Strengthening the Legal Regime Construction of Securities and Futures, and Insuring the Steady and Healthy Development of Capital Market
On January 1, 2006, the official implementation of the revised Securities Law and Company Law (hereinafter referred to as the Two Laws) started. The revised Regulations on the Administration of Futures Transactions started to be implemented on April 15, 2007. Following the continuous downturn of domestic capital market for four years, a great change finally came into being. Coupled by the rapid macro-economic growth, the number of listed companies, trading volume, total market value and fund-raising amount have reached the record highs. The healthy and rapid development of capital market is closely associated with the considerable attention of national government to the construction of basic market systems in recent years, and especially the establishment and improvement of legal systems.
Under the correct leadership of and with the vigorous support of the Party Central Committee, the National People’s Congress and the State Council, the legal system construction of capital market have enjoyed the satisfactory achievements, and the quite well-established legal systems have been developed and one characteristic law-making approach that complies with the development principles of 「rising and transforming」 capital market has been explored. By the end of June 2007, there have been 379 valid legal documents on securities and futures.
For one year and a half following the implementation of the 「Two Laws」, the China Securities Regulatory Commission (hereinafter referred to as the CSRC) arranged and improved the whole legal system of securities market, and gradually issued 87 regulations and guidelines (as indicated in the attached table). As Chairman Shang Fulin mentioned at the symposium in honor of the first anniversary of the implementation of the 「Two Laws(revision)」, this supplementary law-making work has arranged and reconstructed the whole legal system of capital market, involving the largest number of regulations and rules, dramatic changes and fastest tempo that are unprededented; as a result, the legal system has covered all the aspects and fields including the issuance, transaction and settlement of capital market.
The market development and changes have posed a higher standard and demand for strengthening the legal system construction of capital market. For one thing, the innovative market development is in urgent need of the regulation and support from legal system. For another, the investors call for the reinforced supervision of regulatory department to regulate the market conducts, maintain the market order, create the favorable investment environments and offer the effective right guarantees. Thus, the CSRC adopts the concept of scientific development as a guiding principle for law-making efforts, focuses on the improvement of law-making quality, pursue the scientific and democrat law-making, further increase the law-making forward-looking and delicate degrees, and arranges the law-making work on a full scale in 2007. The main contents of law-making work for this year include actively cooperating with the review and check of those administrative regulations like the supervisory regulations on securities companies, improving the legal system for multi-level market system, improving the market participants check-and-balance mechanism, developing more fund-raising methods, promoting the financial innovation, and comprehensively clearing up and scientifically planning the legal system for futures market.
A backward glance at the development process of domestic capital market indicates that every major legal system construction has vigorously boosted the profound reforms of capital market and has boosted the market development and change. The past development of our domestic capital market has proved that the well-established legal system is the foundation and guarantee for healthy development of capital market. As the legal system of domestic capital market undergoes the continued improvement, the capital market of china will become more prosperous and play a significant and integral role in the economic system of
I. Tremendous Achievements of Supplementary Law-making Work for 「Two Laws」
By June 30, 2007, within one year and a half following the implementation of the 「Two Laws」, the CSRC has completed as many as 87 supplementary law-making items for 「Two Laws」.
(I) Earnestly planning and designing the securities legal system:
Rule by law is the foundation and guarantee for the healthy development of capital market. The CSRC has constantly attached much importance to the legal system construction of capital market. In particular, during the recent years, much prominence has been given to the construction of basic system and the law-making work has always been ranked as the annual priority task. As the revision of 「Two Laws」 moves towards the end, the CSRC launched without delay the comprehensive and systematic supplementary law-making work. After the revised 「Two Laws」 were promulgated, the General Office of the State Council issued the Circular on Relevant Issues concerning Implementation of the Revised Company Law and Securities Law. For the sake of carrying out the spirits of the Circular, the leaders of the CSRC have organized several coordination meetings on law-making work, designed the securities legal system, arranged the specific contents and work for supplementary law-making items of the 「Two Laws」, and formulated the Formulation Plan of Supplementary Regulations and Rules for the Securities Law.
In an effort to unify the work thoughts and promote the law-making work, the CSRC has also issued the Several Opinions on Promoting the Law-making Process of Supplementary Regulations and Rules for the Securities Law, re-stressed the significance of supplementary law-making work, specified the working process and assigned the work responsibilities, offering a powerful guarantee for increasing the law-making quality and efficiency.
(II) Systematic Arrangements and Combination of Means of formulation, revision and revocation:
According to the revised 「Two Laws」, the CSRC, under the guidance of securities legal system, has comprehensively and systematically cleared up and reviewed the administrative regulations and rules on securities. In line with the new provisions or authorization of the revised 「Two Laws」, the CSRC has formulated a new batch of regulations and guidelines, any administrative regulations and rules as well as the guidelines, once found to challenge the revised 『Two Laws」, were revised or abolished. By the end of June 2007, the CSRC has formulated eight regulations and rules including the Implementation Measures of the China Securities regulatory Commission on Freezing and Seizure, revised eleven regulations and rules including the Measures for the Administration of the Takeover of Listed Companies, and repealed three administrative regulations including the Provisional Measures for the Administration of Convertible Corporate Bonds, the Procedures for Public Offering Review of the China Securities Regulatory Commission and the Provisional Measures on the Administration of Securities Settlement Risk Funds.
The laws shall change along with the changing situations. For the purpose of implementing the revised 「Two Laws」 and constructing the legal system that matches the development demand of capital market, the CSRC has spared no efforts to promote the supplementary law-making work. Within a period of one year and a half, the supplementary law-making work for 「Two Laws」 has made some satisfactory achievements. Two legal documents drafted by the CSRC in partnership with the General Office of the State Council have been officially promulgated and implemented. Four administrative regulations including the Regulations on Supervision and Administration of Listed Companies have been submitted to the State Council for approval. 87 rule and guidelines including 19 rules and 68 guidelines have been promulgated. Besides, as an important component of supplementary law-making work, 27 self-discipline rules have been formulated and revised by the securities exchanges, securities registration and clearing companies, and Securities Association of China.
(III) Promoting and improving the securities legal system on a full scale:
Thanks to the supplementary law-making work of 「Two Laws」 for one year and a half, a well-established securities legal system has come into existence. The supplementary law-making work makes contributions to the improvement of securities legal system mainly in the following eight ways:
Firstly, improving the system of securities issuance rules and deepening the issuance system reform:
The CSRC has pumped much effort into the formulation and revision of the Measures for the Administration of Initial Public Offering and Listing of Stocks, the Measures for the Administration of Securities Issuance and Underwriting, the Measures for the Issuance Examination Committee of China Securities Regulatory Commission and the Working Guidelines for Due Diligence of Sponsor, as well as the guidelines for information disclosure contents and formats, and developed two new types of financing method including private placement of stocks of listed companies and public offering of the convertible corporate bonds with detachable warrant. Consequently, the complete and scientific securities issuance standardized system has been basically created and the systematic connection problems related to the simultaneous 「A+H」 domestic and overseas IPO have been solved, creating a high-quality and high-efficiency system platform for the securities issuance work following the 「IPO under new system」.
Secondly, further improving the corporate governance system and the takeover and information disclosure system of listed companies:
The CSRC has drafted two administrative regulations for review, including the Regulations on the Supervision and Administration of Listed Companies and the Regulations on the Independent Directors of Listed Companies, which have been submitted to the State Council for review, formulated and revised the Measures for the Administration of Equity Incentive Plans of Listed Companies (For Trial Implementation), the Measures for the Administration of the Takeover of Listed Companies and the related information disclosure documents, the Guidelines for the Articles of Association of Listed Companies, the Rules for the Shareholders』 Meetings of Listed Companies and other regulations and guidelines, promulgated and implemented the Administrative Measures for the Disclosure of Information of Listed Companies on January 31, 2007, and issued the special documents to handle the clear-up work, including the Circular on Further Speeding Up the Clear-up Work and the Circular on Properly Handling the Clear-up Work of Corporate Funds Occupied by Major Shareholders. As a result, the supervisory legal system of listed companies with the corporate governance, M&A and restructuring, and information disclosure as a core has been developed to actively cooperate with the split-share structure reform and the 「clear-up」 work, encourage the listed companies to continuously raise the standardized operation level and promote the increase in overall quality of listed companies.
Thirdly, establishing the supervisory system of securities companies with the business standardization and risk control as a core, and guaranteeing the successful development of comprehensive management work:
The CSRC has drafted two administrative regulations for review, including the Regulations on the Supervision and Administration of Listed Companies and the Regulations on the Risk Treatment of Listed Companies, which have been submitted to the State Council for review, and promulgated the rules and guidelines including the Measures for the Administration of the Risk Control Indicators of Securities Companies and the Measures for the Supervision and Administration of Post-holding Qualifications of Directors, Supervisors and Senior Managers of Securities Companies to consolidate the achievements of comprehensive governance and realize the historic leap from static supervision to dynamic supervision. In addition, the CSRC has also formulated the Measures for the Administration of Margin Financing and Securities Lending Services of Securities Companies on Trial Basis and the Guidelines for the Internal Control of Margin Financing and Securities Lending Services of Securities Companies, reviewed the supplementary detailed rules and necessary contract terms of the securities exchanges, securities registration and clearing institutions, and Securities Association of China, providing the legal guarantee for the business innovation of securities companies.
Fourthly, developing the institutional investors and consolidating the institutional foundation for standardized development of fund market:
The CRSC has formulated and revised the Measures for the Administration of Securities Investment within the Territory of China by Qualified Foreign Institutional Investors, the Guidelines for the Governance of Securities Investment Fund Management Companies (For Trial Implementation), the Circular on Relevant Issues Concerning the Withdrawing of Risk Reserves by Fund Management Companies, and the Guiding Opinions on the Management of the Investment Managers of Fund Management Companies to promote the long-term investments by the qualified foreign institutional investors, improve the corporate governance system of fund companies, tighten the investment management and enhance the risk prevention capability of fund companies.
Fifthly, improving the system of registration and clearing rules, and guaranteeing the trading safety
The CSRC has formulated and revised the Measures for the Administration of Securities Registration and Clearing, and the Measures for the Administration of Securities Settlement Risk Funds, and reviewed the Interim Measures for Listed Companies to Handle the Transfer of Tradable Shares by Negotiation, the Supplementary Circular on Relevant Issues regarding the Equity Distribution of Listed Companies, the Listing Rules of Securities Exchanges, the Trading Rules of Securities Exchanges, the Rules on Securities Registration, the Rules on Securities Clearing, and the Administrative Rules on the Clearing Participants to reinforce the self-discipline supervision, increase the operation efficiency, enhance the risk prevention capability, and improve the securities trading, registration and clearing system.
Sixthly, implementing the investor protection fund system and maintaining the legitimate rights and benefits of investors:
The CSRC has promulgated the Measures for the Administration of Application and Use of Securities Investor Protection Fund (For Trial Implementation), the Measures for the Administration of Compensation of Creditor’s Right of China Securities Investor Protection Fund Companies Limited (For Trial Implementation), the Circular on Relevant Issues concerning the Payment of Securities Investor Protection Fund and other guidelines to standardize the fund management and use, and protect the legal rights and benefits of securities investors.
Seventhly, further defining the new functions of the CSRC as granted by the 「Two Laws」 and creating the comprehensive law enforcement mechanism of 「combating the illegal securities-related business」:
For the sake of standardizing the securities market order, the General Office of the State Council issued the Circular on Relevant Issues concerning the Crackdown of Illegal Share Offerings and Illegal Operation of Securities Business, set up the coordination team working system under the leadership of the CSRC to rectify the illegal securities-related business, organized the coordination group composed of the representatives from several organs under the Central Government, including the CSRC, the Ministry of Public Securities, the Supreme People’s Court, the Supreme People’s Procuratorate to rectify the illegal securities-related business and take responsibilities for the organization and coordination, policy interpretation and nature determination, specified the responsibilities of all the provincial people’s governments to investigate and punish the local illegal securities-related securities activities and deal with the aftermaths according to the territorial principle, developed the joint law enforcement system and enhanced the law enforcement efforts to combat the illegal securities-related activities.
Eighthly, bettering the administrative law enforcement procedure and carrying out the law enforcement responsibility system
The CSRC has formulated and revised the rules and guidelines like the Implementation Measures of the China Securities regulatory Commission on Freezing and Seizure, the Provisions on Banning the Entry into the Securities Market, the Circular on Freezing the Accounts of the Parties to Securities Transactions and of the Entities and Individuals Related to the Matters Investigated, Which were Opened in Financial Institutions, the Implementation Opinions of the China Securities Regulatory Commission on Promoting the Administrative Law Enforcement Responsibility System, the Interim Measures of the China Securities Regulatory Commission for Discussion and Evaluation of Administrative Law Enforcement Responsibility System, the Interim Measures of the China Securities Regulatory Commission for the Investigation and Punishment of Illegal Administrative Conducts, the Work Rules of the Administrative Punishment Committee of the China Securities Regulatory Commission, the Hearing Rules of the China Securities Regulatory Commission on Administrative Punishment, actively explored the innovation of administrative law enforcement system of securities business, created the special committee member system of administrative punishments, further improved the system of 「separated investigation and interrogation」 for administrative punishment cases, raised the quality and efficiency of administrative punishments for securities and futures markets, and perfected the law enforcement responsibility system.
The successful promotion of supplementary law-making work for the 「Two Laws」 is a great leap for the construction of legal systems at capital market. There has come into existence the legal system of securities market, including the legal systems of securities issuance, transactions, operation and service, the legal systems of listed companies, information disclosure and institutional investors, the supervision and administration and the legal responsibility system, not merely satisfying the objective demands of steady market development for ruling by laws and regulations, but creating the new potentials for market innovation as well. This contributes to preventing and dissolving the market risks, and effectively protecting the legal rights and interests of investors.
(IV) Actively participating in the further improvement of related legal systems in the capital market:
In addition to the supplementary law-making work of the 「Two Laws」, the CSRC has also participated in the formulation and revision of the related laws of capital market including the Amendment to the Criminal Law of the People’s Republic of China (VI), the Law of the People's Republic of China on Enterprise Bankruptcy, the Law of the People’s Republic of China on Anti-money Laundering and the Real Right Law of the People's Republic of China. The Amendment to the Criminal Law of the People’s Republic of China (VI) has taken an initiative to specify the perfidy crime for directors, supervisors and senior managers, further defined the criminal responsibilities of listed companies and securities and futures business institutions due to their serious infringements, imposed more rigorous punishments on the serious market manipulations and perfected the criminal responsibility system of capital market. The Law of the People's Republic of
The revised Regulations on the Administration of Futures Transactions was promulgated on March 6, 2007 by the State Council and started to be implemented as of April 15, 2007. The first batch of supplementary regulations and guidelines have been formulated or revised.
II. Arrange the Whole Law-making Work for the Year
At the beginning of this year, the CSRC has, in accordance with the provisions of the Legislation Law, the Regulations on the Procedures for the Formulation of Rules, the Regulations on the Procedure for the Formulation of Securities and Futures Rules (For Trial Implementation), developed the Law-making Work Plan of the China Securities Regulatory Commission for 2007, and arranged the whole law-making work for 2007. At present, the plan has been printed and transmitted in the form of notices to all the units and departments under the securities and futures system.
The Legislation Work Plan of the China Securities Regulatory Commission for 2007 includes 38 regulations and rules for law making. Based on the arrangement of key work for this year, the CSRC will list 26 regulations and rules as the 「key items to be issued within the year」 and other 12 regulations and rules as the 「the items to be studied and issued at the proper moments」.
(I) Guiding ideology and basic principles:
As usual, the CSRC, when it comes to the choice and arrangement of law-making items, focuses on the key work for this year, aims to promote and guarantee the sustainable, steady and healthy development of capital market, plan as a whole and guarantee the key issues. This year, the guiding ideology for law-making work of the CSRC is to 「deem the concept of scientific development as guidance, comprehensively carry out the spirits at the national financial working meeting and the supervisory working meeting of securities and futures supervisory system, focus on the improvement of law-making quality, pursue the scientific and democrat law-making, further increase the law-making forward-looking and delicate degrees, enhance the law-making initiatives and the operability of laws and standards, and further adjust and improve the legal system」.
According to the above guiding ideology, the CSRC has developed the basic principles of the law-making work for this year. Firstly, serving the key work, arranging as a whole and actively cooperating with the multi-level market construction and financial innovation; secondly, standardizing the law-making activities, following the strict law-making procedure and further strengthening the system construction of law-making work; thirdly, developing the democratic legislation and the legislations for the people’s interests, and reinforcing the scientific and democratic characteristics of law-making work; fourthly, improving the administrative procedure, tighten the supervision, and carry out and implement the responsibility system for administrative law enforcement.
In the circulars issued to all the units and departments of securities and futures industry, the CSRC has raised more specific demands for law-making work. According to the demands, the departments (or units) in charge of legislation shall earnestly carry out the working plan on legislation, properly arrange the legislation force, strive to complete the law-making tasks in a timely and high-quality manner, and continue o perfect the legal system of capital market. They shall strictly abide by the provisions of the Regulations on the Procedure for Formulation of Rules and the Regulations on the Procedure for Formulation of Securities and Futures Rules (For Trial Implementation), develop in a more standardized manner the legislation including the initiation, drafting, examination, promulgation, archive-filing, interpretation, amendment and abolition, consult and learn from the overseas successful experiences and international common practices in a broad sense, take into consideration our national conditions, adopt the democratic law-making forms like the legislation investigation, hearing and verification, and the public soliciting of social opinions, give the timely feedback to the execution of legal system, promote the democratic decision-making work, actively conduct the forward-looking study of innovative law-making regulations and rules on financial work and explore the post-law enforcement evaluation, earnestly implement the responsibility system of special person for legislation, organize the trainings on business knowledge and legislation technology, procedure and criterion for the legislation personnel, earnestly carry out and execute the Outline of Comprehensive Implementation for Promoting Administration by Law and the Several Opinions on Pushing Forward the Administrative Law Enforcement Responsibility System, further consolidate the study and construction of law enforcement system, systematically summarize and raise the suggestions on improving the current implementation procedures on administrative approval and the formulation procedures for securities and futures regulations and rules, actively study the administrative supervisory measures and the administrative guidance system, better the supervisory methods, standardize the administrative enforcement conducts and continuously elevate the level of administrative by law.
(II) Arrangement of the law-making items:
When it comes to the arrangement of law-making items, the specific legislation of the CSRC mainly includes the following six aspects:
Firstly, continuously consolidate the basic legal system of securities and futures market, and actively cooperate with the formulation and revision of administrative laws and regulations including the Regulations on the Supervision and Administration of Securities Companies, the Regulations on the Risk Disposal of Securities Companies, the Regulations on the Supervision and Management of Listed Companies and the Regulations on the Independent Directors of Listed Companies to strive for the early issuance. At present, the aforesaid four administrative laws and regulations (draft for review) have been submitted to the State Council. In addition, the CSRC is actively cooperating with the Financial and Economic Committee of the National People’s Congress to properly draft the Law of Futures.
Secondly, actively explore the supervisory system of non-listed public companies, formulate the Supervisory Measures on the Non-listed Public Companies and the supplementary documents, develop the uniform supervision system of non-listed companies and the continuous supervision system with grading responsibility, and perfect the legal system for multi-level capital market.
Thirdly, strengthen the information disclosure system of listed companies, improve the takeover and restructuring system and the direct financing system of listed companies, formulate and revise the Measures for the Administration of Information Disclosure of Listed Companies, the Administrative Rules on Shares of Listed Companies by Directors, Supervisors and Senior Managers and Shareholding Changes, the Measures on the Administration of Takeover and Reorganization of Listed Companies, the Circular on Several Issues concerning the Substantial Assets Purchase, Disposal and Swap Transaction of Listed Companies, the Measures for the Issuance of Corporate Bonds on a Trial Basis and the related regulations and guidelines, elevate the governance level of listed companies, enhance the transparency and further better the structure of listed companies.
Fourthly, increase the standardized operation level of securities operation and service institutions, match the demands for transforming towards the normal supervisory phase, improve the practitioner management system, perfect the business rules, formulate and revise the Measures for the Administration of the Provision of Securities Legal Services by Law Firms, the Interim Measures for the Administration of Credit Rating Business of Securities Market and the Measures for the Administration of Securities Investment Consulting Business, and promote the sound development of securities operation and service business.
Fifthly, properly implement the Regulation on the Administration of Futures Transactions, comprehensively clear up and scientifically plan the legal system for futures business, perfect the supplementary regulations and guidelines, formulate and revise a series of documents including the Measures for the Administration of Futures Brokerage Companies, the Measures for the Administration of Futures Exchange, the Trial Measures for the Administration of Risk Control Indicators of Futures Companies, the Trial Measures for the Provision of Intermediary Introduction Business to Futures Companies by Securities Companies and the Trial Measures for the Financial Futures Clearing Business of Futures Companies to boost the development of futures market.
Sixthly, standardize the administrative conducts, actively revise the Regulations on the Procedure for Formulation of Securities and Futures Rules (For Trial Implementation) and the Regulations on the Implementation Procedure of Administrative Approval (For Trial Implementation), improve the administrative procedures, regulate the type, creation and application of other supervisory measures than administrative penalties, further change the supervisory working methods and attach more importance o he construction of law enforcement system and mechanism.
By the end of June, eight regulations and rules including the Measures for the Administration of Information Disclosure of Listed Companies, the Measures for the Administration of the Provision of Securities Legal Services by Law Firms, the Measures for the Administration of Foreign Stock Exchanges』 Representative Offices in China, the Measures of China Securities Regulatory Commission for Restricting the Purchase and Sale of Securities, and the Trial Measures for the Administration of Overseas Securities Investment by Qualified Domestic Institutional Investors have been officially promulgated and implemented.
Moreover, the legislation plan also includes 54 legislation items for guidelines, including 17 guidelines which have been officially promulgated and implemented, such as No. 5 Guideline on Contents and Format for Information Disclosure of Companies That Make Public Offering of Securities ----- Contents and Format of Report on Corporate Shares Change.
(III) Initial success of restructuring the legal system of futures
The supplementary legislation for the Regulations on the Administration of Futures Transactions is one major law-making work of the CSRC this year. Currently, this work has achieved the phased results. Five regulations and rules like the Measures for the Administration of Futures Companies, the Measures for the Administration of Futures Exchange, the Interim Measures for the Administration of Futures Investor Safeguard Funds, the Measures on the Supervision and Administration of Post-holding Qualifications of Directors, Supervisors and Senior Managers of Futures Companies, and the Measures for the Administration of Futures Practitioners, and three guidelines like the Trial Measures for the Financial Futures Clearing Business of Futures Companies, the Trial Measures for the Provision of Intermediary Introduction Business to Futures Companies by Securities Companies and the Trial Measures for the Administration of Risk Control Indicators of Futures Companies have been officially promulgated and implemented. The regulations and guidelines like the Measures for the Administration of Commercial Banks Undertaking the Futures Margin Deposit and Futures Clearing Business (draft) are being actively drafted. To date, there has come into being a rough legal system of futures market with the Regulations on the Administration of Futures Transactions as center, the department regulations and guidelines of the CSRC as entity, and the self-discipline regulations of futures exchange,
(IV) Improving the system of self-discipline rules:
As an important force to rectify the securities and futures market, the self-discipline organizations like the securities and futures exchanges, securities clearing companies, securities and futures associations have, in consideration of their practical business and self-discipline management work, formulated the legislation work plans on their own self-discipline regulations to cooperate with the development of key work in the securities and futures sectors this year. There’re more than 118 items involved in this plan. 32 self-discipline regulations like the Regulations on the Membership Administration of Shanghai Stock Exchange.
The year 2007 is the first year in which the domestic capital market has experienced a major transition and moved towards the regular supervision, the financial innovations continue to be introduced and the opening to the outside develops towards a deepening level. The revised Regulations on the Administration of Futures Transactions have been implemented. The market types and trading methods, and the structure, scale and environment of investors are experiencing or will experience a considerable change, and the healthy development of capital market has posed a higher demand for legal construction, which faces the new situations, new problems, new opportunities and new developments. Following the blueprint painted by the 「Two Laws」, the legal construction of capital market still has a long way to go, and the capital market is certain to have a more prosperous and beautiful future.
(This English version by Shenzhen Securities Information Co., Ltd. is for your reference only. In case any discrepancy exists between the Chinese and English context, the Chinese version shall prevail.)
Attached Table:
Checklist of Supplementary Legislation for 「Two Laws」