On September 5, 2014, the CSRC held a news conference and spokesperson Deng Ge answered questions to the concern of reporters.
Q: On August 6, a post entitled 「Explanatory Public Announcement of Shanxi Guanghe Landscape Cultural Communication Co., Ltd.」 appeared in an Internet chatroom of a website, which includes the response of the listed company to the letter of inquiry from the Shanghai Stock Exchange and clarifications on questions from the media. According to a subsequent official public announcement of the company on August 13, the above-mentioned post has been fabricated and is not an official public announcement released by the company. What is the comment of the CSRC on this issue?
A: Internet-based media including Internet forums, blogs, micro-blogs, WeChat, Yixin, stock bars and official websites of companies (hereinafter referred to as the "Internet-based media") are characterized by rapid dissemination of information with extensive scope and great influence and have played a positive role in information dissemination, pooling of people's wisdom and serving the market. However, some entities and individuals have taken advantage of the Internet-based media to release and disseminate false or misleading information of listed companies to investors. In order to implement the spirit of the Opinions of the State Council in Further Promoting the Healthy Development of Capital Markets and Opinions on Further Enhancing the Protection of the Lawful Rights and Interests of Small Investors in the Capital Markets and create a favorable information environment for healthy development of listed companies, the CSRC is currently focusing on the supervision of Internet-based media on regulating the use of Internet-based media by listed companies, enhancing the capabilities of companies to respond to Internet-based public opinions and secure the access of investors to information.
First, release and dissemination of relevant information about listed companies through Internet-based media shall follow the provisions of securities laws and regulations. The Securities Law and Measures for the Administration of Information Disclosure by Listed Companies spell out three prohibitive provisions on the release and dissemination of information through Internet-based media: first, those with information disclosure obligations shall not release information on the Internet-based media earlier than the release of such information on the media designated by the CSRC and shall not replace the obligation of reporting and public announcement by any other forms such as press conference or answers to the questions of reporters. Second, prior to information disclosure of listed companies by law, any person in possession of such information shall not announce or divulge such information. Third, securities market information disseminated through various types of communication media must be authentic and objective and free from any misleading information. Any entities and individuals shall not provide and/or disseminate false or misleading information of listed companies to investors. The CSRC and stock exchanges shall supervise information release on the Internet-based media by law. Where the release and dissemination of information about listed companies through Internet-based media have caused abnormal fluctuations of share trading, the stock exchange shall verify whether such share trading of listed companies is suspected of insider trading or market manipulation and once clues of violation have been identified, such cases shall be transferred in time to relevant CSRC regional offices for verification. The CSRC will investigate and impose sanctions on any entities and individuals who release and/or disseminate false or misleading information about listed companies to investors through the Internet-based media and where such activities have caused damages to listed companies and their investors, listed companies and investors shall seek prosecution in accordance with law.
Second, listed companies shall improve their internal management mechanism and responsibility investigation mechanism and enhance management of the Internet-based media information. Listed companies shall announce relevant information about their official micro-blogs, official WeChat accounts and official website with real name verification on the media designated by CSRC or assign special personnel for dedicated management of such information. Board directors, supervisors, senior management etc. of companies and their subsidiaries shall not release undisclosed information about listed companies on their personal verified micro-blogs, blogs, WeChat or other Internet-based media. Where relevant personnel have released undisclosed information of a company without prior authorization and completion of corporate internal review procedure resulting in the company's violation of information disclosure, the company shall initiate an accountability mechanism to investigate the responsibilities of relevant personnel and the CSRC will take regulatory measures against them according to the circumstances of their conduct and record such acts into the CSRC's records of sanctions and disciplinary actions.
Third, listed companies shall collect, analyze and verify information that may have major influence on the prices of company shares and their derivative products in a timely manner, assess and evaluate risks, and establish a rapid response mechanism for the Internet-based media. When information related to a listed company has been noticed and published by the Internet-based media, which may have or already has exerted a major impact on the prices of the company's shares and their derivative products, the listed company shall initiate the rapid response mechanism and conduct a self-inspection or verify with controlling shareholders, actual controllers and other persons with information disclosure obligations about whether there is any information that should have been disclosed in order to perform information disclosure obligations by law; where necessary, a listed company may apply to the stock exchange for the suspension of trading of its shares and their derivative products and according to relevant requirements of the CSRC’s Measures for the Administration of Information Disclosure by Listed Companies and Listing Rules of the stock exchange, release explanatory public announcements through media designated by the CSRC; properly handle relations with the media and investors and update public on the measures taken by the company and their progress through such channels as company official micro-blog, WeChat account and website in a timely manner; take effective measures to ensure internal corporate stability and normal functioning of corporate business operation and coordinates with local government offices and relevant competent authorities in case investigation and prosecution. Meanwhile, listed companies shall present written reports on the measures that have been taken and their progress and effects to the stock exchange and the CSRC regional offices where the listed companies are registered.
The CSRC has always paid close attention to development of the Internet-based media and evaluated the effects and information disclosure of listed companies in a proactive manner. In the next steps of work, the CSRC will further examine and improve information disclosure rules, adapt to the tendencies of the Internet-based media development, give full play to their positive role on the information disclosure by listed companies, and enhance supervision of information release and dissemination through the Internet-based media.
Q: Sources have claimed that the Hong Kong Stock Exchange requested a postponement of the implementation of capital gains tax under the Shanghai-Hong Kong Stock Connect program. Would you please verify whether such report is true and what is the comment of the CSRC on this matter?
A: We have noticed relevant reports by the media. The Shanghai-Hong Kong Stock Connect marks an important attempt to enhance the interconnection and two-way opening-up of capital markets in the Mainland and Hong Kong and upon officially initiating the Shanghai-Hong Kong Stock Connect, the CSRC already gave priority to the research and policy coordination of relevant tax issues and received vigorous support from fiscal authorities. Given that the tax issues of Shanghai-Hong Kong Stock Connect involve existing laws and regulations with a strong policy nature and extensive influence, it is important to adhere to the fairness and prudence of tax policies and accommodate the innovation and openness of businesses under the Shanghai-Hong Kong Stock Connect program. Therefore, relevant tax policies require prudent decision-making after comprehensive consideration of multiple factors. The CSRC is coordinating with relevant departments in expediting this activity in a proactive manner and will try to resolve relevant issues on an early date.
Q: Would you please confirm whether Mainland brokers shall apply for relevant licenses for provision of research services to their customers in Hong Kong?
A: According to the place where business is conducted, there are two types of provision of research services by Mainland brokers to their customers in Hong Kong: first, provision of research services in the Mainland to customers from Hong Kong; second, provision of research services to Hong Kong customers in Hong Kong.
For the first situation, i.e. where Mainland brokers provide research services to customers from Hong Kong, they shall obtain securities investments advisory service qualifications and relevant associated persons offering research services shall possess professional securities investment adviser qualification. Where such services do not involve the operation of relevant businesses in Hong Kong's market, i.e. do not offer paid research services in Hong Kong's market and research reports are not targeted at investors of Hong Kong's markets as specific subjects of distribution, Mainland brokers, in principle, do not need to otherwise apply for any licenses.
The second situation, i.e. provision of research services to Hong Kong's customers by Mainland brokers in Hong Kong, is not subject to the jurisdiction of the CSRC and shall follow relevant requirements of Hong Kong's regulatory authorities regarding licensing and information disclosure and requires application to Hong Kong's regulatory authorities for relevant licenses to carry out business operation by law.
Q: Recently, it is reported that the Shanghai police has solved a major case of "news blackmail" involving many listed companies as the victims of blackmail. Did the CSRC notice this incident?
A: We have also observed the reports on this incident from the media. News blackmail seriously violates laws and regulations, disrupts people's life and work and undermines economic and financial order and therefore must be severely cracked down upon. Capital markets are trading markets featuring information-based pricing and the authentic, accurate, complete, timely and fair disclosure of information by market entities and appropriate external supervision by the news media and public at large are the foundation for the healthy operation of capital markets and conducive to the regulatory transformation with information disclosure at the heart. Over the years, the CSRC has been supporting and welcoming the supervision by news media but such supervision must take facts as the basis and the law as the benchmark and secure its development and professional reputation through responsible and high-quality news coverage to promote market changes and social progress. It is our expectation that under the joint efforts of the law enforcement and regulatory authorities and listed companies, enterprises and the media at large, a healthy, transparent and vibrant media environment for capital markets will come into shape.
Q: It is reported that the Shenzhen-Hong Kong Stock Connect that links the Shenzhen Stock Exchange and the Hong Kong Stock Exchange is currently under research and will be submitted to the CSRC for approval once the program is ready. Would you please give us an update on the latest progress of the research on Shenzhen-Hong Kong Stock Connect and its preparations?
A: As mentioned at the press conference on April 11 of this year, the current pilot program for stock trading interconnection mechanism does not include the Shenzhen Stock Exchange due to the following considerations: first, such a Stock Connect is the first of its kind and thus requires pilot program in advance. Pilot operation by Shanghai and Hong Kong stock exchanges in the early stage and improvements of relevant institutional arrangements in practice are favorable to the steady implementation of opening-up of China's capital markets. Second, the valuation levels of Shanghai and Hong Kong markets are relatively close, so that the Shanghai-Hong Kong Stock Connect has a relatively limited impact on the valuation levels of both markets, which is favorable to risk prevention and ensuring the steady initiation of pilot program. Third, the Shanghai-Hong Kong interconnection model as a method of cooperation established through independent commercial negotiations by Shanghai and Hong Kong stock exchanges reflects the mutual intent of cooperation based on their respective positioning and development needs.
Currently, various market stakeholders are concentrating their energy in preparing for the initiation of Shanghai-Hong Kong Stock Connect to ensure its successful launch. An important experience of China's reform and opening-up is the gradualist approach of reform with implementation of pilot programs and developments of experiences before gradual implementation on a larger scale. The opening-up of capital markets will naturally take the same approach. We have noticed some reports of the media and understand that it is natural for Shanghai-Hong Kong Stock Connect to provoke speculations about Shenzhen-Hong Kong stock connect. Located in neighboring regions with convenient access to communication, Shenzhen and Hong Kong stock exchanges have always maintained very good cooperation. On the basis of experiences gained from Shanghai-Hong Kong Stock Connect, we support further cooperation between Shenzhen and Hong Kong stock exchanges with enriched methods and content of cooperation for the promotion of healthy development of capital markets in both cities.
Q: As the major shareholder of China's Sports Industry Co. Ltd., the Fund Management Center of the State General Administration of Sports expressed that it will transfer all its share holdings in the future three years due to its inability to perform capital injection commitment. Would you please confirm whether the above-mentioned conduct violates the relevant provisions of the Guideline No.4 for the Supervision of Listed Companies? And will the CSRC impose any penalty on its failure to fulfill its commitment in time?
A: In order to protect the interests of listed companies and small investors, by the end of 2013, the CSRC promulgated Guidelines for the Supervision of Listed Companies No.4 - Commitments and Their Fulfillment by Listed Companies and Their Actual Controllers, Shareholders, Related Parties and Acquirers (hereinafter referred to as the "Guideline"). In the first half of this year, the CSRC has carried out a special campaign on commitments and fulfillment of commitments. According to the requirements of the Guideline, for listed companies with overdue commitments and substandard commitments, the responsible parties concerned shall resolve their commitment issues prior to the end of June. By the end of June, relevant shareholders of China's Sports Industry Co. Ltd. were yet to comply with the relevant requirements, and Tianjin Securities Regulatory Bureau has already taken regulatory measures against such shareholders of China Sports Industry Co., Ltd. In addition, the Shanghai Stock Exchange has also taken actions against such shareholders in accordance with the applicable provisions. If the parties concerned are found to have committed other violations, the CSRC will take further actions pursuant to applicable laws and regulations as well.
Q: Monitoring and improving the compliance programs of various types of trading venues is one of the regulatory priorities for the CSRC. Would you please give us an update on the recent progress of this work? Any update on the progress of regions that failed to pass inspection such as Tianjin and Yunnan?
A: In December 2011, the State Council issued the Decisions on Monitoring and Improving the Compliance Programs of Various Types of Trading Venues and Effectively Preventing Financial Risks (the State Council Document [2011] No.38), which decides to establish an inter-ministerial joint conference on monitoring and improving the compliance programs of various types of trading venues led by the CSRC to coordinate with relevant departments and local government offices. Under the joint efforts of relevant parties, positive achievements have been made. By now, a total of 29 provinces (autonomous regions and municipalities) and five cities under separate planning have passed inspection and acceptance by the joint conference for their completion of the monitoring and actions of enforcement of compliance. Among the remaining province and municipality, Yunnan's monitoring and programs improvement of compliance have been basically completed and are under relevant inspection and acceptance procedures. In the course of monitoring and actions of improvement of compliance, a number of violations have been investigated and sanctions imposed; some substandard practices have been rectified and some trading venues with serious problems have been closed. Through the monitoring and compliance program, a large number of trading venues have embarked on the path of standardized development and are beginning to play a positive role in serving the real economy.
In order to strengthen the outcomes of the monitoring and programs of improvement of compliance and facilitate the establishment of long-term mechanisms by various trading venues for their healthy development in the long run, under the overall organization by the inter-ministerial joint conference, the CSRC regional offices are working with relevant local government departments in conducting on-site inspections of various trading venues. For any problems identified during inspection, relevant local government departments will take actions according to laws and regulations.
Tianjin municipal government has attached great importance to the monitoring and programs of improvement of compliance and taken vigorous measures to expedite the rectification of the problems of trading venues and already achieved certain results. The rectification of relevant trading venues is underway. The CSRC will work together with other members of the inter-ministerial joint conference in further enhancing overall coordination and policy guidance and supporting Tianjin municipal government to complete the monitoring and programs of improvement of compliance of various trading venues on an earlier date.
It is our expectation that trading venues in various localities strictly observe the laws, regulations and State Council requirements, engage in business activities under the basic objective of serving the real economy, enhance management of their members and associated persons, and resolutely refrain from touching the red line by damaging the interests of investors; trading venues with problems shall refrain from taking a wait-and-see attitude and shall rectify their problems in a proactive manner.
We would also like to take this opportunity to remind individual investors that the monitoring and programs of improvement of compliance is currently underway and some trading venues still have substandard practices of operation and management with high risks of trading activities organized by them. From the perspective of protecting their interests, investors are advised to be highly cautious about participating in the transactions through these trading venues.