The implementation of the updated Securities Law, the reform of the ChiNext Board and the launch of the registration-based IPO system on a pilot basis have come with the constant efforts of the SZSE to improve basic policies, optimize the regulatory rules framework, protect the legitimate rights and interests of investors through across-the-chain supervision before, during and after the events, and cultivate the good legal ecosystem of capital market. SZSE published the Implementation Standards for the Disciplinary Actions of Listed Companies (Trial) (the “Standards”) on June 24 for purposes of further strengthening the pursuit of accountability for law and regulation violations, urging market players to duly perform their responsibilities, advancing the “transparent exchange” initiative more efficiently and promoting the reform of the ChiNext Board and the pilot project of the registration-based IPO system.

The Standards is set on the basis of the Public Censure Standards for Listed Companies on the Main Board/SME Board/ChiNext Board previously published by the SZSE, aimed at explaining how to identify the accountability for non-compliance and what standards to take for disciplinary actions to the market. For one thing, in line with the latest regulatory requirements of the updated Securities Law and serial rules on ChiNext Board reform and registration-based IPO system pilot, SZSE has integrated, broadened and update the disciplinary standards; for another, SZSE has followed the practice of “reforming transparently”, earnestly addressed market needs and voluntarily made public the regulatory standards and gauges concerned by the market to evade “pocket policies”.

On the principles of “setting rules with an open mind and in a democratic spirit”, SZSE solicited comments from the public on the Standards, and received feedback from 12 listed companies and intermediaries. These institutions gave the nod to the main content of the Standards in general and proposed improvement advice on relevant articles. Based on careful study, SZSE drew on 26 reasonable and feasible suggestions in the Standards to meet the needs of the market and self-regulation.

Follow the open principle and expand the scope of application. Different from the Public Censure Standards for Listed Companies which confines to the specific type of punishment, i.e. public censure of a specific group—listed companies, the Standards discloses the disciplinary standards for all types of parties which take primary responsibilities, e.g. listed companies and their directors, supervisors and senior executives, shareholders, de facto controllers and intermediaries. This furthers the openness and depth of disciplinary actions.

Determine punishment as per non-compliance and define the factors to be considered. The Standards has further improved the subjective and objective factors to be considered by SZSE when deciding which disciplinary actions to take. It has also defined that the role a person played in non-compliance, his/her functions and powers and duty performance will be the important basis for differentiating his/her primary and secondary liabilities. Actions in grave circumstances such as causing abnormal transactions, affecting stock listing conditions, involving huge amount of money in violations or conducting long-lasting or repeated violations, can be given heavier punishment. For parties who discover their non-compliance through self-check and take remedial actions or violate rules and regulations due to force majeure events, they can be given lesser punishment or be waived from punishment.

Strengthen regulatory deterrence and accountability. For the first time, the Standards puts into implementation the standards such as “publicly identifying the party as unsuitable for serving as directors, supervisors or senior executives of listed companies, collecting liquidated damages for punishment, temporarily refusing to accept relevant business documents issued by professional institutions or their employees” to reinforce non-compliance punishment. These three types of punishment are different from “reputation punishment” such as circulation of a notice of criticism and public censure because they are more deterrent and punitive and have a greater impact on the rights and obligations of the parties. They are mainly applicable to financial fraud, parties that are subject to multiple disciplinary actions in a short term, or parties that commit several non-compliance.

Differentiate types of non-compliance and focus on a small key group. The Standards presents different types of non-compliance by listed companies and their directors, supervisors and senior executives, controlling shareholders and de facto controllers and corresponding disciplinary standards in different articles. The first is breach of information disclosure rules. The Standards supplements information on breach of periodic and extraordinary reporting information disclosure rules such as failure to disclose periodic reports and significant events in time, which should be subject to public censure or circulation of written criticism. The second is breach of standard operation rules. The Standards focuses on regulating such typical non-compliance as capital occupancy, illegal guarantee and illegal financial assistance and strengthens the disciplinary actions against a small key group, e.g. controlling shareholders and de facto controllers who order to commit violations. The Standards also harmonizes the quantitative standards for disciplinary actions of the three boards. The third is breach of securities trading rules. The Standards makes a distinction between active non-compliance in trading and passive non-compliance in trading and provides for lesser punishment of non-compliance in trading which are caused by such passive factors as forced close of position and judicial enforcement.

Encourage intermediaries to ramp up their accountability and urge them to work diligently and responsibly. There is a special chapter on intermediaries in the Standards, which mainly deals with four types of non-compliance of intermediaries and their people, i.e. “responsibility for non-compliance of listed companies, failure to exercise due diligence, false records or material omissions in the documents issued, failure to cooperate with regulators and others”. Correspondingly, they are subject to three levels of disciplinary actions by severity, including circulation of written criticism, public censure and halt to acceptance of related business documents issued by professional institutions and their people, in a bid to urge intermediaries and their people to act as the “market gatekeepers” and play the verification role properly.

Increasing the openness of the disciplinary standards is both an internal call of strengthening the institutional basis for the reform of the ChiNext Board and the launch of the registration-based IPO system on a pilot basis and guiding market players to comply with laws and regulations and a crucial measure taken by the SZSE to continuously improve its transparency and perform transparent supervision. The year 2020 is key to advancing the law-based construction of the capital market and deepening reforms on all fronts. In the year, SZSE will continue to act earnestly upon the updated Securities Law, adhere to the practice of governing the market according to law and conducting supervision pursuant to regulations, further change the philosophy of regulation and encourage ethical conduct, carry forward with more open regulation, increase legal guarantee and work to ensure that all reform tasks steady forward legally and in a way of helping to build a standard, transparent, open, vibrant and resilient capital market at a faster speed.