China'S Capital Market Is Changing Rapidly. Four Years, Three Trials.

This round of amendments to the securities law or the key nodes at the end of 2019.

On the morning of December 16, 2019, the forty-fourth Standing Committee of the thirteen NPC Standing Committee was held in the Great Hall of the people in Beijing on the morning of 16. The meeting decided that the fifteenth session of the thirteen NPC Standing Committee was held in Beijing in from December 23rd to 28th, and the Securities Law (revised draft) will be considered this time.

The revision of this round of securities law began in 2015. In April 2015 and April 2017, the Standing Committee of the National People's Congress deliberated on the Securities Law (Revised Draft) (one review and two reviewers), but the actual reasons for the securities market and the controversy over the draft documents failed to pass.

In the context of the establishment of the science and technology board and the pilot registration system and the comprehensive deepening reform of the capital market, in April 26th this year, the tenth session of the Standing Committee of the National People's Congress considered the Securities Law (Revised Draft) (three reviewer).

Four years and three trials, there have been many changes in the development of the capital market. The deepening of the reform of the capital market in the future needs the support of the upper legal level. Therefore, many people in the legal profession believe that this will be the end of this round of securities law revision.

Although the three reviewers have already added a lot of content to match the market performance, reporters and many experts, scholars and industry insiders have learned that the market is still controversial about the contents of the three part of the review. It is also expected that this review will be further revised and improved.

Registration system suspense

In line with the reform of the registration system for stock issuance, in accordance with the motion proposed by the State Council, the eighteenth session of the Standing Committee of the twelve National People's Congress approved the decision of the State Council to adjust the relevant provisions of the applicable securities law in the implementation of the stock issuance registration system in December 2015. In February 2018, the thirty-third session of the twelve NPC Standing Committee decided to extend the above-mentioned license period to February 29, 2020.

Under this arrangement, the State Council has authorized less than 80 days for the registration system, which is also the most optimistic reason for the smooth passage of the Securities Law (Revised Draft) in this deliberation. At present, registration system has only been launched in the Shanghai Stock Exchange, and has not been extended to other sectors. Next, the registration system must be established on the basis of the completion of the securities law.

"There is no doubt that comprehensively promoting the registration system reform and extending the successful experience of the science and technology board to other sectors is the top priority of the capital market reform in the next few years. But after the expiration of this license, the probability of further delay is very small because it has been postponed for a while. Therefore, if this deliberation can be passed, it will provide an important legal basis for the registration system in other sectors of the capital market in the coming year." The head of a medium-sized brokerage firm in Beijing believes that

Professor Guo Feng, chairman of the Securities Law Research Association, also put forward a high level Forum on the amendment of the securities law. The revision of the securities law has been carried out for three times. On the basis of consensus, it is necessary to push forward the next NPC Standing Committee's deliberations as soon as possible in February next year.

As a matter of fact, the three reviewers have added some chapters about registration system, and have made regulations on the conditions, registration procedures, supervision and inspection system of issuing shares.

Specifically, the three chapter of the second chapter "securities issuance" adds a section "special regulations for registration system of science and Innovation Board", and makes provisions for the registration of the pilot stock issuance of Ke Chuang plate. At the same time, the existing securities law on the issue of securities issued special provisions as "General Provisions", a single column.

However, when reviewing the three draft, the Law Commission also stated in particular that the registration system reform is still in the pilot stage, and that the experience that can be duplicated and popularized can be further improved into a legal system after practice. Therefore, in this review draft, special provisions are made for the registration of the science and technology board according to the current pilot situation.

Three trial dispute

However, the amendment of the securities law includes not only the contents of the registration system, but also the public offering of securities, securities trading, investor protection and securities supervision.

In the three review, it is clear that investors may be in dispute with issuers and securities companies. The two sides can apply for mediation to the investor protection agency established by the state. If a common investor has a dispute with a securities company in the securities business and the ordinary investor asks for a mediation request, the securities company shall not refuse.

At the same time, the shareholder's representative action system has been improved in the three review. If the controlling shareholder or actual controller of the issuer infringes upon the legitimate rights and interests of the company and causes losses to the company, the investor protection institution established by the State shall hold the company's share in the name of the company's interests in the name of the company. The shareholding ratio and the duration of the shareholding shall not be limited by the company law.

In addition, in response to the long market dissatisfaction with the low penalties for securities crimes, the three review also increased the crackdown on securities violations. Including the time limit for buying and selling securities that restrict the parties to be investigated, they can be extended by thirty days instead of thirty trading days, and the case is complicated. It is amended to be "not more than three months, and the case can be extended for three months". At the same time, the maximum penalty for insider trading, market manipulation, false information and other illegal activities increased from 3 times to 5 times. The highest penalty is 2 million yuan.

But for the contents of the three revision, the market is also controversial, such as many market participants and law researchers have different opinions on the extent of the maximum penalty.

Zheng Yubian, an associate professor at the school of international finance and law, East China University of political science and law, said, "although the penalty for the legal liability has been greatly improved, I personally believe that the amount of fines is not enough for the hundreds of millions of dollars and billions of dollars of illegal activities in the securities market."

He suggested that the first step is to raise fines. If based on the relationship with other existing administrative penalties, we can consider setting up a separate penalty for the securities market. This part of the fine can be instituted in the name of the CSRC or the designated public welfare organization, and the penalty fine will not enter the Treasury, but as a special safeguard fund for the securities market. The two is to increase the penalty of securities violations, and to increase the illegal cost of offenders through criminal penalties.

Reporters also learned that some market views that the three review did not further expand the scope of the definition of securities or unified the definition of securities is quite regrettable, should continue to be amended in this review.

Prior to this, Hong Lei, President of the China Securities Investment Fund Association, suggested that the definition of securities should be defined and the scope of securities should be expanded when proposals were made for amendments to the securities law. Listing fund shares, non-public offering equity and real estate investment trust shares as securities, unifying the information disclosure rules and the standards of illegal punishment of securities issuance transactions, comprehensively regulating the stock financing activities of different stages of enterprises, and implementing functional supervision.

Zheng Yu also expressed a similar view, he said: "although the existing securities market in the corporate bonds, medium-term notes, directional financing tools and other aspects of regulatory fragmented situation, but on the basis of maintaining the status quo, we must vigorously promote the definition of securities unification. It is suggested that several elements of the definition of direct financing tools be defined: first, investors have money input; the two is to exchange money for some form of rights based on money input; three, this right can be proved in tangible or intangible ways; four, this right can be freely circulated (not referring to free circulation in trading places, but free from the restriction of the other party).