Accommodate to the structural changes in the market and strengthen the protection of investors' rights and interests

15 Mar 2021

Under the leadership of the Communist Party Committee of the China Securities Regulatory Commission (CSRC), the Shanghai Stock Exchange (SSE) adhered to the working guideline of "Establishing Systems, No Interference and Zero Tolerance" and the working philosophy of "standing in awe of the market, the rule of law, professionalism and risks and giving full play to the synergy of all sectors". The SSE took the opportunity of implementing the new securities law and put investor protection through all the work around reform and opening-up and innovative development in 2020. Facing the ongoing profound structural changes in the capital market, the SSE will continue its efforts in investor protection under the new situation. Priorities are to be given to four major aspects as follows.

Four profound changes in the market

SSE's annual symposium on investor protection, held on March 15, featured the theme of "investor protection in the structural change of the market". According to the discussion among the participants at the meeting, profound structural changes were taking place in the capital market as a result of the synchronous promotion of marketization and legalization. First, major changes have been seen in the structure of listed companies. The blue-chip market on the SSE main board, with its status continuously cemented, has formed the basis of the SSE-listed companies. Especially, with the promotion of the SSE STAR Market, most of the new listed companies were innovative science and technology enterprises, which became the "new force" of the SSE-listed companies. Second, profound changes have also taken place in the market valuation structure. With the change of the relationship between supply and demand resulting from the promotion of the pilot reform of registration-based IPO system and the improvement of regular delisting system, the positive correlation between the market valuation and the quality of a company continued to strengthen, and the efficiency of resource allocation in the capital market was improving, which was mainly embodied by the general cooling of speculation on the stocks of companies with poor performance, and the rapidly-increased delisting of "1 yuan" companies in recent years. Third, the investors and the trading structure have gone through profound changes. Long-term investment and value investment were imposing higher influence on the market, and the market's self-adjustment function was constantly strengthened. Currently, both the market capitalization of shareholding and the trading proportion of professional institutional investors at home and abroad in the SSE market witnessed significant rises, while the trading proportion of individuals recorded sharp decline. Fourthly, the legal responsibility structure of the market has seen deep changes. Both the newly-amended securities law and the XI amendment to the criminal law adhere to the regulation principle of zero tolerance, put all the key entities of violations in the capital market into the scope of entities with legal responsibility, dramatically increased the costs of violations in the capital market, including fraudulent issuance, fraudulent information disclosure and market manipulation, and fundamentally reversed the legislative situation where the cost of securities violations was too low.

The SSE focused on investor education in four aspects

Lu Wendao, SSE Executive Vice President, said that the SSE's investor education work should be geared to the changing conditions so as to fully adapt to the market's structural change, and make efforts to serve the market's development and reform in the new situation in four aspects. In 2021, the SSE will, according to the unified deployment of the CSRC Party Committee, continue to serve as the market organizer, manager and service provider, reinforce investor protection throughout all the work of the reform and opening-up and the innovative development of the SSE market. Efforts will focus on the following four aspects.

First, focus will be on information disclosure in building the SSE STAR Market according to the requirements of the reform of registration-based IPO system. Meanwhile, the responsibilities of issuers and intermediaries will be strictly fulfilled for the quality control of listed companies and the protection of investors' basic rights and interests. Second, investor protection will be stressed throughout the daily frontline regulation. We will urge the listed companies to fulfill the obligation of information disclosure, implement the regular delisting system, deal with abnormal securities transactions according to law, and prevent and control the systematic risk of the market, in order to continuously protect the investors' rights and interests. Third, the SSE will enhance investor protection work and help investors enhance the awareness and ability of self-protection by taking advantage of the investor education base, the service platforms and other platforms of the SSE. Fourthly, it will coordinate with other sectors to earnestly implement the investor protection system as stipulated in the securities law, including investor suitability management, cash dividend distribution of listed companies, compensation in advance, litigation of securities representatives and order of repurchase for fraud issuance.

Highlights of SSE investor protection in 2020

In 2020, under the leadership of the CSRC Party Committee, the SSE took the opportunity of implementing the new securities law, focused on serving high-quality development, strengthening the self-regulation of the exchange, and preventing risk in key areas, with many highlights in investor protection. First, it boosted the high-quality development of the market and built an ecology in which the investors' rights and interests were fully protected. The SSE keeps promoting listed companies to distribute dividends. According to statistics, a total of 1,165 companies on the SSE main board distributed cash dividends totaling nearly RMB1 trillion in 2020, with a year-on-year growth of 11%; a total of 106 companies on the SSE STAR Market distributed cash dividends totaling RMB8.3 billion, with an average ratio of dividend of 40%. 15 companies gave out cash dividends of over RMB100 million. Second, the SSE implemented the new securities law with better mechanisms and business rules for investor protection. We implemented the requirements to "streamline administration, delegate powers, and improve regulation and services", revised and updated business rules, published lists of self-regulation and service in order to build a system of rules that is concise, clear, understandable and easy to use, and promoted transparent regulation. Third, we strengthened the exchange's self-regulation and cracked down on violations that harm the investor's rights and interests. We imposed precise crackdown on the violations which severely harmed the rights and interests of small and medium-sized investors and disturbed the market order, including capital occupation and illegal guarantee. We reinforced the regulation on trading behavior and enhanced the inspection of new types of insider trading and market manipulation as stipulated in the new securities law. Fourth, we prevented risks in key fields and improved the market environment that protects the investors' rights and interests. A total of 9 companies were delisted in 2020, preliminarily forming a normalized delisting mechanism. The number of the companies involved in pledge financing, the total market capitalization under pledge and the balance of pledge financing in the SSE market dropped obviously compared with those at the beginning of 2020, while the overall performance guarantee ratio surged compared with that at the beginning of 2020. Fifth, we strengthened and improved investor education, and enhanced the investors' self-protection ability. In 2020, we organized more than 800 investor education events, published over 400 original works of investor education, and held more than 100 live broadcasts. We promoted the inclusion of investor education into the national education system in three dimensions: colleges, primary and middle schools, and residential communities. Moreover, the SSE investor service hotline received more than 50,000 calls from the investors throughout the year, with a high satisfaction rate of 99%.