China to Tighten Grip on Big Shareholders
(Beijing) — China’s top legislature this month will again review draft amendments to the securities law that are likely to include detailed rules governing major stockholders’ sales of shares, but not long-awaited initial public offering (IPO) reform.
According to people familiar with the matter, the amendments to the securities law will be sent to the National People’s Congress (NPC) when its Standing Committee convenes on April 24-27 — two years after the draft was first reviewed by the top legislature and a stock market crash hampered the revision process in 2015.
The latest draft amendments are expected to address the timing and percentage of large stockholders’ sale of shares, including shares purchased before an IPO or in private placements, according to people familiar with the matter.
Chinese securities regulators said in January that when selling their stocks, major shareholders should not undermine the legal rights and interests of small shareholders by abusing their controlling position in a company and taking advantage of any inside information. Those guilty of false information disclosure, insider trading and stock market manipulation during stock sales will be held accountable, regulators said.
Fu Ying, spokesperson for the NPC annual session, said during a news conference in March that revising the securities law concerns the top-level design of the legal framework over the capital market in China, and it involves complex issues that include the protection of investor interests. She said legislators made new changes to the securities law after consulting with securities regulators in the wake of a stock market meltdown in the summer of 2015, in which the benchmark Shanghai Composite Index dropped 40% over a two-month period.
The amendments, the most comprehensive revision of the securities law since it was introduced in 1998, added 122 articles when it was first reviewed by the NPC in April 2015, including rules over cash dividends to shareholders and a registration-based IPO reform.
The market has long been anticipating a switch from an approval-based IPO process to a registration-based one — a mechanism used in the U.S. and some other mature markets, and one that can help companies to cut debts and thus reduce financial leverage. But according to sources close to lawmakers, the latest draft amendments will fall short of mentioning the registration system to float stocks in exchanges.
In December 2015, the NPC authorized the State Council, China’s cabinet, to implement changes to the current securities law to revamp the IPO system. The NPC meeting later this month will review a work report concerning the progress of the reform.
Contact reporter Dong Tongjian (firstname.lastname@example.org)
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