In 2017, the Shanghai Stock Exchange (SSE) has earnestly studied and implemented the requirements of the 19th CPC National Congress, the National Financial Working Conference and the Central Economic Working Conference, and under the strong leadership of the Party committee of the China Securities Regulatory Commission (CSRC), the SSE has effectively carried out the concept of regulation in a law-based, all-round and strict way and the requirements for strengthening the exchanges' role in front-line regulation, given full play to functions and advantages of front-line regulation, and promptly discovered and stringently cracked down on all violations and disorders in the securities market by especially relying on disciplinary sanctions and regulatory measures. In the whole year, the SSE imposed 90 disciplinary sanctions, an increase of nearly 30% over the same period of the previous year, and took the regulatory measures 4,942 times, with a total of 5,373 market participants involved. Both the number and the intensity of the sanctions have been expanded, providing effective guarantee for safeguarding the market order, preventing market risks and protecting the investors' legitimate rights and interests.
Judging from the implementation of the disciplinary sanctions, the disciplinary actions mainly targeted the violations in the three areas of regulation on information disclosure of listed companies, regulation on unusual transactions of securities and regulation on the bond market, accounting for 78%, 10% and 12% of the total respectively. The SSE specially intensified the regulation of the chronic problems in the market such as the excessive speculation on concept stocks, fake reorganization and abuse of trading suspension and resumption, severely punished the serious violations such as the controlling shareholders and the actual controllers concealing changes to the control power, harming interests of the company and investors and disrupting the market order; the disciplinary actions were significantly stepped up, as in addition to the commonly used issuance of a notice of criticism, the more serious sanctions of public censure and disqualification for holding positions of directors, supervisors, or senior executives of listed companies were implemented more frequently, up by 144% year on year.
From the perspective of the implementation of regulatory measures, in accordance with the principle of implementing progressive regulation and preventing minor cases from transforming into major ones and major cases from becoming serious ones, the SSE promptly took the regulatory measures by issuing warnings or calling a halt to the minor violations discovered in an early stage. The SSE imposed 214 oral warnings and 63 written warnings in the regulation of listed companies, 42 written warnings in the regulation of the bond market, 4,039 oral and written warnings and 793 suspensions of trading for the accounts in the regulation of the unusual transactions, and 1 oral warning and 184 regulatory measures in the regulation over the members.
The violations were mainly in the following eight categories:
The first category was the major serious violations disturbing the order of the capital market, including severely disturbing the securities market order, harming the investors' interests, refusing to cooperate in regulation and having extremely bad impact on the market. For example, ST Guangxi Fortune Technology Co., Ltd. seriously disrupted the market order by deliberately fabricating and arbitrarily disclosing unconventional shareholders' meeting motions, receiving public censure with Xian Yan, Gu Guoping and other individuals disqualified for holding positions of directors, supervisors, or senior executives of listed companies; the relevant shareholders of Gansu Mogao Industrial Development Co., Ltd. and Jiangxi Changjiu Biochemical Industry Co., Ltd. deliberately conceal the relationship of concerted action to illegally bid for the listed companies, receiving public censure. The SSE resolutely cracked down on the vicious violations that ignore the basic obligations and norms for information disclosure, openly challenge the seriousness and authority of the legal rules for the securities market, lose the bottom line of a listed company for law-abiding compliance, honesty and credit and seriously disrupt the market order, and imposed proper punishments on the companies and related responsible persons, so as to set the record straight and clean the market environment.
The second category was the unusual transactions in securities, mainly including those affecting the normal order such as fake orders, driving up and dragging down prices, matched orders and seriously irrational transactions. For example, an investor surnamed Lai recorded the unusual transaction behaviors of exceeding the limits in buying the stocks with risk warning and frequently placing and cancelling the orders in large quantities at the upper price limit, and made further unusual transaction behaviors after the SSE repeatedly taking regulatory measures. Therefore, Lai was banned from trading for 3 months for the serious violations. Four special-account products under China Fund Management Co., Ltd. sold the two stocks of China Ping An and Industrial Bank at the prices far below the transaction prices in the market, leading to the adverse result of rapid drops of related stock prices in a short period of time, and the related securities accounts were banned from trading for 1 month. Regulation of unusual transaction behaviors is an important area in the SSE's efforts in strengthening the front-line regulation. In recent years, on the basis of effective compliance regulation, the SSE has attached more importance to regulation for fairness, focusing on regulating unfair trade practices in which a small number of investors with fund and shareholding advantages induce the retail investors to follow the trend of speculation. Because of the special market structure in China, such abnormal transactions may easily cause the stock prices to rise or fall suddenly and sharply in a short period of time, seriously disrupting the normal trading order and damaging the interests of small and medium-sized investors. Therefore, efforts should be made to achieve improvement and optimize the ecological environment for trading in the secondary market.
The third category was the violations committed by the controlling shareholders and actual controllers of the listed companies, mainly involving the controlling shareholders and the actual controllers concealing the controlling position to evade due obligations and abusing the controlling position to implement the transfer of benefits as well as other cases. For example, He Xiaoyang, the former actual controller of Shanghai Zhongyida Co., Ltd., concealed the transfer of the control right and refused to disclose the fact even after the media reports and the SSE issuing the inquiry letter during a period of more than a year, receiving public censure for the bad behavior. Another example was that Dai Wei, actual controller of *ST Dalian Dafu Enterprise Holdings Co., Ltd. violated the principle of honesty and trustworthiness, failed to comply with the company's decision-making process and internal control system, made unauthorized use of the company seal to sign a number of external guarantee agreements in the name of the company, seriously damaging the interests of the company. Therefore, Dai received public censure and was disqualified for holding positions of directors, supervisors, or senior executives of listed companies. The controlling shareholders and the actual controllers usually play a pivotal role in judging whether the corporate behaviors are standardized in operation, and their violations, which often seriously damage the interests of the listed company and the small and medium-sized investors, are a key area where the SSE has paid special attention, stepped up the regulation and urged behaviors of honesty and compliance.
The fourth category was the violations in disclosure of the listed companies' financial information, mainly reflected in the "exaggerated" business performance, improper whitewash and other situations. For example, Shenma Industry Co., Ltd. significantly inflated the revenue and costs due to improper handling of consolidated financial statements, and the company and the main responsible persons received public censure; Shanghai Great Wisdom Co., Ltd. inflated the revenues and profits in large amounts by early confirming revenues, recording fewer current costs through deferring recognition of the year-end bonuses, and the company and the main responsible persons received public censure. The financial information is the basic and crucial information in the information disclosure of listed companies, and has a vital impact on investors' investment judgment and decision-making. It is also a key area in the SSE's routine regulation on information disclosure. The SSE has severely dealt with all the cases of untrue, inaccurate and incomplete disclosure of the financial information.
The fifth category was the violations in major asset restructuring and trading suspension and resumption of the listed companies, mainly involving the long-term trading suspension of the listed company caused by imprudent planning for major asset restructuring and illegal disclosure of restructuring information. For example, TDG Holding Co., Ltd. failed to make the judgment that effective progress could not be made in a short period of time in completing the process of bid, auction and listing for the reorganization target before the transfer, but still started the initiative of major asset restructuring, with the resumption of the stock trading repeatedly postponed, finally resulting in the termination of restructuring after a long-term trading suspension of the company for 5 and a half months. Pengqi Technology Development Co., Ltd. launched the major asset restructuring and had the stock trading suspended with the reorganization target yet to have the conditions for production and operation of military products, and the imprudent decision-making resulted in the termination of the reorganization after the stock trading suspension of the company for more than 5 months. Notices of criticism were imposed on the above-mentioned companies and responsible persons. The disclosure of the information about major asset reorganizations and the trading suspension and resumption that are closely related to the reorganization directly affect the market efficiency and transparency, and the investor's right to know and trading right. In recent years, on the basis of vigorously improving the relevant systems, the SSE has strengthened its regulation over the false restructuring and abusing of trading suspension, and it has never tolerated any violations in the area.
The sixth category was the shareholders and the group of directors, supervisors and senior executives of listed companies illegally trading the shares, mainly including failure in suspending trading and making timely disclosure with the criteria for equity change triggered, the short-swing trading, the violations of the rules for shareholding lessening of listed companies and other situations. In the cases of the shareholders' violations, for example, public censure was imposed on relevant shareholders of Shandong Jintai Group Co., Ltd. for reducing the shareholding by more than 1% in 3 months; 4 shareholders of VV Food & Beverage Co., Ltd. had their securities accounts banned from trading for 6 months for selling the shares lessened and transferred by major shareholders through block trading within 6 months. In the cases of the violations committed by the directors, supervisors and senior executives of the companies, for example, the directors, supervisors and senior executives of Fujian Qingshan Paper Industry Co., Ltd. and Dr. Peng Telecom & Media Group Co., Ltd. received the sanctions of public censure or notice of criticism respectively for illegal trading. The violations of the major shareholders and directors, supervisors and senior executives of listed companies in creasing or lessening shareholding not only run counter to the laws, regulations and established requirements of the business rules but also go against their due obligations for honesty and integrity. The SSE will, in strict accordance with the laws and regulations, departmental rules and business rules, continue to stringently regulate the behaviors of the major shareholders and the directors, supervisors and senior executives in increasing or lessening shareholding so as to safeguard market fairness and justice.
The seventh category was the violations in disclosure of significant issues of the companies, mainly involving the delayed, incomplete and inaccurate disclosure of the information about performance forecast, major transactions and other issues. For example, because of the major mistakes in the performance forecast and failing to disclose significant contracts in a timely manner, the company of Hisun Pharm and its major principals received public censure. As a result of failing to timely disclose the major asset sale and disclosing ungrounded information about high proportions of bonus shares or capitalized shares, Ye Chiu Metal Recycling (China) Ltd. and its principals received the sanction of notice of criticism. Due to the daily connected transactions exceeding prediction and the failure in disclosing the government subsidies and the lawsuits in a timely manner, Shanxi Antai Group Co., Ltd. and its principals received the sanction of notice of criticism. The listed companies' disclosure of significant information and related risks serves as the foundation for safeguarding the investors' right to know and helping the investors with decision-making. The SSE will continue to improve the business rules, and provide the listed companies with code requirements and guidance in fulfilling the obligation of information disclosure. For the violations breaking the rules, the SSE will intensify the thorough inquiry and seriously hold the responsible entities accountable.
The eighth category was the violations committed by issuers of corporate bonds, mainly including those in credit risk management, information disclosure and use of raised funds. For example, Wuyang Construction Group Co., Ltd. and Evergreen Holding Group failed to disclose the information according to the rules after the default on the bonds and were passive in dealing with the risks with various violations in disclosure of periodic reports and other aspects, resulting in bad effects, and the two companies and their principals received the sanction of notice of criticism. Luzhou City Industrial Investment Group, Xinjiang Hualing Industry and Trade (Group) Co., Ltd. and some other bond issuers received the sanction of notice of criticism for the violations such as lending the raised funds to others and failing to use the funds for specified purposes. In recent years, the bond market has been expanding in size, and the numbers of the bond products and the investors have been increasing, with the credit risks exposed from time to time. In accordance with the characteristics and laws of the credit bond market, the SSE has effectively transformed its regulatory concepts and methods, focused on punishing the violations such as the issuers of the corporate bonds and related parties failing to manage the credit risks according to the requirements or breaking the rules in using the raised funds, and directed the bond issuers and trustees and other intermediary agencies to perform their obligations according to the rules in a trustworthy way, so as to effectively protect the legitimate rights and interests of bond investors and prevent the risks on the bond market.
In the past year, with the self-regulation continuously deepened at the SSE, the disciplinary sanction and regulatory measure mechanisms as the back-end "arms" and "teeth" played their due role and deterrent function, and the "evolution and upgrading" were mainly manifested in the following five aspects: The first was the authority. The revised "Measures for the Administration of Stock Exchanges" and the "Articles of Association" of the SSE have further emphasized the exchange's role in implementing the self-regulation of all violations based on the business rules, and enriched the exchange's measures for disciplinary punishment and regulation, including collecting the punitive liquidated damages, sending the regulatory suggestion letters to the authorities and so on. The second was timeliness. Through the regulatory measures featuring quick response and in-process intervention, the SSE promptly judged and determined new non-compliance behaviors, properly handled the vicious non-compliance cases that endangered the market stability, and prevented the non-compliance information disclosure from having an actual impact on the trading behaviors of the investors, thus inhibiting the general abnormal transaction behaviors from transforming into the major vicious violations of market manipulation. The third was relevance. In order to prevent and punish "unfair transactions", the SSE severely cracked down on the violation committed by a small number of market participants to "deceive" the small and medium-sized retail investors into following the trends in trading by disclosing misleading information, placing false orders, driving up and dragging down the prices and other means, and energetically eliminated the market "pain spots" such as inducing speculation and disorder in market operation. The fourth was comprehensiveness. All the market participants in different business areas such as trading, listing, membership, bonds and options and all the violations committed by them were comprehensively included in the SSE's scope of disciplinary actions and regulatory measures according to the laws and regulations, with the regulatory shortcomings improved and no loopholes missed in regulation. The fifth was standardization. Based on the developments in the regulatory practice, the SSE improved the hearing and review procedures for disciplinary sanctions, with eight batches of hearings organized and implemented in the year, so as to fully guarantee the parties' right to remedy, and the part of reasoning was added in the disciplinary action instruments in a bid to further enhance the transparency of self-regulation.
In the new year, under the guidance of the CSRC, the SSE will, according to the requirement for law-based, strict and comprehensive regulation, continue to enhance the professionalization and refinement of disciplinary actions, spread the stance of stringent regulation, purify the market environment, strive to fulfill the responsibility for front-line regulation, and constantly unleash the front-line regulatory effectiveness, so as to build a more orderly market.