On February 21, 2014, China Securities Regulatory Commission (CSRC) held a press conference, on which the CSRC spokesperson Deng Ge briefed the press on the approval granted by the State Commission Office for Public Sector Reform (SCOPSR) for the CSRC’s internal institutional restructuring, the CSRC’s approval on the listing of polypropylene futures contract on the Dalian Commodity Exchange (see News section for details) and the announcement on annual inspection of securities investment advisory firms for 2013 (see Announcements section for details), and answered questions from reporters.
Q: There is a view that the advertisement fee of RMB18 million involved in the partnership of Sinolink Securities and Tencent seems not to be the core issue. The real stake is to leverage the relatively simple partnership in advertising to seize the first-mover advantage in competition for online brokerage services. What is your comment in this regard?
A: We have noted that, in November 2013, Sinolink Securities made an announcement on the execution of a Strategic Partnership Agreement with Tencent. Alliances and competition among market players are market behaviors at the discretion of the companies involved. What we are concerned about is the enforcement of compliance in such process. We will deal with any irregularities by the companies involved in terms of information disclosure or other aspects in accordance with law.
Q: It is reported that CES Futures has announced that, effective from February 18, no commission will be charged on new accounts that can be opened simply using a mobile phone, which captured the market's attention. What is your comment on the initiative?
A: Recently, CES Futures launched the "mobile account" and "zero commission" services that sparked heated debates in the futures market.
First, let us talk about the mobile account. In recent years, Internet financial services have developed rapidly, with an increasing impact on all areas of traditional financial services. At present, the CSRC and the China Futures Association (CFA) have not yet introduced specific regulations on the opening of accounts online with futures firms. Futures firms should stick to compliance with law and protection of investors' interests in their innovations while taking full account of the features of the futures market such as high risk and strong specialization. Our regional office in Shanghai has found in its examination of the "mobile account" service of CES Futures that, compared with the traditional way of opening accounts onsite, there is a range of problems and potential risks in connection with the opening of accounts using a mobile phone, such as less rigorous review of real name account opening, inadequate risk disclosure, and difficulty in putting in place the suitability assessment and investor protection for futures investors. In order to maintain the market order and protect the interests of investors, regulators have recently ordered a halt to the business.
Meanwhile, we will give full consideration to market demand, evaluate and analyze the impact of the Internet on the futures industry, and conduct further studies on the opening of accounts via the Internet and other issues. Before the introduction of relevant policies and regimes, futures firms are not allowed to engage in mobile account and similar business activities for the time being.
The second is the zero commission in question. Currently, commissions are charged to clients based on market principles in the futures industry. From the perspective of industry self-regulation, the CFA requires that companies not engage in acts of unfair competition by means of charging below-cost commissions to clients and otherwise, as provided in its self-regulatory rules such as the Self-regulatory Pact of the China Futures Association and the Implementation Opinions on Enhancing Service Capabilities and Regulating the Order of Competition in the Industry. For the conduct of "zero commission" by CES Futures, the CFA has initiated an investigation process.
Q: On February 18, the Bank of Beijing issued an announcement that its executives had purchased 30,000 shares of the Bank of Beijing on February 17; on February 19, the shares hit limit up; later on, the Bank of Beijing issued an announcement of entering into an agreement of partnership with Xiaomi Corporation. Would these executives be considered as being involved in insider trading? What regulatory actions would the CSRC take against them?
A: In accordance with the CSRC’s Rules on Shares Held by Directors, Supervisors and Executives of Listed Companies and Changes in Such Shareholdings, the directors, supervisors and executives of a listed company are prohibited from purchasing or selling shares of such company within two trading days of the occurrence of any major event that may exert significant influence on the company’s share price or in the process of the decision-making thereof.
The CSRC has noticed questions on the purchase of shares by an executive of the Bank of Beijing raised by reporters. The Shanghai Stock Exchange (SSE) has urged the company to issue an announcement [for clarification], and both the Shanghai Stock Exchange and CSRC’s regional office in Beijing are verifying relevant matters. The CSRC will take regulatory actions accordingly once violations are identified.
Q: Would you please give us an update on enterprises listed on the National Equities Exchange Quotations (NEEQ)?
A: By February 19, 2014, a total of 642 enterprises have been listed on the NEEQ with the aggregate number of shares and the total market cap reaching 21.9 billion shares and RMB 125 billion yuan respectively (in calculating market cap, the prices of shares without trading record are calculated based on the average P/E ratio of shares with trading record).
The average number of shares of these listed companies is 34.1978 million shares, up 26% compared with the average number of shares prior to the expansion of the NEEQ (if listed companies in financial sector are excluded, the average number of shares is 29.16 million and the medium number of shares is 20 million, which is at roughly the same as the level prior to expansion). Of all companies listed on the NEEQ, 82% have fewer than 50 million shares, 25% have total assets worth less than RMB 50 million yuan, 59% have an annual operating income of less than RMB 50 million yuan and 78% have a net profit of less than RMB 10 million yuan.
These listed companies come from 28 provinces (autonomous regions and municipalities), and covers 15 sectors, or 79% of all sectors. Most of them are private enterprises whose majority shareholders are natural persons. Others include those whose majority shareholders are the central government, local governments or foreign investors and those without majority shareholders. Some of them are mature enterprises with high profitability while others are growth enterprises with small profit margins and loss-making startup enterprises.
In 2013, these enterprises completed 60 rounds of stock offering, raising a total amount of RMB 1.002 billion yuan. Since 2014, they have completed 21 rounds of stock offering, raising a total amount of RMB 451 million yuan. 14 companies issued shares at the same time of listing, raising RMB 67.56 million yuan in aggregate.
Q: It is reported that Yang Jianbo who is involved in the abnormal trading of Everbright Securities has brought an action in the No.1 Intermediate Court of Beijing claiming that the CSRC has wrongly issued an administrative sanction. What would be the CSRC response to his claim?
A: The CSRC has noticed the media report about the suit filed by Yang Jianbo against an administrative penalty imposed upon him. The CSRC has not yet received any notice of claim from the court. The CSRC made the decision of administrative sanction based on facts and the law. We will comply with the trial procedure initiated and respect the supervisory actions taken by the court in respect of our administrative enforcement action involved in the case. The CSRC will provide the court with evidences concerning this case and express our positions and views in accordance with judicial procedures.
It should be stressed that any interested party has the right to file an action to the appropriate court, while conducting stringent supervision is the duty of the CSRC. The CSRC will strictly perform its supervisory functions by law as always, seriously crack down on violations, and resolutely safeguard the openness, justice and fairness of the market for the protection of lawful rights and interests of investors.
Q: Would you please tell us whether the CSRC is planning to establish a steering group for the comprehensive deepening of reform? What are your specific arrangements?
A: The CSRC has already established the Steering Group for the Comprehensive Deepening of Reform. The Steering Group is led by CSRC’s Party Secretary and Chairman Xiao Gang and consists of other members of the CSRC’s Party Commission. The office of the Steering Group for the Comprehensive Deepening of Reform resides in the newly established Department of Supervision on Innovative Businesses, whose director concurrently acts as the office director of the Steering Group.
Q: Recently, some reports say that road shows for new share offering are 「of little value and interest」 and should 「rather be changed to online road shows」 as their presenters cannot reveal more information beyond what is already on the prospectus. What would the CSRC comment on this statement?
A: The prospectus is the core fundamental legal document about the information of issuers in the process of new share offering and shall disclose information in a truthful, accurate and complete manner in accordance with the Securities Law. It must not contain any fraudulent records, misleading statements or major omissions and msut ensure fair disclosure to all investors. The Measures for the Administration of Securities Issuance and Underwriting stipulates that an issuer and its lead underwriter shall refrain from disclose any information of such issuer other than public information such as the prospectus. This is a common practice of sophisticated markets that is designed to prevent issuers and lead underwriters from bypassing regulatory rules on information disclosure or disclosing information in a discriminated manner to different investor groups. Nevertheless, the above-mentioned rule does not prohibit issuers and lead underwriters to provide public information other than the prospectus. The statement that 「presenters cannot reveal more information beyond what is already on the prospectus」 is in accurate.
The Opinions of the State Council General Office Concerning Further Enhancing the Protection of Lawful Rights and Interests of Small Investors in the Capital Markets requires protection of the right of small investors to be informed. The Measures for the Administration of Securities Issuance and Underwriting provides that in their marketing activities toward public investors, the scope and integrity of information provided by issuers and lead underwriters to public investors must be consistent with the scope and integrity of information made available to offline investors. The CSRC will continue implementing the above-mentioned requirement, take targeted measures, enhance supervision on the process, conduct and ex-post accountability of road shows, effectively safeguard the principles of 「openness, fairness and justice」, and protect the lawful rights of investors and especially small investors.
Q: It is reported that the registration system for new share offering might be postponed. Would you please give us an update on this?
A: Advancing the reform of registration system for share offering is an explicit requirement identified by the Decision of the Third Plenum of the 18th CPC Congress and marks a major milestone in the regulatory transition of capital markets. Together with relevant agencies, the CSRC is reviewing issues relating to the advancement of reform towards a registration-based system in a proactive manner. It takes time to implement the registration system, and such system may not be launched unless necessary revisions are made to the Securities Law. In the transition period, the CSRC will implement the Opinions Concerning Further Advancing the Reform of New Share Offering System in a comprehensive manner, enhance offering review efficiency under the existing legal framework, optimize offering review procedure, enhance transparency, make review procedure and review comments open to the public, and make the process of Offering Review Committee meetings open to the public, with a view to creating conditions for the transition towards the registration-based system.
Q: Would you please give us some updates on the CSRC’s acceptance of IPO applications since the beginning of 2014 and relevant arrangements for the re-initiation of the Issuance Review Committee? Is there any by-election after the resignation of the Issuance Review Committee’s member Yang Kebing?
A: Since the beginning of 2014, the CSRC has not yet received new applications for IPO. As for relevant arrangements for the re-initiation of the Issuance Review Committee, the CSRC has already made a reply at the news conference on January 10 and there is currently no update on this. The Issuance Review Committee’s member Yan Kebing resigned from his position as member of the 15th Issuance Review Committee for the Main Boards for personal reasons in December 2013 and the CSRC has not yet carry out a by-election.
Q: It is reported that in the future, subsequent offerings review and approval power will be delegated to the exchanges. Would you please share with us relevant details?
A: Since listed companies must continuously disclose information, the review of subsequent offerings should be differentiated from the review of IPO and the CSRC has always been making explorations in this area. Currently, in line with the requirements of the Third Plenum of the CPC concerning 「advancing the reform of share offering registration reform」, the CSRC will implement various items identified by the Opinions Concerning Further Advancing the Reform of New Share Offering System, steadily advance relevant tasks of re-financing review, and carefully examine and optimize the subsequent offering review mechanisms and procedures. Relevant updates will be announced in time.
Q: What are the CSRC’s considerations regarding the increased access to securities markets by domestic and international players? In particular, does the CSRC have any timetable for further relaxing the issuance of brokerage licenses?
A: In order to implement the CEPA Supplementary Agreement in time, we have reviewed the supporting policies and review procedures for the establishment of joint-venture securities firms and joint-venture securities investment advisories by Hong Kong-based and Macau-based financial institutions and drafted relevant implementing measures, which will be promulgated promptly after completion of the required procedures. As of the date of effectiveness of the implementing measures, applicants may submit application documents in accordance with relevant laws, regulations and the implementing measures. Next, we will timely review the applicability of the above-mentioned relevant policies to other foreign-funded financial institutions.
Since the functions of supervisory on securities firms have been transferred to the CSRC from the People’s Bank of China (PBoC, China central bank) in 1998, the CSRC has not approved any new securities firm other than those established for such reasons as separation of trust and securities businesses, restructuring of firms that were initially engaged in intermediary services of Treasury bonds, risk disposition, foreign capital participation and divestiture. We will timely conduct research studies on or revise relevant rules and improve supervisory policies on the establishment of and issuance of business licenses to securities firms to take into account market and industry developments, and timely initiate the review and approval of newly established securities firms.
Q: Would you please give us an update on the latest progress of mutual recognition of funds authorized by the Mainland China and Hong Kong?
A: Since 2012, the CSRC has made extensive work regarding the mutual recognition of funds authorized by the Mainland China and Hong Kong. Currently, relevant preparations are ready and once the State Council approves, the CSRC will advance relevant activities of mutual recognition of funds together with relevant departments and Hong Kong Securities and Futures Commission.