The meeting of the Shanghai Stock Exchange (SSE) Party Committee, presided over by Gui Minjie, SSE Party Chief and Governor, was held on the afternoon of January 27, in a bid to publicize the spirit of the 2014 National Conference of Securities and Futures Regulatory System (the Conference), and put forward specified requirements for the SSE to implement the spirit of the Conference, meet the needs for regulatory transformation, and promote transformational development of the SSE.
Gui introduced the content of the Conference, and publicized the theme report delivered by Xiao Gang, and the discussions at the Conference. According to Gui, 2014 is the first year for comprehensively deepening reform. Regulatory transformation, in the backdrop of the present new situation and starting-point, is an indispensable task for the regulatory system of securities and futures to implement the key deployments of the CPC Central Committee and the State Council. Besides, it meets the requirements of the era in socialist market economy at this phase of social development. In addition, it is another significant reform for the regulatory system of securities and futures after the equity division reform, as well as an exploration of regulatory methods, concepts, and modes for the capital market in over two decades. Thus, regulatory transformation has its milestone significance.
Gui added that, regulation itself is a process which is unceasingly developing, improving, and changing with the market growth. China’s capital market has made remarkable achievements in the world, while some knotty problems have not been solved for a long time along with the development. Therefore, promoting regulatory transformation will facilitate breakthroughs in solving these problems and laying the foundation of regulatory mode for the stable and sound development of the capital market in the long run. However, regulatory transformation can not be accomplished in a short time. Rather, it is a systematic project in the development of the regulatory system of securities and futures in the next phase, or even in 5 to 10 years. It requires both courage and determination to promote regulatory transformation, as well as adequate estimation and full preparation for the long-term, complicated, hard, and challenging process.
At the meeting, Huang Hongyuan, Deputy Party Chief and President of the SSE, also talked about his thoughts after attending the Conference. Moreover, other members of the SSE Party Committee and the SSE President’s Office, according to what they had learnt after attending the Conference on video, carried out in-depth discussions on issues including the development of the capital market, difficulties in the SSE’s present tasks, and the direction of development in the future.
Consensus has been reached in the meeting of the SSE’s implementing the requirements of the Conference in the following aspects:
First, the SSE should earnestly perform its responsibilities and fully play its role in regulatory transformation.
The SSE should earnestly perform its responsibilities in regulatory transformation. First, it should effectively undertake the items of approval and record filing delegated by the organ of the China Securities Regulatory Commission (CSRC). Second, it should check up the items of beforehand record filing, report, submission, examination and training, and cancel the items which are without legal basis after the check-up, or change them into aftermath record filing if they need to be kept. Third, it should promptly formulate corresponding measures on in-process and aftermath regulation, when reducing the number of items of beforehand record filing, report and submission. Specifically, the SSE should do a better job in the following aspects:
1. The SSE should promote openness and transparency of self-regulation. The SSE should formulate and release to the public the lists of its technologies, business lines, and regulatory issues, sort out issues related to verification, record filing and report in its self-regulation, with emphasis laid on activating the vitality of the blue chip market. Further, the SSE should publicize to the public its regulatory rules and results, and gradually make its regulatory process known to the public. In addition, the SSE should rationalize the mechanism of disciplinary punishments, standardize the measurement for punishments to enable the predictability of results of rule-breaking behaviors, and forbid arbitrary regulation. Moreover, the SSE should establish the mechanism of initiatively issuing risk alerts when emergent and significant events occur.
2. The SSE should propel the transformation of regulatory mode for information disclosure. In the over 2 decades’ practice of the capital market, a set of regulatory mode with “one-to-one” and “nanny” services has played an important role in the early stage of market building. However, in practical work, with the rapidly increasing number of listed companies and some changes in the market development, the former regulatory mode no longer meets the new needs of investors and fund raisers. Although the SSE has made considerable efforts, the market is not quite satisfactory, while the responsibilities of all market participants are not quite clear yet. Next, the SSE should, according to the needs of investors, explore the regulation on information disclosure by listed companies, under the backdrop of the registration system and the mode of Direct Channel. Besides, the SSE should generally implement the Direct Channel for information disclosure at a proper time, explore the aftermath checking mechanism for information disclosure, generally launch guidelines for information disclosure by industry, engage other parties to assess the formats of information disclosure, continue to enhance pertinence and effectiveness of and promote continuity and fairness of information disclosure.
3. The SSE should strengthen protection for legal rights and interests of investors, especially small and medium-sized investors. The SSE will appraise and improve its relevant business rules, implement specified requirements for protecting small and medium-sized investors in all processes of self-regulation. Besides, the SSE should, in its development of new products, attach more importance to the market needs and investors’ experience, take protection for small and medium-sized investors into full account, and provide services that are “easy to be understood” and “user-friendly”. In addition, the SSE will consider promoting the risk reserve system in case of rule-breaking behaviors of listed companies, and the system of assessment and appraisal of protection for legal rights and interests of small and medium-sized investors, complete the voting mechanism of small and medium-sized investors, and study the various mechanism of addressing disputes over rights and interests of small and medium-sized investors.
Second, the SSE should fully display functions to promote the development and transformation of the SSE market.
Apart from adapting to and implementing the requirements for regulatory transformation, the SSE, as a market organizer, should pay great attention to its own transformation. Specifically, it should do well in the following aspects.
1. It should focus on optimizing structure and greatly promote the development and transformation of the blue-chip market. Being the main battlefield of China’s capital market and the basis and core of China’s multi-layered capital market, the SSE should always regard serving the real economy and providing society with a wealth management platform as its basic responsibility and holy mission. At present, compared with the demands of economic and social development, the scale, financing function, service capacity, and overall strength of the SSE’s blue-chip market are far from satisfactory, the coverage of its service is narrow, and its attractiveness is not enough. As a result, a benign ecology has not formed yet. The SSE should speed up the transformation, optimize the structure and strengthen the functions of the blue-chip market, and increase the breadth and depth of the blue-chip market in serving the real economy. The first is to attract more companies. The SSE should attract more high-quality enterprises, especially enterprises in strategic emerging industries, to provide investors with more attractive investment targets, in addition to boosting the structure adjustment and the transformation and upgrading of the national economy. The second is to activate the companies. The SSE should support listed companies in making full use of the big platform of the SSE market and making them larger and stronger through such measures as re-financing, merger, acquisition and reorganization, asset injection, and overall listing. It should also provide service for state-owned enterprises to transform from product operation to capital management. The third is to enrich financial instruments. The SSE will, in line with relevant laws and regulations, steadily launch preferred stock and other financial instruments and innovate some trading mechanisms that especially suit the blue-chip market, in a bid to fully stimulate the vitality of the blue chip market, improve its attractiveness and competitiveness in the investment market. The fourth is to increase the return. The SSE should optimize the investor return mechanism, continuously supervise and guide the dividend distribution of listed companies, promote the balance between investment and financing of the capital market, and enhance the attractiveness of the blue-chip market, so as to make the blue-chip market an important place to attract various long-term funds in pursuit of maintenance and appreciation of values, such as social security funds, insurance capital, and public welfare funds.
2. The SSE should focus on strengthening functions and promote the coordinated development of stock, bond, fund and derivatives markets. At present, the SSE only focuses on its stock market. The underdeveloped fixed income market and wealth management market not only can’t meet the diversified demands of both investing and financing sides, but also can’t fully develop the real investing value and trading value of the blue-chip market, which has restrained the advantages of the blue-chip market and weakened its attractiveness. Next, the SSE will hold firm to the construction of the blue-chip market and try to propel the construction of the bond market and the fund derivatives market to make them complement and promote each other. The first is to make great efforts on developing and standardizing the bond market. The SSE will take the expansion of corporate bonds’ piloting as an opportunity and do a better job in the construction of supporting systems for expanding corporate bonds’ issuers and issuing methods. It will also further display its comprehensive advantage of “stock-bond interaction”, expand the scales of treasury bonds’ pre-issuance, policy-related financial bonds, and bond business lines of other financial institutions, increase the public offering scale of convertible bonds, propel the development of credit asset securitization, perfect the mechanisms of bond filing and issuance as well as bond listing and trading, integrate the bond trading systems, perfect the risk prevention measures and enhance the effectiveness of the bond market’s risk control mechanism. The second is to actively develop the fund market and support fund companies to develop more new products to meet the demands of different investors. The third is to do a better job in mock trading of single stock options, so as to fully prepare for the official launch of single stock options.
3. The SSE should focus on enhancing its competitiveness and greatly increase the market openness. With the increasingly rapid internationalization process of the RMB, the SSE should follow the development law of mature capital markets and orderly enhance the market openness according to the characteristics of China’s capital market. The first is to serve international securities trading. It will actively participate in the construction of the Shanghai Pilot Free Trade Zone, explore to set up an international financial assets trading platform, and promote overseas enterprises to issue RMB bonds on the SSE market. The second is to earnestly fuel the cooperation between Chinese and foreign exchanges. Efforts should be made on strengthening the cooperation of exchanges in Shanghai and Hong Kong, vigorously promoting the SSE indexes to be listed on major international exchanges, and supporting the inclusion of the A-share market into the international emerging market. The third is to strengthen the promotion and introduction of international investors. The SSE should make full use of the internet to carry out promotional activities that combine the market, the products, and the exchange image through various channels, so as to enhance the attention, attraction, and influence of the English version of the SSE website in the international capital market.
Third, the SSE should change its old concept so as to build a market-service-oriented and investor-friendly exchange.
The key to regulatory transformation is to become a market-service-oriented and investor-friendly market. The SSE will, by sticking to the concept of “macro service”, further improve the IPO-dominated service system and methods and try to enhance the professional service ability. It will deepen the work on cultivating small and medium-sized enterprises and strengthen the cooperation with the New Third Board, regional equity markets, and key national hi-tech zones. It will adhere to “transparent” construction and use micro-blog, WeChat, “SSE E-interaction Platform”, and other new media platforms, as well as the press conference system, in a bid to release the innovations of the SSE’s products and business lines in time. Besides, it will lead all market participants to comprehensively and objectively recognize the innovation of the industry, improve an array of new mechanisms such as performance promotion meeting and performance briefing session, and set up an efficient, transparent, and rational platform for industry communication, so as to greatly enhance the transparency of listed companies’ operation.
SSE Governor Gui Minjie said that vigorously studying and earnestly implementing the requirements for regulatory transformation and relevant deployment is the most important task for the SSE at present, which will be a key long-term task. Regulatory transformation, more than an idea, should be reflected in the practice of each specific work. Regulatory transformation and the construction of the blue-chip market should be combined together to boost the transformation of the SSE’s development, which will activate the vitality of the blue-chip market, stimulate demands on the blue-chip market, and enhance the intrinsic power of the blue-chip market.