China is upgrading regulations over its security market for better development in its financial sector.
One of the highlights of the draft amendment over Chinese security market is information disclosure. The draft proposes that investors who intend to acquire more than five percent of the shares of a listed company will have to report more information about themselves than in the past, including the source of their capital. Investors will also be subject to an 18-month lock-up period, up from the previous six months. One institutional investor said investors have been suffering from bad information disclosure for a long time. Moreover, companies have often been able to get away with no more than vague reporting.
"From our perspective, it's very easy for listed companies to break their promises or violate the rules. They often miss their targets and that makes a mess of our analysis. Also, the securities companies often make it more difficult for us by issuing research reports that go nowhere. You often feel lost after reading them," said Wang Hui, investment manager of Shanghai Songde Investment.
Another change in the law will be better investor protection, including giving small shareholders a bigger say, and ensuring listed companies pay dividends. Chinese companies have seldom issued dividends to shareholders, and this has come under increasing criticism from the stock watchdog and others.
"If a company is still growing very fast, investors might feel assured if it put all the money back into the operation. But for a big, mature company, investors are still looking eagerly for cash dividends. I think this time, the regulators will make compulsory rules in terms of dividends," said Shao Yu, Orient Securities' chief economist.
The new draft law is a response to a dramatic market crash in 2015. No fewer than 16 sections of the current securities law will be updated. There will be no change in the stock issuance process for now, however, as reform measures to introduce a registration-based IPO system have yet to be released. The current review will go on until Thursday.