Recently, listed companies have been publishing annual reports for 2011, with some of them launching “high ratio bonus share issue or issue of new shares out of capital reserve in high ratio” (hereinafter referred to as High Ratio Bonus Share Issue”), which refers to extending free shares or issuing new shares out of capital reserve to current shareholders in high ratio. For example, for every ten outstanding shares, ten bonus shares are extended for free, or eight shares are issued out of capital reserve, or five bonus shares are extended for free and five shares are issued out of capital reserve.

The results of monitoring of the CSRC shows that the trading of a number of shares of companies which proceeded to High Ratio Bonus Share Issue have been unusually active. Some accounts, in particular those which are established in the same locations as the listed companies which carry out High Ratio Bonus Share Issue and their controlling shareholders as well as affiliated accounts, have conducted large buying of the corresponding listed companies’ shares in days before the publication of the annual reports. Regarding such trading irregularities, the CSRC has filed cases and launched investigations over corporate acts which are suspected to have violated applicable regulations and the accounts showing typical trading abnormalities, cracking down on offences such as insider trading.

The CSRC reminds investors that High Ratio Bonus Share Issue is by nature an internal re-distribution of current shareholders’ equity, which has no impact on their return on equity(ROE). After a High Ratio Bonus Share Issue, the apparent increase in the total number of outstanding shares will not bring higher profitability to shareholders. Speculating on such novel notion, a number of market speculators have been attempting to engage in violations such as insider trading. Investors are invited to remain rational in trading securities and to refrain from buying shares in herd effect under the sway of the abnormal fluctuations of High Ratio Bonus Share Issue, in order to defend themselves against investment risks. Investors are also encouraged to report to the CSRC any violations which they have detected.