China’s new securities law offers better protection for minority investors

3 Mar, 2020 12:01
source: Singularity Financial

Singularity Financial Hong Kong March 2, 2020 – China’s revised Securities Law, adopted by the top legislature in late 2019, went into effect on Sunday (March 1), a milestone in the country’s capital market reform. One of the major revision is the strengthened protection of investors, especially small and individual investors.

With 14 chapters, the revised Securities Law outlines regulation details in securities issuance and trading, the takeover of listed companies, information disclosure and investor protection, among others.

The new law highlights rules on the newly-devised science and technology innovation board, which will pilot a registration-based initial public offering system. The revised legislation cuts red tape for initial public offerings, no longer need prior approval from the China Securities Regulatory Commission (CSRC).

The new law implements registration system for public issuance of corporate bonds. It will have a positive effect on the operation of China’s bond market, and experts expect the new rule will greatly mitigate the current financing difficulties of enterprises amid the epidemic and boost financing support for the real economy, for details, please read our separate report on this subject.

The law sets a general framework to encourage small and individual investors to take the initiative in class action lawsuits and introduces compensation in civil litigations.

  1. The amended securities law requires companies to establish dispute resolution mechanisms to address shareholder grievances and improve transparency.
  2. Companies found guilty of making false or misleading statements or withholding important information from shareholders are liable to face penalties ranging from one to 10 million yuan.
  3. The law includes tougher punishments for securities fraud and insider trading. Individuals found guilty of insider trading will be fined two to 10 times the value of their ill-gotten gains.
  4. Financial sector employees, including regulators and those who work for brokerages or stock exchanges, are also barred from securities trading for their own account.