The bustling stock market

The exchange finally took action to address the problems of the transfer and financing platform

In response to the recent "Tong Yi Zhong"-style misinterpretation and "Hillhouse"-style share reduction incidents in the A-share market, the Shanghai and Shenzhen Stock Exchanges finally took action on the problems of the transfer and financing. On November 11 and 8, the Shanghai and Shenzhen Stock Exchanges revised a series of trading business and self-regulatory guidelines in response to the transfer and financing issues.

According to the newly revised guidelines, shareholders holding more than 5% of the shares of listed companies whose shareholdings fall below 5% due to lending through refinancing will still be subject to corresponding rules based on the proportion of shareholdings calculated after consolidation, i.e., they are not allowed to reduce their holdings in violation of regulations, short-term transactions, or conduct margin trading with the shares of the listed company as the underlying securities. At the same time, in the periodic reports of listed companies, including shareholders holding more than 5% of the shares, as well as the top ten shareholders and the top ten circulating shareholders, the number and proportion of shares lent through refinancing at the beginning and end of the reporting period shall be stated, thereby further improving the transparency of information disclosure on the lending of refinancing stocks by major shareholders.

It is obviously necessary to make the above amendments to the rules of the transfer and financing business. At least the "Tong Yi Zhong" type of misinterpretation will not occur, because in the "Tong Yi Zhong incident", two strategic investors who should be among the top ten shareholders withdrew from the top ten shareholders in the statistics because of lending stocks. There will be no excuse for the "Gao Hill" type of reduction of holdings. Because the "Gao Hill" type of reduction of holdings is to use the actual reduction of holdings brought about by the lending of stocks as an excuse to avoid early information disclosure. After all, the reduction of holdings by major shareholders holding more than 5% of the shares must be disclosed in advance, and after Gao Hill lent 1% of the shares, its actual holdings became less than 5%, thereby evading the obligation of information disclosure. According to the new transfer and financing rules of the Shanghai and Shenzhen Stock Exchanges, the two are combined for calculation, and the lending of shares does not affect the total shareholding ratio of the lender, so Gao Hill can find no excuse for illegal reduction of holdings. Therefore, the revision of the transfer and financing rules by the Shanghai and Shenzhen Stock Exchanges is of positive significance to the standardization of the transfer and financing business.

However, there are two obvious loopholes in the refinancing business that should be filled as soon as possible, because this involves the issue of maintaining the dignity of the law and the issue of compliance with laws and regulations in the refinancing business. These two issues need to be taken seriously and resolved as soon as possible.

First of all, the lending of restricted shares held by strategic investors should be prohibited. Since they are restricted shares, the circulation of restricted shares during the restricted period should be restricted. However, the implementation measures of the Shanghai and Shenzhen Stock Exchanges on securities lending transactions through the Transfer and Refinancing System have given strategic investors the right to circulate restricted shares, allowing restricted shares held by strategic investors to participate in the securities lending business of the Transfer and Refinancing System.

However, after Jindi shares were shorted by the company's senior executives and key employees on the first day of listing on September 9 this year, on October 1 this year, the China Securities Regulatory Commission adjusted and optimized the relevant securities lending systems. The Shanghai and Shenzhen Stock Exchanges also simultaneously issued the "Notice on Optimizing the Arrangements for Securities Lending Transactions and Transfer and Refinancing Securities Lending Transactions". On the one hand, it cancelled the qualification of strategic investors in which senior executives and key employees of listed companies participated to lend securities with restricted shares; on the other hand, it also temporarily tightened the lending business of restricted shares held by other strategic investors, but the business of other strategic investors lending restricted shares is still allowed to exist.

However, the practice of other strategic investors lending restricted shares is contrary to the provisions of the Securities Law. Article 36 of the Securities Law clearly stipulates that securities with restrictive provisions cannot be transferred within a limited period. Although the lending of stocks by strategic investors cannot be equated with the transfer of stocks, the borrower of stocks directly takes the borrowed restricted shares to the market for trading, which is an obvious stock transfer behavior and violates the provisions of the Securities Law. Therefore, in order to maintain the dignity of the Securities Law, rather than playing with the Securities Law, the practice of strategic investors lending restricted shares through the transfer and financing business should be banned.

Secondly, on the issue of returning the stocks lent through the refinancing platform, the practice of allowing cash repayment should be stopped. According to Article 2023 and Article 52 of the "Implementation Measures for Securities Lending Transactions through Refinancing Platform (Trial) (Revised in 48)" of the Shanghai and Shenzhen Stock Exchanges, if the securities lending period is extended for more than 30 natural days, the borrower and the lender can negotiate to settle in cash. This provision directly turns the lending of stocks into a reduction of stock holdings. In this way, major shareholders and strategic investors can turn the lending of stocks into a reduction of stock holdings through the refinancing channel. It is free from the restrictions of the restricted period and does not require information disclosure in advance, which is obviously in conflict with the current laws and regulations. Therefore, on the issue of returning the stocks lent through the refinancing platform, cash settlement cannot be adopted, but only stocks can be used for repayment, and the relevant provisions of the "Implementation Measures for Securities Lending Transactions through Refinancing Platform (Trial) (Revised in 2023)" of the Shanghai and Shenzhen Stock Exchanges must be abolished.