Upgrading And Optimization Of The Stock Repurchase System Of The New Third Board: Matching The Differentiated Arrangements Of Selected Layers And Strengthening The Credit Requirements Related To Repurchase

The implementation rules for share repurchase of companies listed on the new third board were upgraded.

On March 26, the national stock transfer company revised and issued the detailed rules for the implementation of repurchase of shares by Listed Companies in the national share transfer system for small and medium-sized enterprises (hereinafter referred to as the implementation rules for repurchase), which will be implemented from the date of promulgation.

From the content of the implementation rules of repurchase, the purpose of this revision is to further improve the share repurchase system of listed companies, standardize the implementation of share repurchase behavior of listed companies, and realize the smooth connection with the relevant system rules after the implementation of comprehensively deepening the implementation of the new third board reform. Specifically, it has revised the upper limit of repurchase price, the change or termination of repurchase scheme, and the declaration restrictions before the match of competitive buyback.

Reference standard for adjustment of repurchase price ceiling

As early as October 2018, the Standing Committee of the National People's Congress passed the decision on Amending the company law of the people's Republic of China, which specially revised the provisions on share repurchase in Article 142 of the company law, providing a clearer legal basis for listed companies to repurchase shares. On December 28 of that year, the national stock transfer company issued and implemented the "implementation rules for repurchase".

According to the introduction of the national stock transfer company, since the promulgation of the detailed rules for the implementation of repurchase, more than 170 listed companies, including six selected companies, have disclosed their share repurchase plans. The total amount of repurchase funds to be repurchased exceeds 4 billion yuan, and more than 130 of them have completed the implementation.

"Most companies in the new third board think that the share price in the secondary market is lower than its due value, and at the same time, they need to publish employee stock ownership plan, equity incentive plan or adjust the equity structure." Beijing securities analysts said.

However, with the change of the new third board trading system and the improvement of the market trading ecology, especially the introduction of the selective layer, some provisions of the "detailed rules for the implementation of repurchase" have not been applicable to the current market situation.

Specific to the content of this revision, in the disclosure stage of repurchase scheme, the new regulation changes the reference standard of repurchase price upper limit from 200% of the average closing price of 60 trading days before the resolution to 200% of the average transaction price (excluding block trading).

In this regard, the relevant person in charge of the national stock transfer company said that with the implementation of various measures to comprehensively deepen the reform, the ecology of the new third board market has been continuously optimized, the market liquidity has been improved, and the trading continuity of listed companies has been significantly improved. In this context, the average transaction price after excluding block trading can better reflect the fair value of the company's stock than the average closing price, and it is more difficult to be manipulated artificially, which helps to improve the rationality of repurchase pricing and protect the rights and interests of listed companies and investors.

In addition, the new regulations also remove the reporting restrictions before the matching of competitive repo, increase the applicable circumstances of change or termination of repurchase scheme, and increase the requirements of special announcement for the disclosure of repo not reaching the lower limit.

According to the introduction of the new third board practitioners of securities companies close to the supervision, the requirement of the implementation rules of repurchase before the revision is that "listed companies shall not apply for repurchase shares five minutes before each centralized matching" before the revision. However, in the process of the previous reform of the new third board, the matching frequency of call auction for innovation level has been increased from five times a day to 25 times.

"If we still apply for the repurchase of shares five minutes before the match up, it may be that the listed companies at the innovation level will have to report in a stuck position. Now, the regulation also makes it more convenient for enterprises to apply for repurchase." The broker said.

The termination or change of the newly revised repurchase plan mainly refers to the change or termination of the repurchase plan if the buyback plan is substantially unable to be performed due to the objective reasons such as the stock price rising and long-term exceeding the upper limit of the repurchase price, or the continued performance will be detrimental to the protection of the listed company's rights and interests.

It is worth mentioning that the national stock transfer companies also put forward higher requirements for information disclosure related to repurchase. If the equity distribution is carried out in the implementation of the repurchase plan, the prompt announcement of the adjustment of the repurchase plan due to the equity distribution shall be disclosed at the same time as the disclosure of the implementation announcement of the equity distribution, and the specific arrangement for the adjustment of the repurchase scheme due to the equity distribution shall be explained in the announcement, including the adjusted price ceiling and the repurchase scale.

If the buyback period of listed enterprises has expired but the scale of repurchase has not reached the lower limit, it shall also disclose the corresponding announcement to fully explain whether there is market manipulation or insider trading by using repurchase information.

Characteristics and system arrangement of matching selection layer

One of the major reasons for the revision of the detailed rules for the implementation of repurchase is to provide institutional arrangements suitable for the newly launched selective tier listed companies with their hierarchical characteristics and trading methods.

After comprehensively deepening the implementation of the new third board reform, the selective layer adopts the continuous bidding trading mode, and the transaction activity and price formation continuity of the selected layer companies are significantly different from those of the innovation layer and the basic layer company. After the public offering, the number of shareholders and the shareholding ratio of public shareholders have increased significantly, and the market demand for transaction has been enhanced.

According to the requirements of the new regulations, the companies listed at the selected level do not need to disclose the notice of repurchase implementation before implementing the buyback, and should inquire the directors, supervisors, controlling shareholders, shareholders with more than 5% shareholding and other key subjects about the specific situation of the reduction plan during the repurchase period, including the number of shares to be sold and the reasons for the reduction, and disclose the reply of relevant shareholders. If the relevant shareholders fail to reply, the company shall indicate the possible reduction risk in the announcement.

In contrast, companies listed on the new third board, which adopt call auction, need to continue to disclose the implementation notice of repurchase, and key entities are not allowed to sell their shares during the implementation of repurchase.

"After the introduction of continuous bidding, the trading continuity of the selected layer listed companies has been significantly improved compared with other companies adopting call auction, and the market liquidity is also better. In this case, repurchase notice has little significance for continuous bidding, and it is difficult for directors, supervisors and senior executives to receive repurchase orders in an active market." The securities dealers close to the regulation said.

It is worth noting that the revised implementation rules of repurchase also takes into account the risk of listed enterprises triggering "downgrade" due to the implementation of repurchase.

"For 60 consecutive trading days, the number of shareholders less than 200 and the proportion of public shareholders holding less than 25% may trigger the downgrading of selected enterprises, while the listed companies stuck in the relevant regulatory red line are likely to trigger a decline in the number of shareholders and the public shareholding ratio due to share repurchase, thus triggering the downgrading." The securities dealers close to the regulation said.

In this regard, the detailed rules for the implementation of repurchase stipulates that listed enterprises shall state in the repurchase plan whether the equity structure and the number of shareholders of the company may trigger the downgrading in the relevant provisions of the national stock transfer system on hierarchical management after the completion of the repurchase, and shall explain the specific measures to deal with the relevant risks if it may trigger.

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