Interpretation Of Registration System Under The New Securities Law

Registration system reform, the enlargement of the SFC and the reform of the capital market are a dynamic process and will not be implemented in one step. The degree of evolution of the market, the wisdom of the decision-making level, and the determination to advance this matter have a great impact on the progress of things. From the experience of the United States, we can see that securities regulation is constantly changing, tinkering, and endless. The market is too free to generate systemic risks. We need to strengthen regulation. Too tight control will restrict resource allocation, suppress innovation and relax.

The fourteen session of the twelve NPC Standing Committee held in from April 20 to 24, 2015 considered the draft amendment to the Securities Law (hereinafter referred to as the "draft"). Although we have not yet seen the whole draft of the draft, we have collated the media reports, and we see that the draft has answered many of the key issues concerning the registration system reform: what is the reform concept? Is there no substantive review after the reform? Who will try, how to audit? How to protect the interests of investors? What is the impact of the reform on the capital market and the economy?

The answer is that the bill emphasizes the protection of investors' interests, intensification of information disclosure, emphasis on the issue of marketization, and encouragement of entrepreneurial innovation; the registration system temporarily applies to the approval system for other securities such as stock issuance, bonds, etc., and the conditions for making profits for the listed companies are relaxed, the application documents are verified by the exchange, and the responsibilities of the intermediary organizations are strengthened.

Analyzing the amendments to the securities law, we are concerned about Xiao Gang and Wu Xiaoling, who are the current chairman of the securities and Futures Commission. Securities Law The chairman of the revised drafting group has an important directing role.

　 1, facilitate enterprise financing, issue marketization, and encourage innovation.

The purpose of this reform is to facilitate the financing of enterprises and give full play to the role of resource allocation in capital market. Loosening the profit margin means that companies that are still losing money, but those with the strength, can get into the funds needed for development. It emphasizes information disclosure, and enables investors to make use of their resources allocation ability by judging the value of the company. Deregulation, encouraging entrepreneurial innovation, is conducive to promoting economic restructuring and transformation. Historical experience shows that compared with the government, the market has more powerful resource allocation capabilities, and revolutionary, productivity enhancing innovation often comes from market driven grassroots innovation.

Premier Li Keqiang advocated mass entrepreneurship and innovation on various occasions, indicating that decision makers began to pay attention to the role of innovation in boosting the economy. Through the registration system reform, it is easier for good companies to get money from the capital market, so that competent entrepreneurs can get generous financial rewards from the listing of enterprises, which is consistent with the decision making level to encourage entrepreneurial innovation.

　 2, Investment Person protection

In November 2013, President Xiao Gang pointed out in the speech entitled "the jurisprudence and logic of the securities law" that the "rule of law of the securities law" should be determined by the particularity of the public transactions. In my view, the securities law is essentially an investor protection act. " The draft has strengthened information disclosure in the process of issuing, emphasizing the responsibilities of participating parties, including issuers, sponsors, intermediaries, etc., emphasizing the investigation of illegal activities such as fraudulent issuance and false statements, and the provisions of class action. These have added a powerful tool to protect investors.

　　 3, the SFC will delegate the right to audit and strengthen the responsibilities of all parties concerned. Ex post supervision

The SFC has delegated the right to audit the issue of new shares. The draft abolition of the stock issuance audit committee system, stipulates that the stock exchange is responsible for examining registration documents, which means that the right to audit is transferred to the exchange. Strengthening the responsibilities of all parties involved, including issuers, sponsors, securities service institutions and securities operating institutions in the issuing process, indicates that the responsibility chain of the SFC, exchanges, intermediaries and issuers should be shifted from the SFC to reduce the burden of the SFC. Meanwhile, it is emphasized that all parties including intermediaries should jointly examine the qualification of enterprises. Increasing accountability for illegal activities such as fraudulent issuance and misrepresentation will help to deter illegal activities against the market, protect investors' interests, facilitate healthy operation of the market and optimize the allocation of resources.

　　 4, the SFC expands its rights.

Xiao Gang and Wu Xiaoling have indicated on many occasions that they hope to expand the jurisdiction of the securities law. President Xiao Gang pointed out in the "jurisprudence and logic of Securities Law" that amending the securities law should be based on the principle of unified supervision. At present, different government departments supervise different markets. The bond market, bank financing products and private placement products are regulated by different departments and regulations. However, different products and businesses of the same nature are subject to different regulatory rules, which are not conducive to the formation of unified market. One of the reasons for the outbreak of the rat market in bond market in April 2013 is that the interbank market supervision is fragmented.

The Third Plenary Session proposed that building a unified, open, competitive and orderly market system is the basis for the market to play a decisive role in the allocation of resources. President Xiao Gang pointed out that the revision of the securities law should be consistent with business rules, unified supervision requirements and unified regulatory bodies. In an exclusive interview in 2014, Wu Xiaoling indicated that the focus of the amendment included "expanding the scope of securities names". In April 20th, Wu Xiaoling, standing on the Standing Committee of the National People's Congress, said, "further research is needed on the maturity of the application scope of the issuance registration system to the company's credit class bonds and other securities." In the 2014 draft, we also discussed the greater jurisdiction and enforcement power of the SFC when investigating securities violations.

We think the draft stipulates that the registration system is currently applicable to stocks, in order to ease the resistance in the process of promoting the new law and step back to the two step. The SFC will expand its power by industry supervision and supervision by one line and three sessions. It will turn to functional supervision. The institutions, businesses and products belonging to the securities sector will be integrated into a unified regulation. The probability is large: bonds, bank financial products, insurance institutions investment and so on are expected to be gradually incorporated into the regulatory framework of securities law. Another speculation is that the new law may give the SFC more judicial power. The new law of Table 1 shows that the "narrow scope of securities", "inadequate supervision and enforcement measures" and "strengthening supervision and law enforcement" all point to the larger jurisdiction and stronger judicial power that the new law may give to the SFC. The fact is, without strong jurisdiction and enforcement power, the SFC's responsibilities and powers do not match. Strengthening supervision and law enforcement is empty talk.

　　 5, the situation of exemption registration is stipulated, and the system of stock resale restriction is proposed.

Exemption from registration, such as issuance of qualified investors, issue of public offerings and small issuance, helps to raise the efficiency of securities issuance and increase the financing convenience of enterprises. The resale system of stock helps to solve the problems of large shareholders' cash in cash market and the lifting of the ban of "size and non", which is consistent with the idea of strengthening investor protection.