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Global Times: Beijing Announces Strict Rules Regulating How Stock Holdings May be Reduced

Global Times recently reported that the China Securities Regulatory Commission issued “Interim Measures” for managing “Share Reductions by Shareholders of Listed Companies.” The purpose of the new rules is to strictly regulate the holding reduction behavior of major shareholders and to effectively prevent “detours” to holdings reductions. The Shanghai and Shenzhen stock exchanges released detailed sets of guidelines at the same time. {Editor’s note: These new restrictions by Beijing, which prevent stockholders from selling their shares under certain circumstances, may be motivated by a belief that these measures will help to prop up China’s stock market and economy.}

The new rules clarified the various circumstances under which shareholding reduction is prohibited. Controllers and controlling shareholders of listed companies are not allowed to reduce shareholdings through centralized bidding transactions or large-scale transactions when the shares are broken (i.e. when the stock price falls below the issue price on issuing day), netted (when the stock price falls below net asset value per share), or when dividends are not up to standard. Controllers, controlling shareholders, and persons acting in concert are not allowed to reduce their holdings within the corresponding period if the listed company is involved in violations of any laws or regulations. Disclosure obligations now include 15-trading-day-ahead disclosure requirement. Shareholding reduction plans should include the number and sources of shares to be reduced as well as the time range, price range, method, and reasons for the reduction, etc. The new rules also include restrictions on the reduction process as well as on major shareholder identity management. The China Securities Regulatory Commission also attempted to plug loopholes where shareholder reduction could happen following a refinancing or a company split-up (a divorce).

China’s benchmark CSI 300 index has lost more than a third of its value since 2020 and is now entering its fourth year of decline.

Source: Global Times, May 27, 2024