Caixin
Dec 17, 2019 06:18 AM
FINANCE

Securities Law Revisions Set for NPC Review Next Week

A revision to China’s Securities Law is scheduled for a fourth reading by top legislators next week. Photo: VCG
A revision to China’s Securities Law is scheduled for a fourth reading by top legislators next week. Photo: VCG

Chinese lawmakers are moving closer to finalizing long-awaited revisions to the national Securities Law after five years of efforts to update the statute in line with the country’s fast-changing capital markets.

The Standing Committee of the National People's Congress (NPC), China's top legislature, will convene its bi-monthly session next week to review draft revisions to nine measures including the Securities Law, the NPC said Monday.

The review comes eight months after the previous reading of the revised law in April, which was the third reading by legislators. The development indicates completion of final revisions is nearing, analysts said. Once past the final review, the new Securities Law may be enacted as soon as the end of this year.

It has taken China nearly five years to update the Securities Law, which has become outdated since it was first promulgated in 1999 when the country’s financial markets were in their infancy. The law has been tweaked several times but has undergone only one comprehensive revision, which went into effect in 2006.

The launch of the new Nasdaq-style high-tech board in Shanghai this year, which tested a registration-based listing procedure as a major overhaul to China’s initial public offering (IPO) system, added urgency to changing the law. The new board became the first marketplace in China to replace the long-established IPO approval system and free companies from a lengthy and bureaucratic process for listing on mainland markets.

The State Council, the cabinet, is set to complete the IPO system reform by Feb. 29, 2020. But the absence of a revised Securities Law to govern the new market practice would leave a piece missing in the reform.

The draft revision submitted for the third review in April added a new section addressing special requirements for going public on the new high-tech board to create the legal grounds for the pilot program, although the new section was lacking specific details.

The third draft of Securities Law revisions was too controversial and immature, and the registration-based IPO mechanism is still in an exploration stage and transition period, a person who participated in the law’s revision told Caixin in April. The revision might need a fourth reading, the person said.

Another source close to the revision told Caixin recently that the latest version to be sent for review “has some minor changes to the previous draft but not significant.”

The April draft revision also toughened punishments for stock market violations, raising penalties on companies to as much as 10 million yuan ($1.4 million) from the current limit of 600,000 yuan. Fines for individual violators could reach 5 million yuan under the new draft, compared with 300,000 yuan currently.

Jiao Jinhong, chief attorney of the China Securities Regulatory Commission (CSRC), last month signaled progress in the revisions.

“The CSRC is actively pushing forward the revisions to the Securities Law and taking the chance of the law revisions to enhance enforcement against market violations,” Jiao said Nov. 28 at a public forum.

Plans to make major amendments to the Securities Law were put forward in 2014, and the draft law was given its first reading by the NPC Standing Committee in April 2015.

But enthusiasm has waxed and waned with the fortunes of the stock market. The market meltdown in the summer of 2015 spooked regulators, and the draft made little progress as the focus shifted to market stability and risk control.

The revision effort was on the verge of failure several times as it is bogged down in the review process. Under China’s legislation governing how laws are made, proposed bills and amendments have to undergo a reading by top legislators every two years. Otherwise, the whole process has to be abandoned and started again from scratch.

The draft revision to the Securities Law was given a second reading in April 2017, right before the two-year limit. The April reading this year was again held as lawmakers were in a race against time to prevent the efforts from being shelved altogether.

Nevertheless, expectations for the birth of the new Securities Law rose this year after Yi Huiman, the new head of the CSRC since January, pledged to speed up the process this year at his first press conference in February.

Contact reporter Han Wei (weihan@caixin.com)

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