The “ Regulations on On-the-spot Inspection of Listed Companies (Draft for Comment) ” , formulated by the China Securities Regulatory Commission (CSRC) pursuant to the “Securities Law”, the “Co mpany Law” and the other relevant laws and administrative rules , is designed to strengthen the supervision over the listed companies and the related parties, regulate the on-the-spot inspection, protect the investors’ l egitimate rights and interests , and maintain the order of the securities market . Investors and people from all walks of life are welcome to participate in the discussion and put forward their constructive suggestions or opinions, which are expected to be sent to the CSRC in writ ing or by email prior to November 2 8 , 2008.
Contact methods:
Fax: 8610 – 8806 1167, 88061504
E - mail: lilinqi@csrc.gov.cn
Add ress : China Securities Regulatory Commission
Block A, Focus Plaza, No. 19 , Jinrong Street, Xicheng District, Beijing
Postal Code: 100140
Attachment:
“ Regulations on On-the-spot Inspection of the Listed Companies (Draft for Comment) ”
China Securities Regulatory Commission
November 21 , 2008
“ Regulations on On-the-spot Inspection of the Listed Companies (Draft for Comment) ”
Contents
Chapter I General Provisions
Chapter II Contents and Methods of On-the-spot Inspection
Chapter III Procedure for On-the spot Inspection
Chapter IV Supervision Measures and Penalties
Chapter V Supplementary Provisions
Chapter I General Provisions
Article 1 The “ Regulations on On-the-spot Inspection of Listed Companies (Draft for Comment) ” ( ‘ the Regulations ’ ), formulated in accordance with the “Securities Law”, the “Co mpany Law” and the other relevant laws and administrative rules , aims at strengthening the supervision over the listed companies and the related parties, regulate the on-the-spot inspection, protect the investors’ l egitimate rights and interests , and maintain the order of the securities market .
Article 2 The on-the-spot inspection named herein refers to the supervision over the premises of the listed companies and the related parties for production, business and management and the other relevant places (hereinafter referred to as ‘ inspection objects ’ ) by means of referring to and photocopying documents and materials, examining the real objects, conducting interviews and inquiries by the China Securities Regulatory Commission and its agencies (hereinafter referred to as ‘ the CSRC ’ ).
Article 3 The inspection objects herein refer to the listed companies and their branches, the controlling shareholders and the actual controllers involved in the normative operation of the listed companies , the part ies concerned in the merger & acquisition and restructuring , the related securities service institutions as well as the other units and individuals.
Article 4 The inspection objects and their personnel shall cooperate with the CSRC in the performance of its duties in the on-the-spot inspection according to law and ensure the authenticity, accuracy , completeness and timeliness of the submitted documents and material s, and shall not re ject or hinder the inspection, or hide up any fact.
Article 5 The CSRC performs its duties and carries out the on-the-spot inspection according to law and its personnel who are involved in the on-the-spot inspection (hereinafter referred to as ‘ inspectors ’ ) shall be devot ed to their duties , be impartial and self-disciplined so as to ensure the independence, objectivity , fairness and efficiency of the on-the-spot inspection and shall not intervene in the normal production and operational activities of the inspection objects, take advantage of their positions to seek illegal interests or leak any commercial secret obtained from the inspection objects.
Chapter 2 Contents and Methods of On-the-spot Inspection
Article 6 In order to prevent the infringement on the minor shareholders’ leg itimate interests and improve the quality of the company, the contents of the on-the-spot inspection shall be focused on the corporate governance and information disclosure, which include the following:
1. authenticity, accuracy , completeness , timeliness and fairness of the information disclosed, discrepancies between the situations under routine continuous supervision and the information disclosed by companies, accusations and complains, situations arousing concerns of the markets and media as well as abnormal price fluctuation of companies ’ securities and derivatives;
2. compliance of the corporate governance structure, including but not limited to the independence of company, effectiveness of internal control system, safety and standardization of the connected transactions, outward guarantee , financial management and use of the raised funds ;
3. standardization of the performance of the shareholders’ rights and controlling rights by controlling shareholders and actual controllers , including but not limited to the fulfillment of commitment and capital exchange among the listed companies; and
4. other items which the CSRC deems necessary to be inspected.
Article 7 According to the contents of the on-the-spot inspection, the inspectors can adopt various methods to carry out the inspection, including comprehensive inspection, special inspection, on-the-spot interview, attending meetings, revisits and checks, etc.
Article 8 Comprehensive inspection is designed to inspect the compliance and effectiveness of the companies ’ normative operation. Special inspection is customized to inspect the problems existing in the companies or the significant events prone to risks.
The CSRC can revisit and check the implementation of rectification of the problems found during the supervision.
Chapter III Procedures for On-the-spot Inspection
Article 9 The CSRC organizes and implements the on-the-spot inspection according to law. During the inspection, the number of the inspectors shall be no less than two. T he CSRC can, if necessary, engage securities service institutions qualified for or with practicing experience in handling the securities and futures businesses to assist in the inspection.
Article 10 In case comprehensive inspection or special inspection is scheduled to be carried out, the inspection objects shall be informed at least two working days in advance, get the relevant documents and materials prepared and persons concerned ready for the on-the-spot inspection. If necessary, the CSRC can conduct surprise inspections.
Article 11 The inspectors shall provide valid certificates and notices for the on-the-spot inspection during the on-the-spot inspection.
Article 12 During the on-the-spot inspection, the inspection objects shall provide the documents and material required by the inspectors in time.
The inspection objects shall make a written commitment as to the authenticity, accuracy and completeness of the documents and materials provided.
Article 13 In case the securities service institutions, who provide services for the inspection objects, including accounting firms, law firms, assets appraisal institutions , sponsors and financial consultants, are involved in the on-the-spot inspection, the inspectors can ask them to provide their working papers, statements and other related documents and materials.
Article 14 In case the CSRC discovers clues to acts of violations by the securities service institutions concerned during the on-the-spot inspection, the CSRC can list the securities service institutions concerned into the scope of inspection and carry out the inspection of them.
Article 15 The inspectors can, through inquiring, demand that the inspection objects and persons concerned make a statement of explanations, and sign and seal the inquiry record about the issues arising from the inspection.
Article 16 During the on-the-spot inspection, the inspectors can refer to, copy, make notes of, record and video-cord as well as take photographs of the documents, materials and occurrences. Units and individuals concerned shall affirm and ensure the authenticity, accuracy and completeness of the documents and materials provided.
Article 17 During the on-the-spot inspection, the inspectors can visit the production, business and management sites of the inspection objects and examine the relevant documents and materials about the production, sales and storage records.
Article 18 During the on-the-spot inspection, the CSRC can seal up according to law the documents and material s that might be transferred, hidden or destroyed.
Article 19 In case the comprehensive inspection or special inspection is carried out, the inspectors shall prepare and complete the work report on the inspection as required and notify the inspection objects of the result of the inspection within five working days after the completion of the work reports on the inspection.
Chapter IV Supervision Measures and Penalties
Article 20 The inspectors, inspection objects and their personnel shall fulfill their confidentiality obligations before the inspection results are published and shall not disclose any information concerning the inspection results.
Article 21 The inspectors, who have interest relationship with the inspection objects, shall evade the inspection.
In case the inspection objects deem that the inspectors defined in the preceding paragraph have interest relationship with them, they can apply to the institutions, who carry out the on-the-spot inspection, for the avoidance of the inspectors.
Article 22 In case the CSRC discovers, during the inspection, that there are significant events, that shall be, but have not been disclosed yet by the inspection objects, or the disclosed items are not in conformity with the facts, the inspection objects shall be ordered to make rectification and disclose the relevant items in time as required.
Article 23 In case the inspection objects violat e laws and regulations , the CSRC can, depending on the circumstances and the seriousness of the actual circumstances , take the following supervision measures, apart from making records in credit record s and announcements when necessary:
1) To demand that correction be made;
2) To talk to the s upervis or;
3) To dispatch a letter of warning;
4) To demand that a public statement be made;
5) To demand that periodical reports be made;
6) To demand that the inspection objects participate in training; and
7) To take other supervision measures that the CSRC may take according to law.
Article 24 In case of a demand for correction making, the CSRC shall give a notice to the company for rectification within the prescribed time limit and notify the Stock Exchange to the effect. T he company shall disclose the notice for rectification within the prescribed time limit in time and send a copy to the controlling shareholders and actual controllers.
T he company shall rectify the problems within the prescribed time limit as required. Otherwise, the CSRC will impose a penalty on the inspection objects and the relevant personnel according to law.
Article 25 The inspection objects shall submit a rectification report to the CSRC within thirty days following the receipt of the notice for rectification within the prescribed time limit.
T he rectification report shall cover the rectification implementation measures, estimated completion time, effects, etc., which are worked out item by item in line with the notice of rectification within the prescribed time limit.
Article 26 If the CSRC has no dissent t o the rectification report, the rectification report will be disclosed at the Stock Exchange as well as the resolutions on the rectification resolved by the directorate and opinions of the board of supervisors.
Article 27 The rectification made by the inspection objects shall be completed within the time limit prescribed by the CSRC.
T he inspection objects shall disclose in the periodical reports the progress in rectification, which has not been completed by the end of the period of the last periodical report.
Article 28 The CSRC shall keep the rectification of the inspection objects under its surveillance, check the implementation of the rectification measures and give evaluation opinions about the rectification effect.
Article 29 In case the inspection objects and relevant personnel have objection to the supervision measures, they can lodge an appeal to the CSRC within ten working days after the receipt of the notice of the supervision measures.
Article 30 The CSRC will appraise the practicing situations of the relevant securities service institutions according to the situation of the on-the-spot inspection and the appraisal results will be taken as a reference for the evaluation of the practicing situation.
Article 31 In case the inspection objects and the relevant personnel fail to keep the relevant documents and materials as required by the relevant regulations, or hide, fabricate and juggle the relevant documents and materials, the CSRC will impose penalties in accordance with Article 225 of the “ Securities Laws ” .
Article 32 In case the inspection objects and the relevant personnel refuse to cooperate in the inspection, refuse to provide the relevant information according to the facts or refuse to accept the inspection, the CSRC will impose penalties in accordance with the relevant laws, administrative rules and regulations.
Article 33 In case the CSRC ’ s agencies discover the clues to a violation act against the relevant laws and regulations during the on-the-spot inspection, they shall make informal investigations by means of prior intervention in investigation. When the CSRC holds or discovers the evidence for the violation act against the relevant laws, administrative rules and other regulations, the CSRC shall make investigations and mete out penalties within the scope of its power in accordance with the relevant laws, administrative rule s and regulations.
Article 34 The inspectors of the CSRC and its agencies, who carry out the on-the-spot inspection, will be ordered to make corrections or imposed administrative penalties under any of the following circumstances ; where their conducts constitute a crime, they will be investigated into under law:
1) Causing serious consequences due to the negligence of duties;
2) Retaliating by taking the advantage of their positions;
3) S eek ing illegal interests by tak ing the advantage of the ir positions ;
4) Disclosing commercial secrets or personal secrets of the parties concerned;
5) Refusing to avoid where demanded under law, which has affected the fair execution of law, resulting in adverse consequences; and
6) Other acts that shall be investigated into for legal responsibilities .
Chapter V Supplementary Provisions
Article 35 The conclusions of the inspection on the listed companies made by the CSRC do n ot mean that the CSRC has made a material judgment on the investment value of the listed companies and the investors shall analyze the investment risks on their own.
Article 36 The Regulations will take effect upon the date of ____________________, and the “ Regulations for the Inspection of the Listed Companies ” promulgated on March 19, 2001 shall be void in the main time.
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