Financial Services Association, April 12: The State Council recently issued “Certain Opinions on Strengthening Supervision and Risk Prevention and Promoting High-Quality Development of the Capital Market”. The opinions issued this time have a total of 9 parts. It is the third “National Nine Rules” in the capital market.

According to reports, the opinion issued by the State Council this time thoroughly implements the spirit of General Secretary Xi Jinping's important instructions on the capital market and implements the arrangements of the Central Financial Work Conference. It is another capital market guidance document issued by the State Council after the two “Nine National Rules” in 2004 and 2014.

The State Council on strengthening supervision to prevent risks

Some Opinions on Promoting High-Quality Development of the Capital Market

China Development [2024] No. 10

The people's governments of the provinces, autonomous regions and municipalities directly under the Central Government, all ministries, departments and agencies directly under the State Council:

Since the 18th National Congress of the Party, China's capital market has developed rapidly and played an important role in promoting optimal allocation of resources, promoting rapid economic development and long-term social stability, and supporting scientific and technological innovation. In order to thoroughly implement the spirit of the Central Financial Work Conference and further promote the high-quality development of the capital market, the following opinions are put forward.

I. General Requirements

Guided by Xi Jinping's ideology of socialism with Chinese characteristics in the new era, fully implement the spirit of the 20th National Congress and the Second Plenary Session of the 20th CPC Central Committee, implement the new development concept, closely focus on building a safe, standardized, transparent, open, dynamic and resilient capital market, insist on combining the general rules of the capital market with China's national conditions and market conditions, adhere to the political and popular nature of capital market work, and promote high-quality development as the main line. The focus is on improving the basic system of the capital market, making better use of the functional role of the capital market, and promoting the overall modernization of China in a service-oriented manner.

Deeply grasp the main elements of high-quality development of the capital market, and achieve stable and healthy development of the capital market in serving the country's major strategies and promoting high-quality economic and social development. We must uphold and strengthen the Party's leadership, give full play to the Party's political advantages, organizational advantages and institutional advantages to ensure that the capital market always maintains the correct development direction; we must always implement the concept of finance for the people, highlight the people-centered value orientation, more effectively protect the legitimate rights and interests of investors, especially small and medium-sized investors, and help better meet the growing wealth management needs of the masses; we must comprehensively strengthen supervision, effectively prevent and mitigate risks, keep a steady tone and take the lead to ensure that supervision is “prickly” and angular; we must always adhere to the principle of market-based and rule-of-law, highlight the goal orientation, Problem-oriented, further comprehensively deepen capital market reform, and coordinate openness and security; we must firmly grasp the theme of high-quality development, maintain integrity and innovation, and serve key areas of the national economy and the construction of a modern industrial system more effectively.

In the next 5 years, the overall framework for high-quality development of the capital market will basically be formed. The institutional mechanism for investor protection has been improved. The quality and structure of listed companies have been clearly optimized, and the strength and service capabilities of securities fund futures institutions have continued to increase. The capacity and effectiveness of capital market supervision have been greatly improved. The formation of a good ecology in the capital market is accelerating. By 2035, a capital market with a high degree of adaptability, competitiveness and inclusiveness will basically be built, and the legitimate rights and interests of investors will be more effectively protected. The investment and financing structure tends to be reasonable, the quality of listed companies has improved markedly, and significant progress has been made in building first-class investment banks and investment institutions. The capital market supervision system is more complete. By the middle of this century, the level of modernization of the capital market governance system and governance capacity was further improved, and a high-quality capital market matching the financial powers was built.

II. Strictly control issuance and listing entry

Further improve the issuance and listing system. Raise the listing standards on the Main Board and GEM, and improve the evaluation criteria for science and innovation attributes on the Science and Technology Innovation Board. Improve the quality and efficiency of issuance and listing guidance, and expand on-site inspection coverage for companies under review and related intermediaries. Make it clear that the dividend policy must be disclosed at the time of listing. Include situations such as surprise “clearance” dividends before listing in the negative listing list. Strictly supervise the spin-off and listing. Strict refinancing review and control.

Strengthen the responsibility of the entire issuance and listing chain. Further consolidate the main responsibility for exchange audits, improve the method and operation mechanism of the Stock Listing Committee, and strengthen supervision of the entire process of carrying out the duties of members. Establish an audit and retroactive accountability mechanism. Further consolidate the issuer's primary responsibility and the “gatekeeper” responsibilities of intermediaries, and establish a “black list” system for intermediaries. Adhere to “reporting is responsibility” and strictly investigate illegal issues such as fraudulent distribution.

Strengthen the supervision of issuance and underwriting. Strengthen supervision of all aspects of IPO inquiries, pricing, and placement, and rectify market chaos such as high price overrecruitment and group price pressure. Strictly strengthen the supervision of information disclosure on fund-raising projects. Regulate and guide the healthy development of capital according to law, strengthen penetrating supervision and regulatory coordination, and strictly crack down on illegal brokering, surprise shareholding at abnormal prices, and transfer of benefits.

3. Strict continuous supervision of listed companies

Strengthen information disclosure and corporate governance supervision. Establish a comprehensive punishment and prevention system to prevent counterfeiting in the capital market, and seriously rectify illegal acts in key areas such as financial fraud and appropriation of funds. Urge listed companies to improve their internal control systems. Effectively play the supervisory role of independent directors and strengthen restrictions to guarantee the performance of duties.

Comprehensively improve the holdings reduction rules system. Introduce administrative measures to reduce holdings of listed companies and classify different types of shareholders. Strictly regulate the reduction of holdings by major shareholders, especially controlling shareholders and actual controllers, and resolutely prevent all types of detours from reducing their holdings in accordance with the principle that substance is more important than form. Order the offending entity to buy back the shares held in violation of regulations and pay the price difference. Strictly crack down on all kinds of illegal holdings reduction.

Strengthen the supervision of cash dividends of listed companies. For companies that have not paid dividends for many years or that have a low dividend ratio, the majority shareholders are restricted from reducing their holdings and implementing risk warnings. Increase incentives for companies with high-quality dividends, and take more measures to increase dividend rates. Enhance the stability, sustainability and predictability of dividends, and promote dividends for more than one year, pre-dividends, and pre-Spring Festival dividends.

Promote listed companies to enhance investment value. Formulate market value management guidelines for listed companies. The study incorporates the market value management of listed companies into the internal and external assessment and evaluation system of the enterprise. Guide listed companies to repurchase shares and then cancel them in accordance with law. Encourage listed companies to focus on their main business and comprehensively use methods such as mergers, acquisitions, restructuring, and equity incentives to improve the quality of development. Strictly crack down on illegal acts such as market manipulation and insider trading in the name of market value management in accordance with the law.

IV. Strengthen delisting supervision

Deepen the reform of the delisting system and accelerate the formation of a normalized delisting pattern that should be exhausted and cleared in a timely manner. Stricter mandatory delisting standards. Establish and improve a differentiated delisting standard system for different sectors. Scientifically establish the scope of application for major illegal delistings. Tighten financial delisting indicators. Improve transactional delisting indicators such as market capitalization standards. Strengthen the implementation of standardized delistings. Further unblock multiple delisting channels. Improve policies and regulations such as absorption and mergers, and encourage and guide leading companies to increase their integration with listed companies in the industrial chain based on their main business. Further reduce the value of “shell” resources. Strengthen supervision of mergers, acquisitions, and restructuring, strengthen the correlation between main businesses, strictly control the quality of injected assets, step up supervision of “backdoor listings”, and accurately crack down on all kinds of illegal “sheltering” acts. Further strengthen delisting supervision. Strictly implement delisting, and strictly crack down on illegal acts such as financial fraud and market manipulation to maliciously avoid delisting. Improve the investor compensation and relief mechanism during the delisting process. Controlling shareholders, actual controllers, directors, executives, etc. responsible for major illegal delistings must be compensated for investors' losses in accordance with the law.

5. Strengthen the supervision of securities fund institutions and promote the industry to return to its roots and become better and stronger

Promote the high-quality development of securities fund institutions. Guide industry organizations to establish correct business ideas and handle functional and profitable relationships. Strengthen shareholder and business entry management of industry institutions, and improve the employment conditions and filing management system for executives. Improve the supervisory system for key businesses such as derivatives, securities financing, etc. Promote industry institutions to strengthen investment banking capabilities and wealth management capacity building. Support leading institutions to enhance their core competitiveness through mergers, acquisitions and restructuring, organizational innovation, etc., and encourage differentiated development and characteristic management of small and medium-sized institutions.

Actively cultivate a good industry culture and investment culture. Improve the securities fund industry remuneration management system compatible with operating performance, business nature, level of contribution, compliance risk control, and social culture. Continue to carry out comprehensive management of industry culture, establish and improve the employee classification list system and practice reputation management mechanism, and resolutely rectify bad cultures such as money worship, extravagance and pleasure, quick profit, and “showing off wealth.”

6. Strengthen transaction supervision and enhance the internal stability of the capital market

Promote the smooth operation of the market. Strengthen comprehensive stock market risk assessment. Strengthen strategic strength reserves and the construction of stabilization mechanisms. Centralize the rectification of outstanding risks in the private equity sector. Improve market-based, rule-of-law, and diversified bond default risk management mechanisms, and resolutely crack down on debt evasion. Explore futures regulatory systems and business models adapted to China's stage of development. Do a good job of monitoring and responding to cross-border risks across markets and industries.

Strengthen transaction supervision. Improve regulatory standards for abnormal transactions and market manipulation. Introduce programmatic transaction supervision regulations to strengthen supervision of high-frequency quantitative transactions. Formulate rules for the operation of private equity funds. Strengthen bottom-line thinking and improve countermeasures for extreme situations. Seriously investigate and punish illegal acts such as manipulating the market and maliciously shorting, and strengthen deterrent warnings.

Improve the mechanism for managing expectations. Integrate the assessment of the impact of major economic or non-economic policies on the capital market into the macroeconomic policy orientation consistency assessment framework, and establish a coordination mechanism for the release of major policy information.

7. Vigorously promote the entry of medium- to long-term capital into the market and continue to expand long-term investment strength

Establish a market ecosystem that fosters long-term investment, improve the basic system adapted to long-term investment, and establish a policy system to support “long-term investment”. Vigorously develop equity public funds and greatly increase the share of equity funds. Establish a rapid approval channel for tradable open index funds (ETFs) to promote the development of indexed investments. Comprehensively strengthen the investment and research capacity building of fund companies, enrich the types of assets and investment portfolios that public funds can invest in, and shift from scale orientation to investor return orientation. Steadily reduce the comprehensive rate in the public fund industry, and study and standardize the remuneration system for fund managers. Revise the classification and evaluation system for fund managers to ensure the establishment of rational investment, value investment, and long-term investment concepts. Support the steady development of private equity investment funds and private equity asset management businesses, and enhance the stability of investment behavior.

Optimize the policy environment for insurance fund equity investment, implement and improve performance evaluation methods for state-owned insurance companies, and better encourage long-term equity investment. Improve the insurance fund equity investment supervision system, and optimize the information disclosure requirements of listed insurance companies. Improve investment policies for national social security funds and basic pension insurance funds. Improve the flexibility of investing in corporate pensions and personal pensions. Encourage bank financial management and trust funds to actively participate in the capital market and increase the scale of equity investment.

8. Further comprehensively deepen reform and opening-up to better serve high-quality development

Focus on writing five major articles on technology finance, green finance, inclusive finance, pension finance, and digital finance. Promote the deepening and implementation of the stock issuance registration system, enhance the competitiveness of the capital market system, enhance the inclusiveness of new industries, new business formats and technologies, better serve the implementation of national strategies such as scientific and technological innovation, green development, state-owned state-owned enterprise reform, and the development and growth of small and medium-sized enterprises and private enterprises, and promote the development of new quality productivity. Increase equity and bond financing support for enterprises that are in line with national industrial policy guidelines and break through key core technology. Strengthen mergers, acquisitions, and restructuring reforms, and take more measures to revitalize the M&A and restructuring market. Improve the sustainable information disclosure system for listed companies.

Improve the multi-level capital market system. Adhere to the staggered development of the Main Board, Science and Technology Innovation Board, GEM, and Beijing Stock Exchange, deepen the reform of the New Third Board, and promote the development of regional equity market standards. Further smooth the “fund-raising and management retreat” cycle, and give full play to the role of venture capital and private equity investment in supporting scientific and technological innovation. Promote the high-quality development of the bond and real estate investment trust (REITs) market. Develop the futures and derivatives market in a steady and orderly manner.

Adhere to a high level of institutional openness and security in the integrated capital market. Expand and optimize the mechanism for cross-border interconnection of capital markets. Broaden financing channels for overseas listing of enterprises and improve the quality and efficiency of overseas listing filing management. Strengthen regulatory capacity building under open conditions. Deepen international securities regulatory cooperation.

9. Promote the formation of joint efforts to promote high-quality development of the capital market

Promote the strengthening of the rule of law in the capital market and greatly increase the cost of breaking the law. Promote the revision of the Securities Investment Fund Law. Introduce regulations on the supervision and administration of listed companies, revise regulations on the supervision and administration of securities companies, expedite the formulation of regulations on the management of corporate bonds, and study and enact regulations on the management of real estate investment trusts. Promote the promulgation of judicial interpretations of crimes that harm the interests of listed companies, judicial interpretations of civil compensation such as insider trading and market manipulation, and judicial documents to crack down on criminal acts such as misappropriation of private equity funds and betrayal of the use of fiduciary assets.

Intensify joint crackdowns on securities and futures offenses. Improve mechanisms such as lead discovery and reporting rewards. Improve the institutional mechanisms for securities enforcement and administration of justice, and improve the efficiency of administrative criminal links. Strengthen efficient coordination between administrative supervision, administrative trial, and administrative inspection. Strengthen the three-dimensional accountability of administration, civil affairs, and criminal matters, and strictly investigate and punish all kinds of illegal acts in accordance with the law. Strengthen the application of the special representative litigation system for securities disputes, and improve the commitment system for administrative law enforcement parties. Explore and launch pilot projects for procuratorial authorities to file civil securities public interest lawsuits. Further strengthen the construction of an integrity system in the capital market.

Deepen coordination and coordination between the central government, local authorities, and ministries. Strengthen macroeconomic policy coordination, promote high-quality development of the real economy and industry, and create a favorable environment for the healthy development of the capital market. Implement and improve tax policies such as equity incentives, medium- and long-term capital, private equity venture capital funds, and real estate investment trusts for listed companies, and improve fiscal and taxation systems conducive to the formation of innovative capital and active markets. Establish a mechanism for sharing regulatory data and information between central authorities and departments. Consolidate the responsibilities of local governments in improving the quality of listed companies and mitigating the risks of dealing with bond defaults and private equity institutions.

Build an iron supervisory army with excellent politics, excellent ability, and excellent style of work. Put political construction in a more prominent position, further promote comprehensive and strict government of the Party, and forge a team of highly qualified and professional capital market cadres and talents who are loyal, clean and responsible. Resolutely break down misconceptions such as “exception theory,” “elitism theory,” and “special theory.” Strictly improve the management of retirees, and rectify issues such as “shadow shareholders,” improper shareholding, “revolving doors” in government and business, and “escapist resignations.” Eradicate the soil and conditions that have arisen from corruption, resolutely punish corruption issues such as the intertwining of corruption and risk, and the link between capital and power, and create a clean political ecosystem.

State Council

April 4, 2024

editor/tolk