Recently, the Shanghai Stock Exchange (SSE) issued the Guidelines No. 14 to 20 for information disclosure of the listed companies in the 7 sub-sectors of wine and spirits, transmission of broadcasting and TV, service for environmental protection, water production and supply, chemicals, air transportation, and agriculture, forestry, animal husbandry and fishery. The guidelines will come into effect as from January 1, 2017. It is another important measure taken by the SSE, following the guidelines for information disclosure for 13 industries issued in two batches last year, in a bid to continuously strengthen the regulation and dynamically improve the rule system of information disclosure for different industries. An SSE official answered the relevant questions as follows.
1. Q: Can you brief us on the basic information about the issuance of the guidelines?
A: It is a fundamental task for the SSE to cement and refine the regulation of the sub-sectors by continuously improving the rule system of information disclosure in accordance with the changes to the industrial patterns of the listed companies.
There are two reasons for the selection of the 7 sub-sectors for the formulation of the information disclosure guidelines. First, these sub-sectors have gained some sizes and drawn much attention from the investors. In the second and third-tier sub-sectors selected this time under the manufacturing sector and the transportation sector, such as the wine and spirits, air transportation and water production and supply, the numbers of the listed companies are all nearly or more than 10, with the conditions in place for formulating separate guidelines for information disclosure. Meanwhile, these sub-sectors are unique in business model, product features, risk factors and other aspects, and previous focus on the disclosure of financial information failed to accurately reveal the value of the industry and the company. The formulation of the specialized guidelines will also help the investors make more professional judgments in their investment. Second, the sub-sectors represent to some extent the new impetus caused by the supply-side structural reform. In 2016, under the guidance of the national industrial policy, the companies in green ecology, information technology service, service for environmental protection, transmission of broadcasting and TV and other sub-sectors have seen their performance keep growing steadily in the context of the overall slowdown of the macroeconomic growth, representing the directions of the supply-side structural reform and increasingly drawing attention of the market and the investors. Therefore, meeting the market demand, the SSE gave priority to the relevant sub-sectors in making plans for formulating the information disclosure guidelines for different industries, hoping to channel the capital into such hi-tech and green industries through high-quality information disclosure.
After the implementation, the guidelines for the 7 sub-sectors, coupled with the guidelines for 13 sub-sectors already implemented on the SSE as well as the guidelines for the financial sector issued by China Securities Regulatory Commission (CSRC), will make the rule system of the information disclosure guidelines on SSE more complete and comprehensive, covering more than 700 listed companies and over 80% of the market value.
2. Q: What are the main requirements in the information disclosure guidelines for the 7 sub-sectors issued by the SSE this time?
A: In the actual research on the listed companies, the five factors of the macro influence of the industry, the development of the customer market, the current conditions of the key resources, the profitability strategic plan and the implementation of the key process are considered to be the key dimensions that can best reflect the industrial characteristics of the company, best represent the investment value of the company and best reveal the risk factors in the industry. The newly issued guidelines are highly relevant to the core indicators of the industries and focus on the “five dimensions in one” requirements for the disclosure of the industrial business information.
For example, in terms of the macro influence on the industry, the guidelines for the air transport industry specially require the companies to disclose the specific influence of the changes to multiple external factors such as politics, economics, oil prices and exchange rates, and conduct the sensitivity analysis; while the guidelines for the chemical industry and the environmental protection service industry stress the analysis of the influence of the macro policies and industry standards on the companies. In addition, with regard to the current conditions of key resources, the guidelines for the industry of agriculture, forestry, animal husbandry and fishery clearly require the companies to disclose the ownership and specific circumstances of the important resources for production and operation, and the guidelines for the wine and spirits industry standardize the disclosure of the information about the brand structure and marketing channels of the companies. Moreover, in the aspect of profitability strategic plan, the guidelines for the industry of transmission of broadcasting and TV specifically require the companies to disclose the development strategy and the main risks in the arrangements for the construction of the next generation of networks of online broadcast, the integration of three networks (the internet, the telecommunication network and the TV and Broadcasting network) and other tasks.
At the same time, in the process of formulating the guidelines, importance was also attached to the principle of “balance of complexity and simplicity”. We not only require the listed companies to deeply and thoroughly disclose the core value and the risk indicators of the company on the basis of the industry characteristics and the actual business situations, but also adhere to the principles of balance of disclosing both comprehensive and important information and “explaining once failing to disclose”, so as to spare space for the companies’ independent disclosure and avoid increasing the costs for the listed companies in information disclosure or producing information redundancy.
3. Q: The SSE has implemented the sub-sector regulation for almost two years. Can you brief on the relevant work?
A: The SSE introduced the regulation of information disclosure for sub-sectors in January 2015. There are mainly two objectives: first, it is to further improve the effectiveness of information disclosure on the basis of compliance and meet the investors’ demand for high quality business information of the sub-sectors; second, it is to better fulfill the responsibility for frontline regulation of information disclosure, and give full play to the role of the high quality industry information in curbing speculation and preventing market risks.
In the practice of the daily regulation, the SSE has, centering on the objectives of sub-sector regulation, always adhered to integrating promotion of value investing with cracking down on speculation, guarding the bottom line of compliance with improving the level of effectiveness, and regulation of financial information and non-financial information, having achieved certain effects.
In terms of the examination of annual reports, under the sub-sector regulation mode, the examination of the 2015 annual reports shows the following two new features. First, in the examination contents, we have intensified the regulatory inquiry about the “five dimensions in one” industrial business information and raised a total of more than 2,700 relevant questions, accounting for 77% of the total questions for inquiry, having actually improved the effectiveness of the companies’ disclosure of information and stepped up the implementation of the guidelines for the industries. Second, in the mode of examination, we have strengthened the regulatory inquiry in the mode of “seeking root causes”. We have sought the root and crucial causes for the problems affecting the authenticity of the annual reports and the judgment of the investors by conducting in-depth analysis of the unmatched and inconsistent disclosure of financial and non-financial information, until the company makes accurate and complete disclosure.
In the examination of the temporary announcements, we have adequately integrated the sub-sector regulation and the regulation in the mode of “seeking root causes” and formed a set of effective mechanisms and methods. For example, in the supervision over the abnormal fluctuations of stock prices, we have required the listed companies to make comparisons in the information disclosure with the market performance of other listed companies in the industry in the same period. In addition, in the aftermath review of the information disclosure for major asset reorganization plans without the need of approval, in which the underlying assets are much involved in the emerging industries such as similar finance, the internet, film, TV and entertainment, virtual reality and graphene, we have set the focus of the aftermath inquiry on profit model and warning of related risks in the industry. All the measures have played a certain role in curbing the speculation.
Over the past two years, on the one hand, the efficiency of the information disclosure regulation has been improved, and the value of information disclosure has been constantly increased. According to a sampling survey among nearly 100 analysts of the brokerage firms, more than 80% of the analysts believed that the effectiveness of the information disclosure of the SSE-listed companies has been much more improved than before. On the other hand, the disclosure of the industry information is playing an increasingly significant role in refraining speculation, warning trading risks, improving market ecology and other aspects.
4. Q: After issuing the third batch of guidelines for industry information disclosure, what other arrangements has the SSE made in formulating the guidelines?
A: Since 2015, the SSE has made a total of 20 sets of guidelines for industry information disclosure in 3 batches, covering the vast majority of the SSE-listed companies. So far, the formulation of the industry guidelines has basically come to an end. Next, according to the change of the number of the listed companies and the actual demand for regulation, we will continue to research and formulate the information disclosure guidelines for some sub-sectors on the basis of the situations.
In addition, the SSE will further step up the implementation of rules, pertinently intensify the examination of the industry information disclosure and urge the companies to effectively improve the quality of information disclosure with the orientation toward the investors’ demands. We will timely take the regulatory measures for the violations of failing to disclose the business information according to the requirements without any justified reason.
5. Q: With the announcement of annual reports approaching, what should the listed companies pay special attention to in implementing the guidelines for industry information disclosure in the annual reports?
A: The industry business information is an important part of disclosure of the annual report, as well as an important basis for the investors to judge the value and risks of the company. According to the problems in the previous annual reports, when implementing the requirements of the guidelines for industry information disclosure, the listed companies should pay special attention to the following issues.
Firstly, the sub-sector business information disclosed should be complete. The listed companies should, according to the requirements of the guidelines and their own business characteristics, comprehensively cover the “five dimensions” of the macro influence of the industry, the development of the customer market, the current conditions of the key resources, the profitability strategic plan and the implementation of the key process, and fully disclose the industry business information, so as to help the investors clearly understand the company and effectively make their investment decisions.
Secondly, the non-financial interpretation of the financial information should be adequate. In analyzing the annual financial data, the listed companies should, instead of simply stating the data changes, make comparatively thorough explanation and interpretation of the causes for the financial data changes by involving the non-financial industry information related to the financial data, including the operating cycle of the industry, the circumstances of other companies in the industry, the development of the customer market, changes to the owned resources and the characteristics of the business models, etc.
Thirdly, the business risks in the industry should be disclosed clearly. When disclosing the industrial business information, the listed companies should avoid the problems of more positive statements and fewer risk warnings as well as more vague expressions and less accurate disclosure. The companies should, on the basis of the industrial business situations in the “five dimensions”, make qualitative, quantitative, comprehensive and accurate analysis and disclosure of related risks and impacts. Especially, the companies involved in new business formats, emerging industries and new models should fully disclose the uncertain risks in personnel, funds, market, implementation and other aspects.
Fourthly, the principle of “explaining once failing to disclose” should be implemented adequately. The listed companies, who find it difficult to disclose the relevant industrial business information according to the guidelines for specific sub-sectors for objective reasons, should strictly implement the rule for “explaining once failing to disclose”, and explain the detailed reasons for disclosure unavailable to the market investors in the “Report of Board of Directors” in the annual report.
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