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In 2023, under the strong leadership of the China Securities Regulatory Commission (CSRC), the Shanghai Stock Exchange (SSE) thoroughly implemented the spirit of the Central Financial Work Conference, stood firm in the people's position, and followed a stringent policy of "reinforcing regulation, preventing risk, and encouraging development" to effectively play its role in disciplinary supervision and punish various violations to maintain normal market order and protect the legitimate rights and interests of investors. While strengthening regulatory deterrence, the SSE took multiple measures to promote the improvement of the quality of listed companies, including stimulating listed companies' awareness and motivation of self-regulation, self-restraint, and self-improvement, urging them to take prompt remedies, mitigate influence, regulate internal control, and develop in conformity with laws and regulations, thus contributing to a safe, well-regulated, transparent, open, vigorous, and resilient capital market.
According to statistics, in 2023, the SSE issued 47 public censures, 110 notices of criticism, and 244 written warnings to listed companies and relevant entities for their violations, publicly identified 13 individuals as unsuitable directors, supervisors, and senior managers of listed companies (hereinafter referred to as public identification), and publicly condemned controlling shareholders or actual controllers for 30 person-times, directors, supervisors, and senior managers (hereinafter referred to as DSSM) for 129 person-times, and listed companies for 27 times. The SSE severely punished the "critical few" and made efforts to rectify outstanding problems to create a transparent and clean environment for the development of listed companies.
Reinforcing Regulation to Punish Violations in Accordance with Laws and Regulations
In 2023, the SSE implemented strict and strong regulation to crack down upon various violations of listed companies in accordance with laws and regulations. Firstly, the SSE comprehensively strengthened the investigation and handling of financial fraud cases. The SSE issued 15 public censures and dealt with responsible persons for 223 person-times, of which 12 main responsible persons were publicly identified. The delisted Amethystum Storage Technology Co., Ltd., Essence Information Technology Co., Ltd., and ST Qibu Corporation Limited received public censures. Secondly, the SSE strengthened the regulation on fund misappropriation and illegal guarantees. The SSE issued public censures to 5 companies for fund misappropriation and illegal guarantee, and gave notices of criticism to 11 companies throughout the year, and severely punished the principal responsible persons according to relevant regulations. For instance, Humanwell Healthcare (Group) Co., Ltd. and *ST Wuhan Ddmc Culture & Sports Co., Ltd. were given public censures, and their actual controllers were publicly identified for a three-year term. Thirdly, the SSE endeavored to rectify illicit market phenomena such as the illegal reduction of holdings. The SSE issued 7 public censures, 14 notices of criticism, and 43 written warnings for illegal stock trading. The shareholders of Nanjing Olo Home Furnishing Co., Ltd. were given public censures for their illegal reduction of holdings in large quantities and amounts. Fourthly, the SSE strictly dealt with violations of information disclosure related to speculative concepts. The SSE issued 4 notices of criticism and 9 written warnings. For example, Shaanxi Kanghui Pharmaceutical Co., Ltd. and Xinjiang Bai Hua Cun Pharma Tech Co., Ltd. were given notices of criticism for the inaccurate information they published on the E-interactions platform. Fifthly, the SSE comprehensively enforced the accountability of delisted companies. The SSE insisted on investigating and handling every violation of delisted companies and emphasized that delisting does not exempt any company from responsibility. In the past two years, 13 delisted companies and relevant responsible entities received disciplinary punishment or regulatory measures. Lastly, the SSE strictly regulated the disclosure of information related to controlling rights. The SSE issued 4 public censures and 8 notices of criticism. The actual controllers of Shanghai Xintonglian Packing Co., Ltd. and the shareholders of ST Zhongzhu Healthcare Holding Co., Ltd. were publicly condemned for concealing their contract arrangement.
Emphasizing Remediation to Combine Punishment with Guidance
Punishment is never the ultimate goal. It is more important to guide companies and their relevant entities to take prompt remedies and rectifications to develop in conformity with laws and regulations. Therefore, when dealing with cases of illegal reduction of holdings, failure to fulfill performance compensation commitments, and incomplete share repurchase plans, the SSE, after considering the nature of the violations and their influence on the market, would treat the companies that voluntarily surrender their profits and compensate for the losses leniently, thus guiding them to actively take effective measures to mitigate the influence of their violations. For instance, the SSE urged the Director of Jiangxi Yuean Advanced Materials Co., Ltd. to repurchase over 500,000 shares that were illegally reduced during the window period. The SSE urged the major shareholder of Eastern Pioneer Driving School Co., Ltd. to repurchase 3.4 million shares that were illegally reduced. The SSE urged the major shareholder of Nanjing Olo Home Furnishing Co., Ltd. to repurchase the shares as soon as possible after the illegal reduction of holdings by more than 2% of total share capital. In these instances, the involved entities were instructed to repurchase the illegally sold shares and renounce any arising profits, thereby offsetting the negative impacts of their violations to some extent. Furthermore, the SSE urged the reorganization investors of *ST Pang Da Automobile Trade Co., Ltd. to fulfill their performance compensation commitments as scheduled, punished them with disciplinary sanctions, and urged the companies' directors, supervisors, and senior managers to actively protect their rights and seek redress.
Facilitating Rectification and Leveraging Penalties to Induce Reform and Implement Precise Corrections
An important goal of disciplinary measures is to supervise listed companies to take effective measures to promote rectification and address problems. To make companies draw lessons from each case, the SSE further enriches the content of disciplinary punishment decisions. In addition to stating the facts of violations, reasons for disciplinary punishment, and legal basis, the SSE also required companies to draw inferences and outline effective rectification measures, including in-depth investigations into compliance risks concerning corporate information disclosure and compliant operations and the development of rectification strategies, thus enhancing the companies' information disclosure quality and compliant operations. To date, over 200 listed companies have performed self-examinations for rectification and submitted remediation reports within the specified time, improving their operation standards. Moreover, in cases where violations have directly damaged the interests of listed companies and rights and interests of investors, such as fund misappropriations and illegal guarantees, the SSE would fully consider the rectification measures taken by relevant entities in disciplinary punishment and treat them leniently according to relevant regulations. This not only embodies a more understanding regulatory approach but also promotes listed companies to make active efforts in correction and risk mitigation. In 2023, 18 companies that received disciplinary punishment returned misappropriated funds and revoked illegal guarantees within the specified period, with a completion rate of 75%.
Consolidating Efforts to Build a Multifaceted Accountability Mechanism
With the advancement of the rule of law in the capital market under the comprehensive registration system, a multifaceted accountability system that includes administrative, civil, and criminal aspects plays an increasingly important role. The SSE, based on its role in front-line regulation, improves the collaborative mechanism with administrative punishments and civil litigation to maximize regulatory synergy. On the one hand, the SSE leverages the advantages of self-regulation in terms of timeliness and flexibility, quickly handling cases of minor violations in information disclosure, clarifying regulatory requirements, and serving as a reminder. On the other hand, the SSE imposes strict punishment on serious and flagrant violations, such as public censures and public identification, ensuring a strong deterrent effect. Meanwhile, the SSE maintains effective collaboration with administrative supervision and judicial authorities. For example, when the CSRC imposed strict punishment on Amethystum Storage Technology Co., Ltd. for the fraudulent issuance of shares, the SSE took disciplinary measures at the same time, established an electronic declaration channel to ensure the smooth implementation of advance compensation, and the actual controller of the company was detained on suspicion of the crime of fraudulent issuance of securities.
In 2024, the SSE will further strengthen the "five aspects of regulation" in the disciplinary work of listed companies, combine the crackdown upon violations with risk prevention and resolution, emphasize early interventions and utilize punishment to promote improvement, encourage listed companies to continuously standardize their information disclosure and internal governance, guide them to concentrate on their primary business and pursue stable growth, and promote the improvement of the quality of listed companies at a new starting point.
