The revised Securities Law of the People’s Republic of China (the “new Securities Law”) was effective since 1 March 2020. The new Securities Law is a systematic overall design and fundamental law of the Chinese capital market and an important milestone in the building of a rule-of-law-based securities market. It systematically summed up the practical experiences of the securities market in reform & development, regulatory law enforcement and risk prevention & control over the years, provided strong rule-of-law guarantee to maintain the healthy, stable development of the capital market and the safety of national economy and finance, as well as a legal basis for SZSE to properly carry out reform of supervision services.
Paying great attention to the new Securities Law, the Party Committee of SZSE, in strict accordance with the requirements of the Notice of the General Office of the State Council on Relevant Work Concerning the Implementation of the Revised Securities Law and the overall arrangements of the China Securities Regulatory Commission (CSRC), carefully studied and applied the new Securities Law, accurately grasped its legislative spirit, fully understood its significance and effectively revised relevant rules and policies to adapt to the new Securities Law. SZSE regards the overall modification and improvement of the supporting self-disciplinary rules as a focus of work in strengthening basic market system, strived to build a streamlined, easy, transparent and efficient market-friendly system of rules and laid a solid foundation for advancing law-based regulation and market governance in a deep-going way. SESE further promoted the implementation of reform tasks, improved the quality of listed companies and protected investors’ legitimate rights and interests to better serve the development of the real economy.
Putting One Blueprint in Place
The exchange self-disciplinary rules are an important part of the legal system of the capital market and an important code of conduct for market players. The new Securities Law has put forward new tasks and requirements on the building of the system of rules of an exchange. With systematic planning and arrangements, on the basis of a thorough grasp of the legislative spirit, SZSE laid down the “roadmap” and “work schedule” for improving the system of rules.
Setting goals: basing on the current situation and looking forward. Taking the opportunity of the implementation of the new Securities Law, SZSE focused on solving such problems as mismatch and divergence between self-disciplinary rules and the new Securities Law, and orderly advanced tasks concerning deepening reform on all sides. SZSE will strive to achieve seamless alignment between the system of rules and the new Securities Law, and build a dynamic and unified system of rules under the new Securities Law, with issuance, listing, trading and member regulation rules at its core, rules and guidelines as its trunks and business handling guides as its supplements.
Defining tasks: making necessary revisions and ensuring nothing is left out. After conducting a comparative study of the new Securities Law article by article, SZSE teased out nearly 50 rules that need to be revised or formulated, which concern implementation of the reform of the registration-based system for securities issuance, regulation of listed companies, bonds regulation and trading regulation and so on. Moreover, based on the changes and new situations of market development, SZSE also provided suggestions for abolishing over 40 rules, then summed up and formed a list of rules to be formulated, revised and abolished, clearly laying down the arrangements for implementation.
Emphasizing effectiveness: defining key points and releasing rules first if condition permits. Regarding those with permitted conditions, SZSE released them synchronously with the implementation of the new Securities Law, such as promptly revising the Guidelines for the Standard Operation of Listed Companies and releasing such rules as Format of the Announcement on Appointment of an Accounting Firm by Listed Companies and Format of the Announcement on a 1% Increase or Decrease in the Shareholding Ratio of Shareholders with 5% or More Shares in Listed Companies. For key reform tasks with great revision difficulties, SZSE first announced the work that needs to be done to the market in the form of “notice” such as promptly issuing Notice on Relevant Business Arrangements Concerning the Implementation of the Registration-based System for Publicly Issued Corporate Bonds and Notice on Conscientiously Implementing the New Securities Law and Doing Well in Information Disclosure of Listed Companies, and then orderly advanced the implementation of relevant supporting rules based on reform progress according to the unified arrangements of CSRC. Regarding those that need to be abolished, SZSE abolished them as soon as possible according to the “earliest possible” principle. On February 28, SZSE released the list of rules to be abolished, which includes 44 rules.
High standard: making unified, coordinated efforts and building a streamlined and easy system. With higher laws as the fundamental basis, instead of going beyond its powers or shirking its responsibilities, SZSE made concerted efforts and overall arrangements. SZSE adhered to keeping rules “simple” and “useful”, by reducing unnecessary regulatory items and reporting materials and the fuzzy part of rules, to provide the market with simple, clear and easy rules.
Improving System Supply from Six Dimensions
The new Securities Law has made a series of systematic reforms and improvements in the aspects of promoting the registration-based system for securities issuance across the board and implementing it step by step, further enhancing information disclosure requirements, strengthening investor protection, improving the securities trading system, significantly raising the costs of violation of laws and regulations, implementing the reforms that delegate power, improve regulation, and upgrade services and further clarifying the “gatekeeper’s” responsibilities. Based on its own functional positioning and realities, SZSE, following the market-oriented, rule-of-law direction, concentrated on the improvement of the self-disciplinary system of rules from six aspects.
Promoting the reform of the registration-based system. Adapting to the market reform and development needs, SZSE advanced the drafting and revision of supporting rules concerning the review of public offering of securities. Implementing the registration-based system for corporate bonds. SZSE promptly released notices that specify review standards and procedures and entity responsibilities, accelerated formulating supporting rules and business guides, faithfully fulfilled review responsibilities and ensured stable transition of reforms. Advancing the reform of ChiNext and piloting the registration-based system. SZSE made full use of the successful experience of the Sci-Tech Innovation Board, developed a masterplan for the pilot implementation of the registration-based system for public offering on ChiNext, studied and improved policies on issuance, listing and information disclosure and so on, and expanded the board’s inclusiveness and coverage. Deepening the reform of the delisting system. SZSE streamlined the delisting procedures, optimized delisting indicators, enriched delisting channels and facilitated the formation of a market ecology in which the fittest survives.
Enhancing information disclosure requirements. SZSE, adhering to information disclosure as the core, built a system of information disclosure rules for listed companies with the Rules Governing Share Listing and the Guidelines for the Standard Operation of Listed Companies as the main body, the guidelines for industry and business information disclosure as the two wings, and business handling guides as the support. Doing well in “seamless connection”. SZSE improved information disclosure content, regulated the voluntary disclosure behaviors of information disclosure obligors and promptly released the latest requirements on periodical and extraordinary reporting of listed companies and disclosure of every 1% increase or decrease in big shareholders’ shareholding ratio and so on. Promoting “burden alleviation” of rules. SZSE combined the guidelines for the standard operation of listed companies on the Main Board and the SME Board into one, optimized and integrated business rules to make the system of rules simpler and efficient and eased the burdens of listed companies, while distinguishing them from the guidelines for the standard operation of listed companies on the ChiNext Board and advancing the guidelines with the reform of the ChiNext Board. Strengthening the adaptability of rules. SZSE enriched the array of industry information disclosure rules and improved the foundation of public commitment rules.
Improving the efficiency of frontline regulation. SZSE strictly carried out the provisions of the new Securities Law, strengthened the foundation of self-discipline regulation and earnestly performed the regulatory functions conferred by law. Enhancing precision regulation. SZSE strengthened regulation of key fields with high risks such as fulfillment of performance commitments, external guarantee and goodwill impairments and kept close watch on the responsibilities of “key minorities” such as controlling shareholder, de facto controller and their related parties. Improving regulation transparency. SZSE continued to make public disciplinary punishment standard, improved accountability rules and optimized the regulatory decision-making process. Raising the law-based regulation level. SZSE stuck to rule-of-law-based market regulation, implemented the regulatory idea with information disclosure at the core, helped improve the quality of listed companies and prompted market entities to fulfill their responsibilities, abide by law, and practice honesty.
Increasing efforts in investor protection. SZSE, based on investor protection requirements, strengthened investor protection practice and research and effectively drafted and revised supporting policies. Improving open solicitation for shareholder rights. SZSE expanded the scope of information providers and helped small and medium investors participate in corporate governance. Summing up success experience in advanced compensation. SZSE promoted and formed replicable and scalable working models, and explored and established compensation and relief system that meets the realities of China. Establishing diversified dispute resolution mechanisms. SZSE implemented the mechanisms along with key investor protection work such as supporting representative action, litigation support and dispute mediation. Strengthening investor education and publicity of the new securities law. SZSE conducted surveys on the investor relationship management of listed companies.
Optimizing basic trading system. SZSE refined trading regulation, did well in system adaption and prevented and controlled major market risks. Improving basic rules. SZSE clearly made depository receipts a listed trading variety, implemented prohibitive provisions and requirements on inside trading and so on, and strengthened insider registration management. Refining provisions on trading abnormalities. SZSE increased emergency situations and improved measures for maintaining normal order of securities trading and market fairness. Enhancing duty performance guarantee. SZSE made clear the exchange’s “bona fide exemption” of civil liability for trading abnormalities.
Strengthening intermediaries’ responsibilities. SZSE increased regulatory efforts of intermediaries and strengthened the requirements on the information disclosure of appointment of intermediaries by listed companies. Giving play to the regulatory and restraining role of the market. SZSE urged listed companies to enhance information disclosure requirements on the institution, personnel, business, credit record and independence etc. of the accounting firm to be engaged, fully disclosed the reason for changing the accounting firm and the duty performance of the audit committee, and guided listed companies in reasonably selecting and appointing an intermediary. Making good and full use of regulatory means. SZSE held accountable the intermediaries that fail to perform their duties diligently and faithfully according to law, enhanced punishment for dishonest behaviors and effectively played the role as a “gatekeeper”.
2020 is a crucial year as we endeavor to promote the building of a rule-of-law-based capital market and deepen reform on all sides. SZSE will, under the unified leadership of CSRC, continue to study and implement the new Securities Law, accelerate drafting, revising and improving supporting rules and policies and optimize the basic systems of the securities market. We will strictly carry out the provisions set forth in the new Securities Law, and resolutely fulfill our review and regulatory responsibilities conferred by law. We will also improve our regulatory service level to steadily advance the implementation of key reforms and tasks. In addition, we will refine resource allocation functions, lift market efficiency, and stimulate market vitality to make continuous efforts to build a standard, transparent, open, dynamic, resilient capital market.
