SSE Facilitates Capital Market Reform and Development through New “Securities Law” and Front-line Regulation

01 Mar 2020
The new "Securities Law" comes into effect on March 1. On the basis of the unified arrangement of the China Securities Regulatory Commission (CSRC), the Shanghai Stock Exchange (SSE) makes every effort in implementation according to the principle of “consolidating the foundation and highlighting the key points” based on the in-depth studies.

In terms of consolidating the foundation, the SSE will focus on carrying through the supporting measures for the implementation of the new “Securities Law”, mainly in the following three aspects. First of all, the SSE will systematically check the current system of business rules and abolish more than 30 sets of specific business rules, including relevant rules that are not compatible with the new “Securities Law”. Second, in accordance with the market-oriented principle established by the new "Securities Law", the SSE will streamline and optimize the procedures and requirements for handling the exchange businesses, and cancel 11 kinds of proof materials in handling the businesses for stocks, options and other products. Third, the SSE will implement the requirements of the new “Securities Law” for strengthening information disclosure, and complete the technical transformation for disclosing and reporting the information on substantial shareholding, while specifying the requirements for declaring the insiders with inside information.

In highlighting the key points, the SSE will focus on the main amendments to the “Securities Law” and the key tasks set by the CSRC for the reform and development of the capital market, adhere to the responsibilities and functions of the exchange, and make efforts in the following five aspects to strictly implement the new “Securities Law”:

First of all, the SSE will earnestly implement the reform in the registration-based system for securities issuance. In accordance with the foundamental positioning toward the all-around implementation of the registration-based system, the new "Securities Law" systematically revises and improves the system of securities issuance by learning from the experience in piloting the registration-based IPO system on the SSE STAR Market. The pilot registration-based IPO system has been implemented smoothly on the SSE STAR Market. The institutional innovations stipulated in the “Implementation Opinions on Establishing the SSE STAR Market and Piloting the Registration-based IPO System on the Shanghai Stock Exchange” and related supporting business rules in terms of the issuance, listing and registration-based IPO on the SSE STAR Market are in line with the requirements of the new "Securities Law" on the whole; the requirement that the employees under the employee stock ownership plan (ESOP) shall not be included in the scope of specific targets of securities issuance, and other specific provisions of the new "Securities Law" will be put into practice directly on the SSE STAR Market in accordance with the law. Going forward, based on the spirit of the new “Securities Law” and the requirements for the reform of the registration-based system, the SSE will further improve the standards for the review of the issuance and listing on the SSE STAR Market, refine the standards for understanding the functions of the SSE STAR Market, and optimize the procedures for demonstrating the nature of scientific and technological innovation; in accordance with the requirements of the State Council and the overall arrangement of the CSRC for advancing the reform of the registration-based system steadily and step by step, the SSE will effectively implement and make preparations for the registration-based system in the public issuance of corporate bonds and other areas. The SSE will, in accordance with the law, accept and review the applications for public issuance of corporate bonds, for which the CSRC is responsible for making the decisions on registration.

Secondly, the SSE will step up the front-line regulation of information disclosure. As the new "Securities Law" further strengthen the responsibility of the issuers and their controlling shareholders and actual controllers for information disclosure, the SSE will also strengthen its duty of supervising the information disclosure of the obligors for securities information disclosure. The SSE will, in strict accordance with the provisions of the new "Securities Law", urge all information disclosure obligors to fulfill their obligation for information disclosure in a timely and accurate manner. On the other hand, the SSE will also step up efforts to formulate and revise supporting business rules, and refine the information disclosure requirements under the new “Securities Law”, with the measures as follows: the preparations for comprehensive revision of the listing rules have been initiated; the format guidelines for the listed companies’ declaration of insiders with inside information and the disclosure of appointing accounting firms will be released; regarding the provisions of the new “Securities Law” on voluntary information disclosure, the SSE will first study and formulate the business guidelines for voluntary information disclosure on the SSE STAR Market, so as to guide the companies listed on the SSE STAR Market in voluntarily disclosing the information that is of real value to investors' investment decisions. Meanwhile, the SSE will make regulatory requirements by requiring that voluntary information disclosure must comply with the basic requirements such as authenticity, accuracy and completeness, and that voluntary information disclosure must not be used to fuel speculation in stock prices.

Thirdly, the SSE will improve the supporting systems for the delisting of listed companies. Instead of providing the specific circumstances for delisting of securities and the implementation procedures such as suspension of listing, the new "Securities Law" requires that the stock exchanges shall make relevant provisions, leaving sufficient legal space for the improvement of the delisting system. The SSE STAR Market has well reflected this principle of the new “Securities Law”, as it adds the delisting indicators, simplifies the delisting process, and cancels the mechanism of listing suspension and listing resumption. According to the arrangements for advancing the reforms of the multi-layered capital market and the registration-based system, the SSE will, with the aim of enhancing the market environment and improving the quality of listed companies, vigorously push forward the reform of the delisting system on the main board market, and make proper arrangements for the transition between the old and new delisting systems.

Fourthly, the SSE will improve the securities trading system. The new "Securities Law" has improved the securities trading system, enriched the provisions on prohibited trading behaviors, added the contents of regulatory systems for share sales by large shareholders and program trading, and enhanced the measures for stock exchanges to prevent and control market risks and maintain the trading order. The SSE will formulate and revise the trading rules as soon as possible, focusing on detailed rules for identifying the abnormal trading and major abnormal fluctuations, the applicable standards for penalties and the implementation procedures, and effectively improve the feasibility of the rules. According to the unified plan of the CSRC, the SSE will evaluate and enhance the supervisory system on share sales by large shareholders, and set up the system for reporting the program trading.

Fifthly, the SSE will step up investor protection. The new "Securities Law" has greatly strengthened the penalties for violations, and significantly consolidated the specific measures and mechanisms for investor protection, while requiring stock exchanges to give priority to social and public interests and safeguard the fair, orderly and transparent market. The SSE will vigorously implement the self-regulatory responsibilities and requirements under the new “Securities Law”, and timely discover and deal with violations in information disclosure and the abnormal trading behaviors. The SSE will step up the real-time monitoring and inspection on new types of insider trading and market manipulation provided in the new “Securities Law”, so as to maintain the trading order. The SSE will take self-regulatory measures in a timely manner against market participants that violate the rules. In addition, the SSE will energetically refine and implement the mechanisms for investor protection, and provide effective support for the implementation of the mechanisms such as class actions, litigation support, compensation in advance, and required buyback, so as to efficiently protect the legitimate rights and interests of investors.