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Press Conference on May 30, 2014
30-05-2014

At the CSRC press conference on May 30, 2014, spokesperson Zhang Xiaojun briefed reporters with the regulation of listed companies conducted between January and April, 2014 (see news updates on the CSRC website) and answered questions from the press.

  

Q1: Over 400 enterprises have already carried out pre-disclosures for their IPOs. Does this mean that they will soon have their IPO applications reviewed by the Public Offering Review Committee (PORC) and make a public offering and go public?

  

A: As required in the guidelines for the new share offering reform, once the IPO applications are officially accepted by the CSRC, prospective issuers shall immediately make pre-disclosures. Therefore, the pre-disclosure has been moved to an earlier date, in order to urge issuers and intermediaries to perform their disclosure responsibility with due care and diligence during the application process, and to strengthen supervision by the public. Following the pre-disclosure of the prospectus, an issuer may not alter any relevant information or financial data at will. During the review of an IPO application, if the CSRC find contradictory information or substantively different statements of the same fact in the application materials, the CSRC will suspend the review process and will not accept, for a 12-month period, any IPO application recommended by the sponsor involved. According to existing regulations, prior to the review by the PORC, prospective issuers which have already made pre-disclosures are required to go through a series of procedures including the feedback, presentation and preliminary review stages. Therefore, after a prospective issuer makes a pre-disclosure, no arrangement will be immediately made for its IPO application to be reviewed by the PORC.

  

In 2014, the PORCs for the Main Board (including the SME Board) and the GEB have held a meeting on a weekly basis with roughly 2 enterprises having its IPO application to be reviewed. By May 29, the CSRC have accepted IPO applications from 666 enterprises, of which 426 have already carried out pre-disclosure (including 42 which have already passed the review of the PORC and 8 which saw the review process of their IPO applications being suspended), and 240 have yet to go through the pre-disclosure procedure (including 42 which saw the review process of their IPO applications being suspended). The CSRC will suspend the review process of the IPO applications of the aforementioned 240 enterprises if they fail to complete pre-disclosure by the end of June, 2014. From now on, any new enterprises applying for IPO are required to carry out pre-disclosure immediately after their applications are accepted. As a result, starting from July 1 this year, the number of enterprises whose IPO applications are under review will be identical with that of enterprises carrying out pre-disclosure.

  

Q2: Recently, at the meeting on implementing the Opinions of the State Council on Further Promoting the Sound Development of the Capital Markets (the State Council’s New Nine Requirements), the CSRC set forth the plan to develop a separate market in the GEB to encourage Internet-based and high -tech enterprises which have yet to make a profit to get listed on the NEEQ for a year before going public on the GEB. Could the CSRC give an update on the implementation of this plan and the ground for opting for this particular approach?

  

A: In order to implement the State Council’s New Nine Requirements to promote the development of a multi-layered capital market, we at the CSRC are devoted to exploring approaches to develop a separate market in the GEB to encourage Internet-based and innovative high-tech enterprises which have yet to make a profit to make an public offering and get listed. In establishing a separate market, it is imperative to adopt appropriate investor suitability arrangements, differentiated trading mechanism, strengthen information and risk disclosure, and strike a balance between “unprofitability of enterprises” and the programs for the delisting of such enterprises. To this end, we are currently in the process of amending or drafting relevant rules.

  

At present, China has an emerging and transitioning capital market. Considering that the aforementioned enterprises are faced with significant risks, we propose to require such enterprises to get listed on the NEEQ for a year, be subject to supervision by the market and the public, and improve the level of their regulated operations, before applying to make a public offering and go public on the separate market in the GEB.

  

Q3: Since the beginning of this year, the CSRC has adopted a tougher approach against the use of undisclosed information for illegal gains and released details on a number of suspected cases involving the exploitation of undisclosed information for trading of shares. Could the Commission give an update on such cases?

  

A: Since the second half of 2013, the Commission has placed more efforts on fighting cases involving the use of undisclosed information to trade shares by improving the mechanism for the detection of leads to such cases. On May 9 (Friday), the CSRC released details on the investigation of such cases in the asset management industry by the Commission since September 2013, and provided an update on 3 of those cases. Based on the progress made in investigations, we at the Commission will promptly disclose information concerning relevant cases.

  

Q4: It has been reported that, compared with previous years, more funds have seen their managers resigned since the beginning of this year. What is the CSRC’s take on this phenomenon?

  

A: In recent years, many fund management firms have announced changes in managers responsible for funds under the firms’ management. Regarding the reported phenomenon, the regulatory authorities are primarily concerned about whether those firms have adopted concrete and effective measures to ensure the sound operation of fund investments, thus maintaining the interests of fund unit holders intact.

  

As a talent-intensive service industry, the publicly-offered fund industry considers human resources as one important component of its core competitiveness. Talent-related incentives are of great significance to boosting companies’ core competitiveness and facilitating sustainable development of the industry. The Securities Investment Fund Law, which came into force in June, 2013, lowered the entry criteria for fund management firms, encouraged such firms to adopt professional share ownership schemes, established long-term incentives and disciplinary mechanism, and abolished the requirement for the approval of changes in the shareholders possessing less than 5% of the total shares.

  

In the Reply to Issues regarding Fund Management Firms Managing Publicly Offered Funds released in December 2013, the State Council clearly stipulated the essential criteria for a natural person to become a principal shareholder or a minority shareholder possessing 5% or more of the shares of a fund management firm. Meanwhile, fund management firms should optimize the compensation scheme for fund managers, and establish long-term flexible and effective incentives and disciplinary mechanism. Evaluation organizations should put in place long-term evaluation mechanism for fund managers to avoid short-term ranking.

  

Recently, some fund management firms have already launched employee share ownership schemes. We at the CSRC will continue to support and guide fund management firms in establishing long-term and effective equity incentives and disciplinary mechanism, attracting and retaining top-notch talents, safeguarding long-term stability of the management team, and reinforcing the capability and motivation for innovation and development.

  

Q5: It has been reported that the CSRC has carried out multiple research and surveys regarding the domestic equity crowd funding industry. Could the CSRC give an update on the making of relevant regulatory rules? What are the general guidelines in this aspect?

  

A: Equity crowd funding is an emerging internet-based financing method which supplements conventional financing approaches and mainly serves micro enterprises and SMEs. The new approach is practically relevant to expanding financing channels for micro enterprises and SMEs, facilitating capital formation, supporting innovation and entrepreneurship, and developing a sound multi-layered capital market system. Lately, we at the Commission have carried out in-depth research and survey regarding the equity crowd funding industry. At present, based on overseas regulatory experience and the results of the research and survey, we are dedicated to developing a set of regulatory rules for crowdfunding financing.

  

With regard to the guidelines for the regulation of the equity crowd funding industry , the Commission will, taking into account the current stage of development and characteristics of China’s equity crowdfunding industry, as well as the general requirements of “encouraging innovation, preventing risks, pursuing interests while avoiding damages, ensuring sound development” and complying with existing laws and regulations, and principles of appropriate and innovation supervision, strengthen the self-regulation of the industry, promote the sound and regulated development of the equity crowdfunding industry, protect the lawful interests of investors, prevent financial risks, and highlight the role of the financial industry in serving the real economy.

  

Q6: It has been recently reported that some private funds in the form of limited partnership might be burdened by various concerns including false promotion, related party financing, regulatory arbitrage, illegal private sales, frequent credit risks, lack of filings, and tunneling . What is the CSRC’s take on this and what regulatory measures will be adopted?

  

A: Ever since being assigned to be responsible for the regulation of privately-offered funds by the State Commission Office for Public Sector Reform, the CSRC has, under the principles of functional and appropriate supervision, gradually established a regulatory system focusing on self-regulation and combining self-regulation with administrative supervision. The Commission, on one hand, has developed regulatory rules for the privately-offered fund industry and established a sophisticated regulatory framework and ,on the other hand, has authorized the Asset Management Association of China to carry out registration and filing activities and driven forward of the orderly conduct of such activities.

  

Unlike the publicly-offered fund industry, the privately-offered fund industry is more market-oriented and has more types of business operations. Therefore, we at the CSRC abide by the standards of integrity, laws and regulations, professional ethics, fundamental principles for privately-offered funds, and strict investor suitability arrangements, aiming to provide sufficient room for the development of the industry. Generally, we strengthen the monitoring of industry risks and the prevention of regional and systemic risks; and specifically, guided by specific concerns and risks, we reinforce supervision and inspection to fight various violations which challenge industry fundamentals, harm the lawful interests of investors and disrupt market order.

  

We hope the media can continue to supervise the privately-offered fund industry via public opinions and the Commission will investigate every specific lead. Once the suspected violations committed by some private funds of limited partnership as reported are verified, we at the CSRC will carry out investigation pursuant to relevant laws and regulations, so as to effectively protect investors’ interests and facilitate the sound development of the industry.

  

Q7: It has been recently reported, ETF options will be launched before single stock options. Could the CSRC provide specific timeline and update on the matter?

  

A: In order to implement the Opinions of the State Council on Further Promoting the Sound Development of the Capital Markets (Guo Fa [2014] No.17) which stipulates the need to “develop financial derivatives in a steady and orderly manner and gradually enrich the categories of stock options”, the CSRC is considering and discussing the pilot program for the trading of ETF options and will adopt appropriate administrative measures. The trading of individual stock options will be the subject of another discussion after experienced from the pilot ETF options program is summarized.



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