Perfect The Rules Of Forbidding Entry Into The Securities Market: The New Measure Of "Prohibition Of Trading" Is Added, And The Person Responsible For Serious Violation Of The Law Can Be Banned For Life

The extension of market prohibition has been expanded and clarified again.

In 2020, article 221 of the new securities law revised the measures to prohibit entry into the securities market, which mainly improved three aspects compared with the original securities law: first, the new 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" was added as the content of the market ban; The second is to add "Prohibition of engaging in securities service business" as a forbidden content; The third is to expand the types of institutions that are not allowed to hold positions from "listed companies" to all "securities issuers".

In order to implement the content of the upper level law, on June 18, the China Securities Regulatory Commission (CSRC) issued the revised "securities market prohibition provisions" (hereinafter referred to as the "provisions")《 The regulations will come into effect on July 19, 2021, which further clarifies the types of market entry ban, the applicable rules of transaction type entry prohibition, and further clarifies the objects and applicable situations of market entry prohibition.

Clear the "identity type" and "transaction type" two types

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 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" has been added as the content of the market prohibition, which is also known as "trading ban" in the industry.

For this reason, the regulation also introduces the rule of "Prohibition of transactions". Specifically, the persons who are prohibited from trading shall not trade all the securities (including securities investment fund shares) listed or listed on the stock exchange directly or under an assumed name or in the name of others during the period of prohibition.

The CSRC said that the "ban on trading" is applicable to violations that affect the order of securities trading or the fairness of transactions and the circumstances are serious. In view of the fact that "Prohibition of trading" is a new kind of prohibition measure added by the new securities law, which is different from the prohibition of status, the provisions only set a five-year upper limit on the prohibition of trading. Within the five-year upper limit, law enforcement units can adopt the corresponding prohibition period according to the actual illegal situation, so as to deal with complex and diverse illegal practices, To ensure the smooth start of the system.

"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, 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.

However, the "provisions" also set up exemption from the "trading ban", including ordering to buy back or buy back securities, order to deal with illegally held securities according to law, and relevant securities are forcibly deducted, sold or transferred according to law. In order to prevent and resolve credit business risks, it is necessary to continue trading securities, and it is necessary to continue trading securities according to agreed obligations, There are seven kinds of situations, such as selling the securities held before the prohibition.

On the whole, the purpose of the seven types of exemption is to avoid overlapping of different provisions and restrict each other, at the same time, protect the legitimate rights and interests of small and medium-sized investors, and include the prior commitment behavior into the exclusion.

The regulations also set aside 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 provisions 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, actual controllers and 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, To avoid "risk of disposal 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.

Effectively crack down on illegal acts of trust

In addition to the addition of the new "transaction ban" and a series of institutional arrangements, the provisions also further improve the scope of the prohibited objects, and include the situation of serious illegal information disclosure resulting in adverse effects into the market situation of lifelong identity class.

In terms of the prohibited objects in the market, the CSRC has chosen to explicitly include the transaction decision makers of natural person investors and institutional investors, the general staff of intermediary institutions and private fund practitioners who have been actually banned from the market in recent years.

What is more worth mentioning is that the "provisions" also explicitly include the situation of serious illegal information disclosure and adverse effects as a 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 shock and caution on the corresponding credit personnel or insiders. " Chuancai Securities chief economist Chen Li said.

According to the statistics of China Securities Regulatory Commission, from 2016 to 2020, 298 natural persons were banned from the market by the regulatory authorities. Among them, 82 persons were banned from the market for life, accounting for about 8%. The number of people banned from entering the market increased by 142% compared with the five years before the amendment of the original provisions, that is, from 2011 to 2015.

In the past four years, 26 people were banned from the market for illegal market manipulation, 17 for insider trading, 191 for information disclosure and 21 for illegal employees. The market ban has covered the main types of illegal activities in the capital market, especially the personnel responsible for the illegal information disclosure.

China Securities Regulatory Commission (CSRC) said that in the future, while cracking down on all kinds of capital market violations in accordance with the law, it will increase coordination and cooperation with judicial organs, comprehensively use civil, administrative and criminal accountability means to further increase the cost of violation of laws and regulations, and provide strong law enforcement guarantee for the capital market to better serve the construction of a new development pattern.

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