The New Amendment To The Ban On Securities Market: To Supplement The Measures Of "Prohibition Of Trading" And To Prohibit The Credit In Serious Violation Of The Law Or Lifelong Prohibition

Under the new securities law, the denotation of market prohibition has been expanded and clarified again.

In order to implement the contents of the new securities law, on the evening of January 15, the China Securities Regulatory Commission (CSRC) solicited public opinions on the revision of the provisions on banning entry into the securities market (hereinafter referred to as the "provisions on Prohibition of entry").

On the whole, on the basis of the original market prohibition category, the new type of "transaction prohibited entry" is added in the provisions, which makes it clear that it is applicable to the illegal acts that seriously disturb the order of securities trading or the fairness of trading.

In addition, the new rules also explicitly include the situation of serious illegal information disclosure and adverse impact as a life-long ban. In terms of the objects prohibited from entering the market, the regulations explicitly include the transaction decision makers of natural person investors and institutional investors, the general staff of intermediary agencies and private fund practitioners who have been actually banned from the market in recent years.

Introduce the type of "transaction forbidden"

Prior to that, there was only one type of prohibition in the domestic capital market, which was "not allowed to engage in securities business, securities service business, or act as a director, supervisor, or senior manager of a securities issuer", which was commonly known as "identity type entry".

After the newly revised "Securities Law" was formally implemented in March 2020, the new law added the restriction of "no trading securities in the stock exchange or other national securities trading places approved by the State Council within a certain period of time" as the market entry prohibition content, which is also referred to as "trading prohibition" in the industry.

Based on the above changes, the SFC has also added the "trading ban" rules when revising the "prohibition provisions".

The CSRC said that as a new type of market entry ban, the trading ban has no practical experience in law enforcement. Therefore, on the basis of fully drawing on the self-discipline management experience of "restricted trading" in various securities trading places and similar measures in overseas markets, the draft for comments has made institutional arrangements that take into account both operability and flexibility.

Specifically, it is specified in the "provisions on Prohibition of entry into trading" that is, all securities (including securities investment funds) listed or listed directly or indirectly in the secondary market of the securities exchange are prohibited. It is applicable to the illegal acts that violate the regulations and affect the order of securities trading or trading fairness, and the circumstances are serious. The duration of the prohibition shall not exceed five years. And securities trading places are also required to do a good job in supporting account trading authority restrictions.

Tian Lihui, President of the Institute of financial development of Nankai University, said that the introduction of the type of "Prohibition of trading" allows those who seriously disrupt the order of securities trading or trading fairness not only to engage in relevant business, but also not to make profits in the securities market.

"Those who seriously disrupt the order of securities trading or the fairness of trading often have certain professional knowledge, and the prohibition of trading is an all-round ban market expulsion punishment for them to use their professional ability to engage in illegal acts." Tian Lihui said.

Chen Li, chief economist of Sichuan financial securities, also pointed out that in terms of scope, the previous regulation restricted the violators from holding the corresponding senior management positions through the "identity type ban", while the new prohibition rules did not allow any investment in the secondary market, and the regulatory scale was further expanded.

However, although the personnel who trigger the "trading ban" are not allowed to trade all the securities listed or listed on the stock exchange directly or in the name of others or in the name of others during the period of prohibition, the new regulations also deal with the situations that the relevant responsible persons are ordered to buy back the securities according to law, are ordered to deal with the illegally held securities according to law, and the securities held are forcibly deducted or transferred according to law Exceptions. In this way, different regulations can not be overlapped and constrained each other.

What is more worth mentioning is that if the relevant responsible person has agreed to continue trading securities in the materials submitted or publicly disclosed before the prohibition, it is also included in the exclusions. The CSRC said that the purpose of this move is to avoid affecting the relevant entities to fulfill their promises and fully protect the legitimate rights and interests of small and medium-sized investors.

While protecting the interests of investors, the newly revised "no entry regulations" also leaves institutional space for the prevention and control of market risks. Among them, in order to avoid the credit risk caused by the failure to close the transaction, the new regulations include the credit transaction business into the exception of the prohibited transaction. On the other hand, investors are allowed to sell the securities held before the prohibition. If the major shareholders, the actual controllers and the directors and supervisors are prohibited from trading, they can still sell the stocks held before the prohibition according to law, but they need to comply with the relevant provisions of laws, administrative regulations, China Securities Regulatory Commission and various securities trading places on share reduction, so as to avoid the occurrence of "disposal risk" Risk ".

"These supporting measures can avoid the credit risk caused by the non settlement of the transaction, and also can avoid the governance loopholes caused by the prohibition of shareholders in listed companies." Tian Lihui pointed out.

Forbidding market entry to deter illegal activities

In fact, from the perspective of historical data, the perfection and standardization of the securities market prohibition system by the regulatory authorities almost span the 30-year history of China's capital market.

As early as 1997, the China Securities Regulatory Commission (CSRC) issued and implemented the Interim Provisions on banning entry into the securities market. After that, the formal version of the provisions on banning entry into the securities market was approved in 2006 and came into effect in the same year. In 2015, China Securities Regulatory Commission (CSRC) revised the provisions on Prohibition of securities market entry.

In recent years, the enforcement of the ban on securities market has been significantly strengthened, covering more comprehensive types of illegal acts and more transparent and standardized law enforcement procedures. According to the data released by the CSRC, from 2016 to 2020, the CSRC banned 298 natural persons from the market. Among them, 216 people were banned from entering the two-level market in 3-5 years and 5-10 years, accounting for about 72%; 82 people were banned from the life-long market, accounting for about 28%. The number of people banned from entering the market has increased by 133% over the five years before the revision of the current "Regulations on banning entry".

"The severity of the market ban matches the frequency of illegal activities with different harmful circumstances in practice," said the relevant person in charge of the CSRC.

On the other hand, the market ban also covers more and more illegal acts in the securities market. From 2016 to 2020, 17 people were banned from the illegal market of insider trading, 26 from the market manipulation, 191 from the illegal market of information disclosure, 21 from the illegal market of employees, and 43 from the market of other illegal cases.

In the view of market participants, the market ban has covered all major types of illegal activities in the capital market, especially the "expulsion from the market" of personnel responsible for illegal information disclosure, which has improved the illegal cost of financial fraudsters and the deterrent effect of law enforcement, and achieved good results.

In the newly revised "no entry rules", the SFC has chosen to include the transaction decision makers of natural person investors and institutional investors, the general staff of intermediary agencies and private fund practitioners who have been actually banned from the market in recent years.

What's more, the new regulations also explicitly include the situation of serious illegal information disclosure and adverse effects as the life-long ban.

"Before, there were many illegal acts of information disclosure in the market, but the punishment was too light and the cost of violation was low. In the current environment of zero tolerance of illegal activities in the capital market, the new rules have significantly increased the intensity of punishment, which will have a strong deterrent effect on the corresponding credit personnel or insiders. " Chen Li said.

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