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Constructing Infrastructures for China’s Stable Capital Market |
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A spokesman for the China Securities Regulatory Commission (CSRC) has commented on the "Guidance Opinion on Transfer of Stock Shares with Terminated Sales Limit of Listed Companies" (shortened hereinafter as Guidance Opinion).
In its newly issued Guidance Opinion, the CSRC is to regulate the centralized sales of stock shares with terminated sales limit that exceeds a certain amount by shareholders of listed companies, the CSRC spokesman told reporters.
The spokesman points out that China's emerging and transitional capital market is characterized by the long-term and difficult task for promoting the sound development of the capital market. An emerging market calls for the synchronization of the market development with the market self-reform, promoting development through reform and reinforcing the infrastructure of the market. It also requires the perfection of market law, legislation and rules, fostering the main body of the market, reinforcing market supervision, promoting market structure adjustment, and encouraging the formation of a good market culture. Also, the external environment and internal mechanism of the market operation need to be improved in the long run. In the last few years, we have seen the exploration and reform by some century-old mature capital markets in face of the changing market. To promote the sound and steady development of China’s capital market requires the guidance of Scientific Outlook on Development to deepen the understanding of the essence, function and impact of capital market in practice, deepen the understanding of capital market rules, and keep exploring the way ahead.
Thanks to a series of reforms and comprehensive treatments such as equity division reform in recent years, turning-point changes have taken place on China's capital market. With further improvement in the basis for market operation and market law and regulations, listed companies are changing for the better in terms of their qualities, while intermediaries are more standardized and investors structure and behavioral model have positive changes. As market supervision keeps improving, the capital market has exerted a broader impact on national economy. Meanwhile, we must see that China's capital market, an emerging and transitional one, is yet to gradually solve old problems in the new market operation environment while some new problems will crop up. The global financial market has recently suffered a sharp turbulence. The trend of the main stock indices on the international market is experiencing great fluctuation with rising energy, resource and food prices. As a result of excessive liquidity, the international capital flow becomes more frequent, and the fluctuation on the international capital market exerts further influence on the emerging markets. All this has impact on domestic investors' market judgment and investment orientation, thus complicating China's stock market in internal and external operation factors. Earnest analysis and research is required while adopting active methods to solve the problems. When dealing with the existing problems on the stock market, we should combine the sustainability and stability of laws and regulations with the market development. In addition, investors’ legal rights and interests should be protected by upholding the principle of equality, fairness and openness to guarantee a sustainable and healthy development of the market.
According to the spokesman, after the gradual ban-lift, shares with sales limit of listed companies that have completed the equity division reform will turn into floating shares with free transfer. If the shares are transferred through the call auction trading system of the stock exchange, the efficiency will be low, the price of the stock will be under great pressure and the price forming mechanism will be distorted as the volume is closely related to the activity of the secondary market. Things are quite different on the foreign mature markets. The block transfer of shares is operated off-floor through blocking trading or public offering of securities companies. The Guidance Opinion has defined the shares, with a certain limited selling period, of the listed companies who have completed the equity division reform, or the shares, of the companies listed after the period of “complete separation of new shares from the old ones”, issued before initial public offering, as the stock shares. It is also stipulated that if shareholders, who possess stock shares with terminated sales limit, plan to sell publicly in the succeeding month stock shares that are more than 1% of their total issued shares, they should transfer their shares through the block trading system of the stock exchange. This, in accordance with the need of the development of China’s capital market, is also a fundamental construction work that merits the experience of the mature market under the requirements of “a long-and-short-term planning for once-and-for-all solutions”.
From the long term, the promulgation of the Guidance Opinion, which helps to solve the market efficiency problem concerning the large-scale one-off centralized shares sale on the secondary market by shareholders of listed companies after the all-floating era through institutional regulation and arrangement, will avoid the price distortion caused by the sale. From now on, the block transfer of non-stock shares can also be conducted on the block trading system to improve market efficiency. In the short run, after the promulgation of the Guidance Opinion, the block transfer of stock shares with terminated sales limit, to be conducted on the block trading systems, is expected to ease the pressure on the secondary market and the impact on the price discovery mechanism of the call auction trading system, and to stabilize investors' anticipation for shareholding lessening of stock shares.
Compared with the call auction trading, block trading and public offering have their unique advantages. Thanks to the price negotiation mechanism, the block trading or public offering, characterized by flexible pricing, less influence on prices of on-floor trading, higher efficiency and lower trading cost, is a better trading method for large-scale centralized shares transfer. Besides, after several years' operation, the block trading systems of the Shanghai Stock Exchange and the Shenzhen Stock Exchange, which are mature in technology system and supervision means, can better meet the needs of shares transfer. According to the Guidance Opinion, the stock exchanges will publish corresponding detailed rules to further regulate the transfer provisions on the block trading systems and work out system arrangements, including the size expansion of investors who participate in the block trading systems and the public offering of stock shares via securities companies, thus providing a high efficiency transfer platform for shares with the listing and floating right.
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