China Securities Regulatory Commission Officials Interviewed about Regulations on Listed Companies Information Disclosure
CSRC recently enacted Administrative Regulations on Listed Companies Information Disclosure (hereinafter referred as Regulations or Administrative Regulations). For the public and investors to understand Administrative Regulations』 intentions and contents better, CSRC’s officials have accepted a press interview on issues related to Administrative Regulations.
Q: Could you please talk about the background of the establishment of Administrative Regulations?
A: Administrative Regulations has four main aspects in its concern:
Firstly, since January 1st last year, Company Law and Securities Law have been amended to toughen the information disclosure standards for listed companies and to strengthen the responsibilities requirement of directors, supervisors, senior managers and relevant institutional representatives. To improve the disclosure affairs』 transparency, it is necessary for CSRC to come up with regulations at the commission’s level on information disclosure to work with the newly amended laws.
Secondly, Notice about State Council’s Approval on CSRC’s Opinion on Improvement of Qualities of Listed Companies has made it clear that 「Listed companies must fulfill their information disclosure obligations as public companies. They must strictly abide by the rules of disclosing and guarantee that the disclosed information is authentic, accurate, complete and in-time to improve the effectiveness of information disclosure. The listed companies must have information disclosure management rules and key internal reporting system in place, and have relevant personnel’s disclosure duties and confidential obligations clearly defined. The shareholders and other information disclosure obligors shall actively cooperate with the companies in the fulfillment of disclosure obligations. The establishment of Administrative Regulations is also the implementation and embodiment of Notice about State Council’s Approval on CSRC’s Opinion on Improvement of Qualities of Listed Companies .
Thirdly, led by CPC Central Committee and State Council, the split share structure reform of listed companies is basically completed. After full-circulation is realized in the A-share market, the controlling shareholders and company executives』 interest will be tightly connected with the share price on the secondary market so they will be even more motivated to manipulate the capital market in their interest. Thereafter, it becomes necessary to make more efforts to improve the rules and management procedures of information disclosures. The quality of the disclosed information and effectiveness of supervision must be boosted to adapt to the new requirements imposed for the information regulation of listed companies after the share structure reform
Furthermore, Implementation Rules (Trial) of Information Disclosure of Listed Companies enacted by CSRC in 1993 has become outdated and many of its clauses and contents have fallen short of the ever developing regulation requirements. As a result, it has been a must to update the implementation rules in view of the most recent development of securities markets and based on former information disclosure regulation practices, it’s also necessary to upgrade the principle rules level to that of commission regulations.
Generally speaking, Administrative Regulations is the improvement and perfection of former version of rules in concert with the new development of China’s capital market. It’s also a detailed incarnation of Company Law, Securities Law and Notice about State Council’s Approval on CSRC’s Opinion on Improvement of Qualities of Listed Companies . We are announcing the Regulations in form of CSRC Chairman order as the leading documents governing information disclosure practices.
Q: What’s the juristic position and applicable scope of the Regulations?
A: the Regulations is a set of regulations at department level enacted in form of CSRC Chairman order to provide the general guideline for the information disclosure obligors』 information disclosure activities. It covers various aspects of information disclosures from the share offering to the follow-up revelation after listings. The targets of the Regulations comprise of tour aspects: 1. directors, supervisors and senior managers of listed companies; 2. shareholders, actual controllers, acquisition suitors and other disclosure obligors; 3. securities service providers, sponsors and other practitioners that issue professional paperwork for the disclosure affairs; 4. other market parties related to the information disclosure of listed companies, including institutions and individuals that could manipulate or trade on insider information of the listed company or institutions and individuals or media that could disseminate false information.
Q: Administrative Regulations is the first of CSRC’s documentations to embrace the concept of 「disclosure equality」. Could you please explain how the listed companies and information disclosure obligors will implement this conception in their disclosures?
A: disclosure equality concept requires that the information is disclosed to all investors at the same time so that each investor can have equal access to the same information. More specifically: first of all, the disclosure obligor shall disclose the information to all investors as soon as possible without allowing any corporate or individual to be aware of it before it’s available to the public. The obligation of reporting and disclosing cannot be replaced with that of news conferences, press interviews or in other forms. Secondly, when the listed company is communicating its operations, financial profile and other events to any institution or individual through performance reporting meetings, analyst conference, road show or investor investigations, it shall not reveal any insider information. Thirdly, companies with stocks and derivatives listed both domestically and abroad shall make sure that any information revealed abroad is disclosed to the domestic market as well.
Q: what’s the basic rule for listed company major events disclosure?
A: If any event happens that can have significant impact on listed company’s securities or derivatives trading prices (price sensitive information), the company shall make immediate disclosure of the incident’s inductive reason, present state and possible consequences. Administrative Regulations has defined such events using several examples. This is the minimum requirement of major event disclosure. For events that are not specified in these rules or unmatched with the relevant disclosure requirements, but deemed to be significant in consequence on the company’s securities and derivatives, they shall also be disclosed according to relevant rules on timely basis.
Q: When shall the listed companies fulfill the ad hoc reporting obligations?
A: Listed companies shall fulfill their major events disclosure obligations immediately after any single one of the following events has taken place:
(1) the board of directors or board of supervisors has come to an resolution about the major incident;
(2) relevant parties have signed any letter of intention or agreement about the major incident;
(3) Any director, supervisor or manager has been aware of the incident and has reported about it.
Q: How is the principle of phased disclosure, which’s consistently stressed by CSRC, embodied in Administrative Regulations?
A: As clarified in Article 31 of Administrative Regulations, the listed company shall disclose such events as soon as any one of the three disclosure switches has been activated.
Even if none of such disclosure switches has been met, the listed company shall also disclose the status quo and progress of such events if any of the following situations has been found: it’s already impossible to keep it secret; it’s already divulged or rumored across the market; unusual fluctuations have already happened to the company’s securities or derivatives.
Meanwhile, as ruled by article 32 of Administrative Regulations, if the disclosure itself is inductive of major fluctuations of the company’s securities or related derivatives, the company shall also disclose the disclosed event’s latest development and progress on continued basis.
Q: Regarding the listed company’s disclosure obligations, when unusual prices fluctuations or press rumors happen, what rule has Administrative Regulations set forth for that?
A: Article 35 of Administrative Regulations emphasizes that listed companies have the obligations to monitor the securities or related derivatives price irregularities and media reports. For cases in which company directors have failed their due diligence, neglected the discloseable information without proper investigations, or disclosed the information ineffectively, the Regulations requires that the listed company shall probe about the situation and performs inquiries with major shareholders and actual controllers, in written when necessary. In such cases, the Regulations also asks the personnel to respond to the listed company’s inquiries in time and cooperate properly in the task of disclosures. At the same time, the Regulations has made it clear that the major shareholders, actual controllers and person acting in concert are incumbent to take initiatives to inform the listed company of discloseable events such as shareholding structure changes and asset restructurings. Article 46 of Administrative Regulations also clarifies obligations of reporting in written on the shareholders and actual obligors』 part when media rumor or unusual prices fluctuations arise.
Q: Does Administrative Regulations』 definition of related parties differ from that defined in Ministry of Finance’s Accounting Standards No. 36 – Disclosure about Related Parties? Why are they different? What rules have been set regarding transaction activities between related parties?
A: CSRC’s definition of related parties focuses on the need of regulation of listed companies. Recently, it’s been found not in small numbers that listed companies』 main shareholders, actual controllers, directors, supervisors and senior managers have abused their positions in the listed companies to infringe the latter’s interest. In response to this situation, the related parties to be defined, supervised and controlled by CSRC are defined as parties with abilities to influence the listed companies』 decisions and to compromise their interest, not inclusive of the listed companies』 subsidiaries, cooperative partners and joint ventures. The Regulations has also defined the so called historically related parties (related parties of the previous 12 months) and potentially related parties (related parties of the coming 12 months according to agreement arrangement). For related party transactions, firstly, Administrative Regulations requires the company’s directors, supervisors and senior managers, shareholders of 5% plus, persons acting in concert and actual controllers to report to the listed company about the list of related parties and to explain their relations; secondly, Administrative Regulations requires the listed company to review the transactions in proper procedures, to abide by the voting withdrawal principle strictly and to disclose the information in accordance with relevant rules; thirdly, it is required that no transaction parties shall try to hide the underlying relationship or use other means to circumvent the disclosure review procedures and obligations. Disclosure obligors who try to conceal the relationship or circumvents disclosure obligations shall be punished by CSRC according to article 193 of Securities Law.
Q: Compared with previous versions, the latest Regulations contain the chapter about information disclosure affairs management, which is new and absent in regulations enacted before. Could you please talk about the considerations of this addition?
A: Disclosure qualities can only be guaranteed when the listed companies have realized the importance of info disclosure and implement it through the enforcement of internal rules and seamless cooperation with other relevant parties. So, the Administrative Regulations has added a new chapter dealing with listed companies』 information disclosure affairs management. There are two parts in this chapter: one is to clarify that listed companies must draft rules governing the disclosure affairs to ensure the discloseable information is smoothly reported internally and to specify the disclosure responsibilities of the directors, supervisors and senior managers. The rules approved by board meeting shall be reported to the exchanges and securities regulators for record; the other part of this chapter deals with the behavior standards of the controlling shareholders, actual controllers, acquisition suitors, sponsors, securities service providers and media in their incumbent information disclosing functions.
The added content will make the information disclosure affairs internal management more standardized, practicable and internally checked. At the same time, the guidelines provided in this chapter to the external parties involved in the disclosures will also help to achieve more effective interaction between the external rules and the internal rules and improve the disclosure qualities of listed companies.
Q: What are the main topics covered in the disclosure affairs management chapter?
A: Firstly, it mandates that the listed companies shall make guideline arrangements to that effect. 1. the companies shall establish internal information disclosure management rules to achieve smooth flow of discloseable information within the company and have all relevant personnel to understand their duties; 2. In this chapter there is detailed definition of duties for the listed companies』 directors, supervisors, senior managers, and board secretaries; 3. Behaviors and cooperation obligations of the shareholders, actual controllers and other information disclosure obligors are standardized. 4. The responsibilities to inform and to cooperate with the listed companies』 shareholders or actual controllers who control the listed company through trust arrangements are also clarified; 5. Requirement on the disclosure obligor to provide supporting documentations to sponsors and securities service providers is clarified.
Secondly, clarify the responsibilities of sponsors and securities service providers. Require sponsors and securities service providers to abide by their professional ethics, to put on guard of risks, to fulfill the due diligence, to practice prudently, to carry out legal responsibilities according to industry operational and ethical standards and to guarantee the issued documents』 authenticity, accuracy and completeness. The chapter also poses pertinent requirement to the accountants and assessors to address the common phenomenon seen in disclosure regulations.
Thirdly, the chapter clarifies the behavior standards of the other relevant parties. It rules that no institution of individual shall try to extract or spread insider information of listed companies illegally; no institution of individual shall forge, or spread fake information; the press shall report about the listed companies objectively and faithfully; etc.
Q: what kind of measures CSRC will adopt to strengthen the daily regulation over the information disclosure by listed companies?
A: CSRC has the right to request the listed companies or other disclosure obligors or their directors, supervisors, senior managers to explain, clarify or provide supporting document of their information disclosure and request the listed company to present the professional opinions issued by the sponsor or securities service provider. If CSRC has any suspicion over the authenticity, accuracy or completeness of the documents issued by the sponsor and securities service provider, it can request the relevant agencies to explain or complete the documents and inspect their working notes. In such cases, the listed company or other disclosure obligors or sponsor or securities service provider shall respond to those requests immediately and cooperate with CSRC’s investigation and inspections.
Q: What responsibilities do the listed company’s directors, supervisors and senior managers have for the company’s information disclosures?
A: If there is no sufficient evidence that the listed companies』 directors, supervisors or senior managers have performed the due diligence, they will be held responsible for the disclosure’s truthfulness, accuracy, wholesomeness, fairness and immediacy. More specifically, for ad hoc reports, the listed companies』 president, managers and board secretary shall shoulder the main responsibilities; for financial reports, the listed companies』 president, managers and CFO will shoulder the main responsibilities.
Q: What measures will CSRC take against violation of Regulations?
A: Directors, supervisors, senior managers, shareholders, actual controllers, acquisition suitors and the potential buyers』 directors, supervisors and senior managers who violate the Regulations will be summoned for regulatory talks, admonished in written, recorded in credit profile documentations or recognized as unsuitable candidate for their positions by CSRC.
Sponsors and securities service providers that break rules of CSRC will be ordained to correct, summoned for regulatory talk, admonished with written warning or recorded in credit profile documentations. CSRC can also punish the violator administratively if applicable.
Q: What other supporting measures will CSRC take after the Regulations is enacted?
A: The Regulations is a general guideline for information disclosure. To facilitate its implementation, CSRC will move on to make more detailed guidelines for what’s included in the Regulations on more practicable terms. The follow-up specifications include:
(1) To go through existing information disclosure documents, consult the market and research about the disclosure requirements of annual, interim and quarterly reports to make the disclosure requirement more effective and pertinent.
(2) Help the securities exchanges to amend the stock listing rules to work better with Administrative Regulations.
(3) Start amending periodical report rules for the disclosure of special industries such as banking, insurance, securities and real estate sectors.
(4) Establish behavior guidelines for controlling shareholders and actual controllers. Set out information disclosure internal management rules and acting guidelines governing directors, supervisors and senior managers.
Furthermore, CSRC will step up with trainings to prepare the securities market participants for the disclosure requirements, make they act prudently and further improve the transparency of the market.
Information disclosed according to rules and regulations is very important for investors』 decision making. CSRC has always been emphasizing the importance of regulation preparation and regulatory work over information disclosures and has been taking strengthening actions over listed companies』 information disclosure and improving listed companies』 transparency as the most powerful tools to protect the investors』 interest and facilitate health development of securities market. Information disclosure regulation is always at the centre of CSRC’s listed company regulation task. CSRC will continue to strive for better disclosure management as always, protect the legitimate interest of investors, improve the qualities of listed companies and facilitate healthier development of China’s securities market.
China Securities Regulatory Commission