulation rules to ensure complete system, clear rules and laws in place. Third, we tightened pre-event, concurrent and post-event regulation, urged market entities to duly perform their responsibilities, promptly took self-regulatory and disciplinary actions against violator of rules, and particularly cracked down on chaos (such as false statement and fraudulent issuance) to purify the market ecosystem and keep the market operating in an orderly fashion.
IV.Please Brief the Key Points of the Rules Governing the Issuance and Listing Review of Shares on the ChiNext.
A: With review as priority, the Rules Governing the Issuance and Listing Review of Shares on the ChiNext expressly stipulate review contents, methods and procedures, responsibilities of parties and self-regulation in the business sequence. It has 86 articles in nine chapters. Main contents are as follows:
First, specifying review contents. SZSE reviews the issuers' satisfaction with issuance and listing conditions and information disclosure requirements. While paying attention to issuance and listing conditions, SZSE attaches great importance to the compliance of information disclosure by issuers with authenticity, accuracy and completeness requirements; inclusion of information that has significant effect on investor decision-making; consistency between issuance and listing application documents and information disclosure contents; and whether the contents disclosed in the issuance and listing application documents are concise and easily understandable.
Second, specifying review methods, procedures and time limit. Review is carried out through Q&A to urge issuers to disclose information in an authentic, accurate and complete manner. Intermediaries should exercise effective control over information disclosure. The Rules specify review procedures (such as acceptance, inquiry & reply, suspension and resumption, review by the listing committee and submission for registration) and time limit requirements on whole process of relevant review and key links thereof. Maximum of three months is accepted for issuance and listing review as well as reply to inquiry by issuers and intermediaries.
Third, tightening self-regulation of violations. It is expressly stipulated that if an issuer is believed to make false statement and seriously disturb the review of SZSE, SZSE may take disciplinary action that its issuance and listing applications are rejected within 1 to 5 years; and if intermediaries and relevant personnel fail to diligently perform their duties, SZSE may take disciplinary action that their issuance and listing applications and information disclosure documents are rejected within 3 months to 3 years.
V.Please Brief the Key Points of the Rules Governing Securities Issuance and Listing Review of Listed Companies on the ChiNext.
A: The Rules Governing Securities Issuance and Listing Review of Listed Companies on the ChiNext stipulate refinancing review contents, methods and procedures, responsibilities of parties and self-regulation, basically align main institutional design with IPO and make refinancing review more market-oriented, flexible and convenient. Main contents are as follows:
First, specifying major concerns of review. SZSE places the focus of review on issuance and listing conditions and information disclosure compliance, and pays high attention to whether intermediaries express opinions in compliance with the law, the grounds and bases of relevant opinions are adequate, the information disclosure by listed companies are authentic, accurate and complete and meet relevant disclosure requirements.
Second, reducing review time and links. Review procedures for refinancing and IPO are basically consistent. However, the time is reduced to two months. The first round of inquiry should be sent within a shorter period of 15 working days. Issuance of securities to specific objects needn't be submitted to the listing committee for review.
Third, refining the system of applying the summary procedures to the issuance of shares to specific objects. Summary review procedures are set for qualified small-sum quick refinancing. SZSE will accept it within two working days, submit it to CSRC for registration within three working days upon acceptance and exert post-event regulation on it.
Fourth, stepping up self-regulation of violations. SZSE will exert stricter regulation of violations (such as information disclosure against regulations, impeding inspection and disturbing review) that are found in the process of refinancing review and hold them accountable. Furthermore, to avoid the abuse of summary procedures, stiffer punishment is imposed on violations involving the issuance of shares to specific objects through summary procedures
VI.Please Brief the Key Points of the Rules Governing the Review of Major Asset Restructuring of Listed Companies on the ChiNext.
A: The Rules Governing the Review of Major Asset Restructuring of Listed Companies on the ChiNext make adaptive adjustment in aspects of entity, procedure and rule based on actual conditions of existing companies on the ChiNext and comprehensively stipulate the information disclosure requirements on restructuring, review contents, methods, procedures and period, responsibilities of parties and self-regulation. Main contents are as follows:
First, putting an emphasis on institutional inclusiveness and effectiveness of serving market. According to the Measures on Administration of Restructuring, it is specified that the assets of hi-tech and strategic emerging industries in line with the state's strategies can be restructured and listed on the ChiNext; institutional space is reserved for the transformation and upgrading of existing enterprises and M&A in the same industry or between upstream and downstream, and synergy between the underlying assets of M&A and listed company is not required; the floor price of issuing shares to purchase assets is relaxed to be 80% of market price for reference; and M&A payment tools shall be diversified to support the independent decision-making by listed companies.
Second, emphasizing the efficiency and transparency of review mechanism. The focus of review is placed on whether the underlying assets is aligned with the positioning of ChiNext Board or in the same industry with the listed company or upstream/downstream, necessity of restructuring, asset pricing reasonableness and fairness, and whether the rights and interests of the listed company and shareholders are damaged. Restructuring review procedures are refined. Only restructuring listing application should be submitted to the listing committee for review, further reducing the time limit.
Third, urging parties concerned to duly perform their duties. The Rules make the priorities and specific requirements of restructuring information disclosure more detailed, and stipulate that restructuring parties shall be honest, and prudently make and perform relevant commitments, and intermediaries shall duly perform duties and prudently issue documents and opinions. Focusing on fake result, out of control, capital occupation, dodging result compensation obligation and other issues, the Rules further refine the job requirements on independent financial advisors and penalty mechanism and secure the fulfilment of continuous supervision responsibilities.
VII.What are the Major Highlights of the Revised Rules Governing the Listing of Shares on the ChiNext?
A: The Rules Governing the Listing of Shares on the ChiNext are the basic rules for continuous regulation of ChiNext Board, mainly covering listing, continuous supervision & guidance, corporate governance, information disclosure and delisting and laying a solid foundation for the steady operation and sound development of ChiNext Board. SZSE has conscientiously put the latest Securities Law into practice, and comprehensively revised listing rules according to the general requirements of Reform of the ChiNext Board and piloting the registration-based system. Subsequently, it will revise and release supporting rules such as standard operation guidelines and business handling guides to further boost the quality of listed companies. Major revisions are as follows:
Firstly, optimizing listing conditions to enhance market inclusiveness. Diverse listing conditions are set based on consideration of expected market value, income, net profit and other indicators, so as to support the listing of different types of innovative start-ups at different growth stages on ChiNext Board. First, profitability and listing criteria are refined by requiring that "the net profit shall be positive in recent two years and cumulative net profit shall be no less than RMB 50 million" or "expected market value shall be no less than RMB 1 billion and last year's net profit shall be positive and operating income shall be no less than RMB 100 million". Second, the requirement that there shall be no loss to be made up at the end of last period is cancelled. Third, support is given to the listing of the enterprises of special equity structure and red chips that have made profits and reached a designated scale. Fourth, the listing criteria for unprofitable enterprises are specified but are put into practice within one year. After one, they will be assessed.
Secondly, perfecting the delisting mechanism and accelerating targeted removal First, delisting indicators are enriched and refined by adjusting the continuous loss indicator of net profit to the composite indicator of "the lower of net profits before and after deducting non-recurring gains and losses is negative and operating income is less than RMB 100 million" and adding the trading-related delisting indicator of "market value lower than RMB 500 million for 20 consecutive trading days" and standard-related delisting indicator of "major defect in information disclosure or standard operation is not rectified within a specified time limit". In addition, finance-related delisting indicators are comprehensively and mutually applicable. The delisting triggering years is unified to be two. It is stipulated that greater efforts shall be made to remove "zombie" enterprises and shell companies. Second, the delisting process is streamlined. Listing suspension and resumption links are cancelled. The delisting transitional period is no longer set for trading-related delisting to raise delisting efficiency. Mandatory delisting and suspension arrangements against major violation are refined to protect the trading rights of investors. Third, risk warning is strengthened. The delisting risk warning system is established for finance, standard and major violation related delisting.
Thirdly, strengthening corporate governance to protect the rights and interests of investors. First, corporate governance specifications are required to be stipulated in special regulations. The requirements on performance of duties faithfully and diligently by controlling shareholders, de facto controller, directors, supervisors and senior management members are made detailed to highlight their obligations and responsibilities. Second, the requirements related to eligibility of holders of special voting shares, transfer limitation and voting quantity and proportion are specified. Third, it is stressed that red chips shall ensure that domestic investors are actually entitled to the same rights and interests as overseas underlying security holders.
Fourthly, adapting to the market characteristics and optimize the requirements for information disclosure and reduction. First, strengthen the disclosure requirements of industry information, business risks and performance fluctuations of innovation, venture and unprofitable enterprises. Second, cancel the mandatory performance express requirement, relax the disclosure standards for transactions and connected transactions and simplify the review procedures. Third, allow the information disclosure obligor to release material information during the non-trading session, while the information disclosure obligor should perform the disclosure obligation before the next trading session. Fourth, make special arrangements for unprofitable enterprises listed on the stock market in respect of the proportion of controlling shareholders' shares to be reduced before they become profitable, and the lock-in period of the shares held by directors, supervisors and senior management.
Fifthly, improving the flexibility of equity incentives and stimulating the vitality of enterprises. First, increase the total amount of incentive shares and options from no more than 10% of the total share capital to 20%. Second, clarify shares to be granted will be registered in batches and directly listed for trading. Third, specify that shareholders holding more than 5% of the shares and actual controllers who meet the conditions can be granted the incentives.
VIII.Please Brief the Key Points of the Measures on Administration of the Committee of Listing on the ChiNext.
A: The Measures on Administration of the Committee of Listing on the Chinext are formulated following the principles of marketization and rule of law, it makes comprehensive and detailed provisions on the composition and personnel selection of the listing committee, duties and performance requirements, meeting organization and convening procedures, work discipline and supervision and management, so as to ensure the standardized and efficient operation of the listing committee.
During the formulation of the "Management Measures of ChiNext Board Listing Committee", the following arrangements are made in the system mechanism, taking into account the increment and stock involved in the ChiNext Board reform and the pilot registration-based system. First, include the refinancing and reorganization listing in the deliberation of the ChiNext Board Listing Committee. Second, raise the upper limit of the number of personnel of the ChiNext Board Listing Committee to 60. Third, it is specified that if the issuer is found to have major issues to verify, and it is difficult for the committees to reach resolutions, the deliberation may be postponed. At the same time, mechanisms such as the limit for duration and times of postponements are determined.
IX.Please Brief the Key Points of the Work Rules for Industrial Consultation Expert Pool.
A: In order to accurately grasp the characteristics of the industry of the enterprise and improve the quality of enterprise information disclosure, SZSE has set up an industry consulting expert database, which mainly provides professional advice on issuing and listing audits, and at the same time provides policy suggestions for relevant work of SZSE. The mechanism design of the expert database mainly includes the following three points:
First, the work responsibilities focus on providing professional advice and suggestions. The consultation matters mainly include information disclosure issues related to the issuer's business and technology, whether the issuer and the assets subject to reorganization listing meet relevant requirements, and the formulation of information disclosure rules for relevant industries in SZSE.
Second, the working mechanism is moderately flexible. There is no clear limit on the number of experts and experts do not have a fixed term of office. SZSE can adjust the number and composition of experts in a timely manner according to the needs of the work with a high degree of flexibility. At the same time, SZSE will strengthen the management of experts' performance of duties and make timely adjustments to experts. Specific consultation work is mainly carried out through meetings, written correspondence, etc.
Third, the composition of personnel is highly professional and representative. Combined with the positioning of ChiNext Board, it is determined that the expert database is mainly composed of authoritative experts, well-known entrepreneurs and senior investment experts in industries closely related to new technologies, new industries, new formats and new modes. Experts mainly come from scientific research institutions, well-known enterprises, market institutions and other entities.
X.What are the Key Points of the ChiNext Board Trading System Reform?
A: The reform of the ChiNext Board trading system is based on the characteristics of the existing ChiNext Board market and the structure of investors. Innovative mechanism arrangements are introduced to further enhance market activity, improve pricing efficiency, strengthen risk prevention and control, and promote smooth operation. The reform of the trading system has the following main points:
First, we increase market activity and appropriately relax the proportion of price rises and falls. The market pricing mechanism is improved and the trading resistance is reduced, and the limit on the price rises and falls is increased from 10% to 20%.
Second, we improve pricing efficiency and optimize the trading mechanism of new shares. No price limit will be set in the first five days for new shares listed on ChiNext Board, and a price stabilization mechanism is be set up so as to adapt to the large price fluctuation and high turnover rate at the initial stage of listing to give the market sufficient pricing space.
Third, we adapt to market demand and implement after-hours trading. The introduction of after-hours trading allows investors to buy and sell shares according to the closing price after the auction session closes, enriching market liquidity management methods and meeting investors' trading needs. It is clarified that SZSE investors can participate in after-hours trading.
Fourth, we promote the long-short balance and optimize the securities margin trading system. Listed shares issued under the ChiNext Board registration-based system can be taken as the subject of securities margin trading from the first trading day, and a market-oriented agreed reporting mode for refinancing is introduced so that securities borrowed by securities companies can be sold by short selling by investors on the same day, and strategic investors and offline investors are allowed to lend the allocated shares.
Fifth, we strengthen risk control and optimize micro mechanism arrangements. On the basis of a single order of 100 shares or integral multiples thereof, it is stipulated that the limit order shall not exceed 100,000 shares and the market order shall not exceed 50,000 shares. A valid auction range of ±2% is set for limit orders during continuous auction session.
XI.In addition to the rules for public solicitation of opinions, SZSE has also promulgated the revised the Implementation Measures for the Suitability Management of ChiNext Board. Please introduce the relevant contents.
A: Suitability management of investors is an important basic system in the capital market and an important measure to protect the legitimate rights and interests of investors. From the perspective of maintaining market stability and preventing risks and taking into account the existing ChiNext Board market foundation and investor conditions, SZSE has further optimized the suitability management requirements in coordination with the ChiNext Board reform and the pilot registration-based system to ensure the smooth progress of the reform.
This revision follows the principles of stock unchanged, increment optimized and risk matching. On the one hand, the current ChiNext Board has a large base of stock investors. Consideration shall be given to the smooth operation of the stock market as well as continuity and balance of policies. On the other hand, ChiNext Board reform involves various basic systems such as issuance, listing, trading and delisting. Investors' risk identification ability and risk tolerance ability need to be matched.
The revisions mainly cover three aspects. First, ChiNext Board stock investors can continue to participate in trading, among which ordinary investors need to re-sign new risk disclosure statements to participate in the trading of ChiNext Board stocks that are listed in the IPO under the registration-based system. Second, we add an entry threshold of RMB 100,000 worth of assets per day in the first 20 trading days and 24 months of trading experience for new individual investors who apply to open the ChiNext Board trading authority. Third, it is intended to adapt to the development of information technology to facilitate investors, and to cancel the requirement of signing risk disclosure statements on site. Investors can sign by paper or electronic means.
