Recently, the news spokesman of the China Securities Regulatory Commission (CSRC) has answered reporters’ questions concerning issuance of the “Interim Provisions on Appropriate Management of Investors on the Growth Enterprise Board Market (Draft for Comment)” (the “Interim Provisions”) and Relevant Supporting Documents. The full text is as follows:

Q: Why to implement the appropriate management on the Growth Enterprise Board (GEB) market?

A: Along with the advance of the construction of Chinese multi-level capital market system, the requirements of establishing the institutional arrangements step by step fitting to the investors of different classifications, investment products with different risk levels and different regulatory requirements and seeking for a qualified investor system have been urgent for the development of the market. On March 31 this year, the CSRC issued the “Interim Measures on Administration of Initial Public Offerings and Listings on the Growth Enterprise Board” (the “Measures on Administration”), thereinto, Article 7 prescribes that the admittance system for investors which fits their risk-bearing capacities should be established on the GEB market and the investment risks should be disclosed to the investors; the "Rules on Supervision over Securities Companies" also demands the appropriateness of securities companies when selling financial products or providing relevant services to investors. The aforesaid laws and regulations provide the regulatory support for the establishment of the appropriate management system for the GEB investors.

Compared with those on the main board market, the standard of issuance and listing on the GEB market is lower; the GEB companies are usually characterized by small scales and changeful business performances, with higher investment risks; there also exist differences in delisting system. Based on the international experiences, the delisting GEB companies are more than delisting companies on the main board, with higher investment risks. According to the research report of the Shenzhen Stock Exchange, from 2003 to 2007, the average delisting rates of NASDAQ in America and AIM in Britain were 8% and 11.6% respectively, both of which are higher than those of the GEB. The aimless participation by a large number of investors with no knowledge of the GEB market risks or the risk-bearing capacities may trigger off a series of problems. To protect investors’ legal rights and forewarn investors to make prudent choices of investment on the GEB market, appropriate management systems for investors have been established on the GEB market and the requirements for investors to enter the market have been properly set as well.

Q: What is the appropriate management system for the GEB investors?

A: The implementation of the appropriate management of investors is still in its infancy for exploration on China’s securities market. According to the requirements of the “Measures on Administration”, the current preliminary system of appropriate management of investors on the GEB market is mainly composed of the following three parts:

The first part is the “Interim Provisions” formulated by the CSRC. Its main content, formulated according to the “Measures for Administration”, puts forward the principled requirements of the appropriate management of investors on the GEB market and authorizes the self-discipline institutions to formulate the specific implementation measures and relevant essential clauses in the risk-revealing letter for the GEB market.

The second is the “Implementation Measures for Appropriate Management of Investors on the Growth Enterprise Board Market” (the “Implementation Measures”) formulated by the Shenzhen Stock Exchange. Its main content defines the basic requirements, procedures, work mechanisms and regulatory requirements of the appropriate management of investors.

The third is the “Disclosure of Investment Risks on the Growth Enterprise Board Market (Essential Clauses)” (the “Essential Clauses”) formulated by the Securities Association of China. The clauses listed in the “Essential Clauses” should be included into the standard texts of the “Disclosure of Investment Risks on the Growth Enterprise Board Market” formulated by the securities companies; meanwhile, the securities companies can also add other relevant content into their risk-revealing books according to the actual needs.

Q: What are the basic requirements for investors to participate in the GEB market?

A: The “Measures for Administration” prescribes that the natural person investors who have the transaction experience of more than two years (inclusive) can apply for participation in the GEB Market. The specific time to start the calculation of the transaction experience is the day when the first transaction occurred in the account under the name of the investor at the Shanghai Stock Exchange or the Shenzhen Stock Exchange. For an investor who has the transaction experience of more than two years, the securities companies shall sign the “Disclosure of Investment Risks on the Growth Enterprise Board Market” in written form with him/her on the spot of the business site and require him/her to copy a paragraph of declaration. The handling personnel of the securities company should witness the investor’s signing and then sign for confirmation. Two trading days after the disclosure of risks is signed, upon completion of relevant procedures for verification and examination by the securities company, the investor can carry out transactions on the GEB market.

The aim of establishing the appropriate management system for investors is not to limit certain kind of investors’ rights of investment in the GEB enterprises but to protect the investors’ legal rights and interests by making the investors really understand the risks of the GEB market and then make prudent choices of investment through proper procedures and requirements. The cognition degree of an investor having some transaction experience towards the market risks is, on the whole, higher than that of a new investor in the market. Especially, since 2007, the securities market has experienced a relatively complete market cycle; most investors, who have experienced the cycle, have or are about to have over two years of investment experience, and they better understand the market risks and make more prudent decision-makings in their investment.

Q: If the investors don’t have two years of transaction experience for the moment, how can they participate in the GEB market?

A: For the natural person investor who doesn’t have two years of transaction experience for the moment, if he/she still insists to participate in the GEB market directly upon careful consideration, we also provide corresponding channel as follows: after an application for transaction put forward by relevant investor to the securities company, the securities company should sign the “Disclosure of Investment Risks on the Growth Enterprise Board Market” in written form with him/her on the spot of the business site and require him/her to copy a special declaration regarding voluntarily undertaking market risks. The handling personnel of the securities company should witness the investor’s signing and then signs for confirmation; the signature and the confirmation of the person-in-charge of the securities company’s business department are also needed. Five trading days after the aforesaid documents are signed, upon completion of relevant procedures for verification and examination by the securities company, the transaction can be accessible to the investor.

Q: What is the process for an investor to get the access to the transaction on the GEB market?

A: The process for an investor to get the access to the transaction on the GEB market includes three steps approximately.

Step one: the investor can inquiry about whether he/she can meet the basic requirements prescribed in the “Implementation Measures” through relevant channels provided by China Securities Depository and Clearing Corporation and then decide on his/her own whether to apply to the securities company for the access to the transaction on the GEB market.

Step tw the investor goes to the spot of the securities company’s business site to file the application for the access to the transaction on the GEB market.

Step three: after the investor files the application, the securities company need to check the number of years of the investor’s transaction experience through the system of China Securities Depository and Clearing Corporation and grasp the basic information including the investor’s identity, property and income, and risk preference.

If the investor meets the basic requirements of the “Implementation Measures”, the securities company needs to make the investor read carefully and then sign the “Disclosure of Investment Risks on the Growth Enterprise Board Market” and request him/her to copy a paragraph of declaration. The handling personnel of the securities company should witness the signing of the investor and then signs for confirmation. Two trading days after the risk-revealing book is signed, the securities company will complete relevant procedures for verification and examination, and then the investor can get the access to the transaction on the GEB market.

If the investor cannot meet the basic requirements of the “Implementation Measures” temporarily but insist on participate in the GEB market directly, the securities company should sign the “Disclosure of Investment Risks on the Growth Enterprise Board Market” with the investor according to the aforesaid requirements and request the investor to copy a paragraph of special declaration regarding voluntarily undertaking the market risks. The handling personnel of the securities company should witness the signing of the investor and then signs for confirmation; the signature and the confirmation of the person-in-charge of the securities company’s business department are also needed later. Five trading days after the aforesaid documents are signed, upon completion of relevant procedures for verification and examination by the securities company, the investor can get the access to the transaction.

Q: What are the features of the disclosure of risks on the GEB market signed by the investors?

A: Compared with the previous risk disclosures, in order to fit the features of the GEB market, the “Essential Clauses” have three distinct changes as follows:

The first change is to add the fundamental knowledge of the GEB market. In the “Essential Clauses”, specific contents, including the differences between the GEB market and the main board market in the aspects of issuance and listing, etc., are added; thereinto, risks including delisting are emphasized. The investors are required to read the essential knowledge one by one and then confirm them.

The second is to add the content that the investors declare to undertake risks voluntarily. Meanwhile, in order to remind the investors of prudent considerations, the investors should copy some prescribed sentences and sign their names. For the investors who don’t have over two years of transaction experience, they should copy the “Special Declarations” regarding voluntarily undertaking the market risks in the risk disclosures as well.

The third is to require the specific handling personnel and the chief officers to sign on the risk disclosures for confirmation, so as to witness the investors’ signing on the risk disclosures, urge the securities business departments to do all their duties, and do the work of risk alert and education for the GEB investors. Meanwhile, in order to fulfill the requirement of signing risk disclosures beside counters, the column of “site for signing” is added to the “Essential Clauses”.

Q: What are the responsibilities of the securities companies in the appropriate management of the GEB investors?

A: The appropriate management of the investors is organized and implemented in details by the securities companies, with the main responsibilities as follows:

The first responsibility is to fulfill the duty of appropriate management of the GEB market, grasp the basic information including the investors’ identities, properties and incomes, experiences of securities investment, risk preferences and investment targets, and carry out tasks such as risk disclosure, investor training and investor education with the pertinence; services should be strengthened continuously for the investors to remind the investors of risks, and guide them to get the access to the GEB market and then trade rationally through standard ways.

The second is to establish the specific business system and operation guidance for the appropriate management of the GEB investors, inform the investors of the specific requirements of the appropriate management of the GEB investors through various kinds of forms and channels and do the tasks of explanation and publicity well.

The third is that when handling the specific procedures for the access to the transaction on the GEB, the handling personnel of the securities companies should witness the signing of the investors on the risk disclosures of the GEB investment risks and sign on the risk disclosures for confirmation at the same time. If the investor whose transaction experience is less than two years applies for the access to the transaction on the GEB, the risk disclosure should also be signed and confirmed by the person-in-charge of the business department.

The forth is to keep all the records of the appropriate management of the investors on the GEB market safely and undertake the secrecy obligation for the investors’ information according to laws.

The fifth is to improve the disposal mechanism of the investors’ disputes, designate the special departments and positions, handle the issues including the investors’ complaints when participating in the GEB market, and defuse conflicts and disputes.

Q: Why to prescribe that the securities companies should grasp the investors’ basic information, risk preferences, etc. on the GEB market?

A: Due to the comparatively higher investment risks on the GEB market, it is not suitable for all the investors to participate in the GEB market directly. Therefore, the securities companies should grasp some necessary information of the investors, including the identities, properties and incomes, experiences of securities investment, investment targets and risk preferences. On one hand, the securities companies can help the investors to judge their risk-perception and risk-bearing capacities through these objective information; on the other hand, based on the aforesaid information, risk disclosure, investor training investor education, etc. can be carried out further with the pertinence to raise the service level of the securities companies. There is one thing to be pointed out: the investors should provide the aforesaid information according to the facts and should be responsible for authenticity of the information.

Q: In order to ensure the implementation of the appropriate management system for the investors of the GEB market, what are the supervision and inspection measures?

A: In order to ensure the implementation of the appropriate management system for the investors on the GEB market and give full play to the functions of strengthening the risk education and reminding the investors of making prudent investment choices, the Shenzhen Stock Exchange and the Securities Association of China carry out the self-discipline management of the securities companies in the implementation of the appropriate management of the GEB investors, the investor education, take discipline measures on the found illegal activities promptly, and report them to the CSRC and its regional bureaus.

The CSRC and its regional bureaus will also supervise the appropriate management of the GEB investors implemented by the securities companies; according to relevant laws and regulations, the regulatory measures including order for rectification, regulatory interview, issue of warning letter and order of punishment on relevant personnel will be taken on the found illegal activities.

The CSRC will also guide, supervise and examine the implementation of the appropriate management of the GEB investors and the investor education by the Shenzhen Stock Exchange, China Securities Depository and Clearing Corporation Limited and the Securities Association of China.

Q: When can the investors apply for the access to the transaction on the GEB market?

A: At present, the preparation for the GEB market is still under way according to the principle of initiative and safety. Considering that the investors need to go to counters of business departments to handle the application for the access to the transactions on the GEB market, the staff and field of the business departments might face certain pressure, so enough time should be provided for investors to handle the procedures in advance. Therefore, we plan to reserve enough time for the investors to handle relevant procedures in advance before public issuance and listing of shares on the GEB. On the occasion, relevant self-discipline institutions including the Shenzhen Stock Exchange will also issue detailed operation guidance to guide the securities companies to conduct the acceptance of the investors’ applications.