|
The Administrative Measures on the Split Share Structure Reform of Listed Companies (the Administrative Measures) is promulgated by the China Securities Regulatory Commission (the CSRC) to regulate practices in connection with the Split Share Structure Reform of Listed Companies (the Reform), protect investors legitimate interests and rights, and promote the reform, opening-up and sustained development of China capital market. The Administrative Measures have been formulated on the basis of opinions and comments received from the related public consultation in accordance with the Guidance Notes on the Split Share Structure Reform of Listed Companies (the Guidance Notes) jointly issued by 5 Government Ministries and Commissions including the CSRC. Today the CSRC held a press conference to answer questions on issues of market concern relating to the Reform.
Q1: The Reform has successfully made its way through the experimental stage and is now setting off progressively on a large scale; so why does the CSRC promulgate the Administrative Measures at this moment?
The Spokesman: The earlier experiment program for the Reform has provided valuable practical experiences due to innovative efforts made by both the regulators and market participants in taking forward the Reform. Under the requirement that the Reform shall be carried out in a prudent, active and systematic manner, measures and techniques proven to be effective and widely accepted in the early experimental stage will be persistently practiced while some procedures and policies need to be adjusted or improved to suit changing circumstances and requirements for the coming stage of the Reform. Although basic operating procedures for the experiment program have been set out in the Circular on Issues relating to Experimental Program for the Split Share Structure Reform of Listed Companies and the Circular on Issues relating to Implementation of the Second-Batch Experimental Program for the Split Share Structure Reform of Listed Companies promulgated during the experimental period, we need to establish a general policy framework to guide and promote the Reform in a prudent and active manner, as well as special procedures designed specifically for part of listed companies to carry out the Reform under unique circumstances. Moreover, policies and mechanisms may be formed to address particular problems identified in the experiment program. In light of the circumstances for the coming stage of the Reform, the CSRC promulgates the Administrative Measures in accordance with the Guidance Notes following the conclusion of the experimental program in an effort to improve relevant procedures and set out guiding principles for the Reform.
Q2: The CSRC has consulted the public on the Administrative Measures. How is the response to the consultation and what modifications have been made to the Administrative Measures?
The spokesman: The CSRC issued a consultation paper on the Administrative Measures (Exposure Draft) on August 26 to seek opinions from the public, and received 350 submissions as at the close date of the public consultation. The respondents are generally of the view that, the Administrative Measures are in line with the spirit of the Guidance Notes on the Split Share Structure Reform of Listed Companies, and enhanced basic operating procedures adopted during the experimental program. The Administrative Measures are generally considered sound, easy to carry out, and express in forming the tone of Reform policy. Constructive opinions and proposals submitted during the consultation have demonstrated the responsible attitude towards the Reform adopted by the respondents and have also been very useful in our work to improve the Draft Administrative Measures. Based on careful study of the market feedback, the Draft Administrative Measures were modified to become more coherent and sound. There are a total of 151 modifications made to the exposure draft over about 45 provisions and related wordings on operating procedures, reform scheme, principals of the Reform, intermediaries, supervisory measures, etc.
Q3: What are the major changes made to the Reform procedures practiced during the experiment program in the Administrative Measures?
The spokesman: The Administrative Measures basically follow the operating procedures adopted during the experimental period of the Reform in consideration of continuity of the systemic approaches established during the experimental stage of the Reform. In light of experiences of the early experiment program as well as proposals from the public, we established the principle approach and operating principle for the Reform known as “flexible decision-making to suit different circumstances under centralized coordination”, and provided for a progressive implementation of the Reform in a prudent and active manner in the Administrative Measures. Provisions on some key areas of the Reform that are adjusted and complemented in the Administrative Measures include the approval for Reform motion, assembly system, timing of the negotiation between non-floating shareholders and floating shareholders, modification of the Reform scheme, dealings suspension arrangement, etc.
First, the approval criteria for Reform motion are modified. Under the Administrative Measures, the Reform motion shall be approved by shareholders holding not less than a two-thirds majority of the non-floating shares either individually or collectively, which is an alternative to the principal condition requiring unanimous approval by all non-floating shareholders adopted during the experimental stage.
Second, the Administrative Measures established Relevant Shareholders Meeting as the assembly system for the Reform. Under the Guidance Notes, the nature of the Reform is defined as a systemic approach towards the float of the non-floating shares of A-Share companies, as well as the issue concerning balancing of interests between shareholders through negotiation. Under the Administrative Measures, “Extraordinary General Meeting Arrangement “ adopted in the experimental stage is further defined as “Relevant Shareholder Meeting of A-share Market” with related wording and procedural arrangements adjusted accordingly.
Third, the timing of negotiation between non-floating shareholders and floating shareholders is adjusted to reduce the Reform period to around 30 days. Under the Administrative Measures, the negotiation between shareholders starts with the release of the notice on Relevant Shareholder Meeting in connection with the Reform, compared with the earlier practice that set the announcement on the decision to undertake the Reform as the starting point for the negotiation.
Fourth, the Administrative Measures impose restrictions on the modification of the Reform scheme. Compared with the earlier practice that revision of Reform scheme was allowed during the 15-day period prior to convening of the extraordinary general meeting, no modification to the Reform scheme is allowed once the negotiation result is announced and the share dealing is resumed under the Administrative Measures. Such arrangements provide for adequate negotiation under the condition that consistency of the Reform scheme and protection of investor’s interests against asymmetric information are satisfied.
Finally, the dealings suspension arrangement is changed as compared with the experimental program. The Administrative Measures abolished the provision that the listed company may opt for dealings resumption following the announcement on the resolution of the extraordinary general meeting, and adopted the arrangement for Dealings suspensions during two periods, one is the negotiation period, and the other is between the next date following the record date for the Relevant Shareholder Meeting and the end of the standard Reform procedures.
Q4: Apart from the sponsor, do other professional institutions have the opportunities to take part in the Reform?
The Spokesman: Securities companies registered with the CSRC as sponsor may act as a sponsor in the Reform. As a market intermediary bearing special identity and duties, a sponsor plays crucial parts in the Reform, such as assisting in the development and execution of the Reform scheme, overseeing performance of undertakings, etc. The Administrative Measures provide that: “the board of directors commissioned by non-floating shareholders in writing to carry out the Reform shall appoint a sponsor.” The sponsor requirement is not only a systemic approach adopted to protect investors and ensure the order of the Reform, but also a proven practice during the experiment program. The Administrative Measures clearly set out responsibilities and duties of the sponsor with respect to the Reform, as well as the supervisory measures and disciplinary actions that shall be taken against breach of sponsor duties.
In addition, the Administrative Measures do not impose any restrictions on listed companies shareholders to make normal business decisions as to the appointment of additional professional institutions other than the sponsor for more consulting services.
Q5: The Market was particularly concerned about compliance of non-floating shareholders with their undertakings with respect to the Reform during the experiment program. Could you explain what approaches the Administrative Measures adopt to provide reasonable assurance that undertakings of non-floating shareholders are duly discharged?
The Spokesman: Undertaking given by non-floating shareholders represents one of the crucial components of the Reform scheme for it’s a matter concerning interests of floating shareholders. Performance of undertakings by non-floating shareholders is under supervision of the CSRC who has been focusing on this issue and sets out specific provisions in the Administrative Measures.
First, minimum restraint requirements are imposed on non-floating shareholders in their performance of undertakings to prevent deliberate attempt to avoid complying with undertakings. Under the Administrative Measures, “undertakings by non-floating shareholders shall either be feasible under present technological conditions for supervision available in the stock exchange and securities depository & clearing company, or be secured against certain guarantees provided by the party giving the undertakings; the non-floating shareholder shall pledge full compliance with its undertakings in written statement.” In addition, “the non-floating shareholder shall not transfer its holding unless its undertakings are fully discharged, except where the acquirer agrees and has the capability to take on relevant obligations.”
Second, relevant intermediaries are obliged to exercise inspection over the discharge of obligations undertaken by non-floating shareholders. Under the Administrative Measures, “ the sponsor shall give its opinions on the capability of the non-floating shareholder to perform its pledged obligations, and has the duty to exercise continuous inspection over the performance of obligations by parties involved.”
Third, liabilities of non-floating shareholders for breach of their undertakings as well as the liabilities of the sponsor for failure to perform inspection functions are respectively set out in the Administrative Measures, i.e. “ the shareholder failing to discharge its undertakings with respect to the Reform is subject to a public censure by the stock exchange, the order to take corrective action and other disciplinary actions taken by the CSRC; where interests of other shareholders are damaged, legal consequences will be caused; the sponsor and its representatives failing to perform on-going inspection duties with respect to the Reform are subject to a public censure made by the stock exchange, and the order of the CSRC to take corrective action; where the breach of sponsor duties is serious, the wrongdoer will be removed from the CSRC’s approved list of sponsor and sponsor representatives.
In conclusion, the Administrative Measures may effectively enforce the proper discharge of undertakings by non-floating shareholders, and therefore, provide institutional protection for floating shareholders.
The spokesman concluded that, the Administrative Measures have put together the Reform practices of market participants as well as the intelligence of the market, and the Reform is an evolving process in which the CSRC is engaged, exploring, reflecting, and adapting its regulatory efforts to the evolving Reform.
The China Securities Regulatory Commission
(This English version by Shenzhen Securities Information Co., Ltd. is for your reference only. In case any discrepancy exists between the Chinese and English context, the Chinese version shall prevail.)
| 
