The subscription of ETFs by a handful of listed company shareholders with their shares has recently caught the attention of the market.
An exchange-traded fund (ETF) is an open-ended fund listed and traded on stock exchanges with unique in-kind subscription, creation and redemption mechanisms. It has such merits as high transparency, excellent liquidity, great transaction convenience and low cost, and has the features of both stocks and index funds, making it an efficient indexing investment instrument. In recent years, ETFs have seen rapid development, with a steady growth in market size.
Stock subscription is an offering method unique to ETFs. Investors can subscribe ETF shares with component stocks of a single or several ETF index during the fundraising period. Such way of ETF subscription using stocks by investors can, to some extent, dampen the impact of direct share lessening on the market, optimize investors’ asset allocation, help expand the scale of stock ETFs and attract more medium- and long-term funds to enter the market through the investment of ETFs.
In May 2017, the CSRC Provisions on the Share Lessening by the Shareholders, Directors, Supervisors and Senior Management of Listed Companies and the SZSE Implementation Rules on the Share Lessening by the Shareholders, Directors, Supervisors and Senior Management of Listed Companies (collectively as “New Provisions on Share Lessening”) were officially issued. SZSE oversees relevant shareholders’ subscription of ETF shares with stocks strictly according to the New Provisions on Share Lessening. Specifically, the shares used by big shareholders and specific shareholders of listed companies to subscribe ETF shares are included in the share lessening quota as specified in the New Provisions on Share Lessening. That is to say, the aggregation of the shares paid by relevant shareholder to subscribe ETF shares and the shares lessened by the shareholder on the secondary market may not exceed the share lessening quota of the corresponding period.
In actual business practice, SZSE adopts a variety of measures including pre-commitment by fund managers and shareholders and pre-event inspection and post-event supervision by SZSE to ensure the number of shares used by relevant shareholders to subscribe ETFs will not exceed the specified lessening proportion. Therefore, there is no such situation as disguised or rule-breaking lessening by relevant shareholders of listed companies who subscribe ETFs using stocks. In the meantime, since the implementation of the New Provisions on Share Lessening, the scale of ETFs which shareholders can subscribe using stocks is limited and the proportion of the amount of stock subscription in the total lessening amount of stocks in the corresponding period is low, having little impact on the secondary market on the whole.
According to relevant SZSE officials, next, SZSE will further strengthen the supervision over the standard operation of ETFs according to the arrangements and requirements of CSRC, improve basic system construction, enrich product types, enhance transaction supervision, hoist risk prevention and control capability, ensure steady and healthy development of the ETF market, actively guide medium- and long-term funds to enter the market, and strive to build a standard, transparent, open, dynamic, and resilient capital market.