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April 24, 2019

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China revamping securities rules, with focus on new sci-tech board

A DRAFT amendment to the Securities Law is under a third reading at the ongoing session of the Standing Committee of the National People’s Congress, China’s top legislature.

The latest revisions to the law include rules on the newly devised science and technology innovation board, which will pilot a registration-based initial public offering system.

Under the current IPO system, new listings are subject to approval from the China Securities Regulatory Commission.

A new chapter is planned for the law with special provisions on stock issuance conditions, registration procedures and supervision of the country’s new high-tech board.

The new board, to be launched on the Shanghai Stock Exchange, was proposed in November 2018 and approved in January.

On March 1, the CSRC released regulations on trying out the registration-based IPO system on the new board, followed by more specific rules unveiled by the SSE.

Previously, a draft amendment to the law was submitted to the top legislature for the first reading in April 2015, mainly to meet the legislative demand of reforming the IPO system toward a registration-based one.

New revisions were submitted for a second reading in April 2017 to improve regulation on such areas as stock trading, acquisitions of listed firms, information disclosure and investor protection.

The second draft demanded the State Council to gradually advance the IPO system reform in accordance with authorization granted by the top legislature.

Apart from the addition of rules on the new board, the latest draft also includes other revisions made in light of further progress of reform and new developments in the capital market.

The draft eases restrictions on employee stock ownership to help more employees enjoy the benefits and stimulate enterprises’ vitality.

It also offers support for stock issuance with relatively small financing sums in a bid to encourage entrepreneurship and innovation, by exempting such issuances via qualified online platforms and securities firms from the approval and registration procedures under certain circumstances.

The definition of securities is expanded by including depository receipts in addition to stocks and corporate bonds.

The new draft vows to strengthen the crackdown on irregular market practices. Investors will be prohibited from using fiscal or banking credit funds for trading stocks.

Those under investigation will face a longer suspension term for securities trading, while serious law violators will be banned from market entry for a specified period.

Rules on securities dispute resolution are added to further protect investors. The shareholder derivative litigation system is also improved.


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