2021.12.24 XIE, Qing (Natasha)、XIAO, Xian、LUO, Danchen
On December 10, 2021, the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE) released the Rules of the Shanghai Stock Exchange on the Listing of Shares (Consultation Paper) and the Rules of the Shenzhen Stock Exchange on Listing of Shares (Consultation Paper) respectively (collectively, the “Consultation Paper”). Though the Consultation Paper comprehensively reshapes the current SSE/SZSE rules on the listing of shares (“Old Listing Rules”), the current disclosure thresholds and regulatory standards remain unchanged in any material aspects. We highlight below the key points of the Consultation Paper and the key takeaways for QFIIs and other institutional clients when trading A shares.
1. Key Points of the Consultation Paper
According to the Draft Statement of the Consultation Paper, by amending the Old Listing Rules, the SSE/SZSE will unify the self-regulatory rules on listed companies to establish a more concise, clear, and friendly self-regulatory framework. Thus, the SSE/SZSE seeks to avoid making significant amendments to the Old Listing Rules while contributing to working out an advanced regulatory framework thereof.
The SSE/SZSE has amended the Old Listing Rules to the extent as necessary as (i) to implement the requirements under the Securities Law, the Opinions of the State Council on Further Improving the Quality of Listed Companies, and the Administrative Measures for Information Disclosure by Listed Companies, that the listing rules of the SSE/SZSE shall align with the higher-level statutes; and (ii) to incorporate important rules in the lower-level statutes to the Consultation Paper while relocating specific rules and frequently-amended rules to the lower-level statutes, thereby keeping the listing rules and other business rules of the SSE/SZSE in line with each other.
The Consultation Paper mainly covers the requirements for information disclosure, corporate governance, mergers and acquisitions, and regulatory duties and responsibilities. By issuing the Consultation Paper, a regulatory framework is expected to be established that will focus on the listing rules and is supplemented by self-regulatory guidelines and self-regulatory guidance providing detailed rules thereof.
The Consultation Paper curtails the number of chapters from 18 to 16 and re-arranges the Old Listing Rules, while adding new chapters such as “the management of listing and changes of equity holding of stock and their derivatives”, “corporate governance”, “intermediary”, “delisting period”, “voluntary delisting”, and “relisting”.
2. Key Takeaways for Institutional Investors
From a QFII perspective, the relevant requirements under the Consultation Paper are not substantially different from the current laws, regulations, and regulatory requirements. Below we have summarized the key takeaways for QFIIs and other institutional investors.
(1)In terms of the information disclosure requirements for equity holding changes, keeping in line with the Securities Law, the Consultation Paper specifies in the section regarding “the management of the changes of equity holding of stocks and their derivatives” that if the equity holding of an investor reaches 5% or more of the listed shares with voting rights in a listed company, or if the change of an equity holding of an investor triggers the takeover obligation or the requirements for an equity holding changes under the Securities Law or the Administrative Measures for Takeover of Listed Companies, the investor shall notify the listed company and make an announcement. Thus, under the Consultation Paper, (i) an investor shall suspend trading and make an announcement within three days after its equity holding reaches 5%; (ii) if an investor’s equity holding has reached 5%, it shall make an announcement for every 1% increase or decrease in the shareholding thereafter the next day following such an increase or decrease; (iii) if an investor’s equity holding has reached 5%, for every 5% increase or decrease in the shareholding thereafter, it shall make an announcement and suspend trading upon the occurrence of such an increase or decrease until three days after making the announcement.
(2)If an investor violates item (i) or (ii) of paragraph (1) above and continues trading shares with voting rights of a listed company, it shall not exercise the voting rights for the shares which are in excess of the prescribed proportion within 36 months after the purchase; a listed company shall disregard the shares which are in excess of the prescribed proportion when counting the total number of shares with voting rights held by attendees of the shareholders' meeting.
(3)In terms of the information disclosure requirements for convertible bonds, the Consultation Paper is consistent with the Old Listing Rules, that is, an investor shall notify the listed company and make an announcement within two trading days upon occurrence of any of the following circumstances: (i) the investor holds 20% of the total issued convertible bonds of the listed company; or (ii) every 10% increase or decrease in the number of convertible bonds held by the investor since the investor holds 20% of the total issued convertible bonds.
(4)For a listed company whose shares are listed both domestically and overseas, the Consultation Paper imposes information disclosure obligations not only on the listed company itself, but also on other relevant information disclosure obligors, e.g. the shareholders of the listed company. Thus, if a shareholder of a listed company is required by the relevant overseas exchange to disclose its equity holding changes, the shareholder shall simultaneously disclose the same to the domestic markets according to the Consultation Paper and the relevant rules of the domestic exchange.
The solicitation of public comments will end on December 24, 2021. We will continue to monitor the situation and keep our clients apprised of any important developments.
