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UPDATED: May 26, 2014 NO. 22 MAY 29, 2014
Unlocking the Stock Market
Building up a multi-layer system will bring new opportunities for China's capital market
By Lan Xinzhen

"The New Nine Measures will also allow the securities and futures industry to incrementally become more open," said Sun.

China's securities and futures companies have just started international operations and they are not adequately competitive. The new guideline makes provisions to open the industry in two ways. At an appropriate time, China will expand the business scope of domestic securities and futures companies that allow foreign capital to invest in them, and encourage them to enter foreign markets and be more internationally competitive. The country will also enhance connections between domestic and foreign stock exchanges and conduct research to promote mutual recognition of investment funds and stock exchange products at home and abroad.

Sun said as the capital market becomes more open, the domestic market will become more closely connected with foreign markets, the product structure will become more complicated and the business pattern will be innovated continuously. This requires strengthening cooperation in cross-border supervision. "The new guideline proposes to improve the institutions for cooperation in cross-border supervision, strengthen efforts for cross-border law enforcement and establish cross-border supervision institutions adapted to an open capital market. It also requires strengthening cooperation with international securities and futures supervision organizations, and active participation in the formulation of international securities and futures supervision rules. These must be in place as soon as possible so that China's capital market can be further opened to international capital and markets," Sun said.

Email us at: lanxinzhen@bjreview.com

Highlights of the New Measures

Multi-layer market

By 2020, a transparent, efficient, open and inclusive multi-layer capital market system will be formed with a reasonable structure and appropriate functions.

Investor protection

Reform of the capital market must balance the relationship between assuming risks by investors themselves and investor protection. The country will improve its protection of legitimate rights and interests of investors, especially small ones. It will safeguard investors' rights to access information, to participate in the market, to seek compensation and to supervise.

Delisting regime

This guideline for the first time calls for delisting companies who engage in fraudulent issuance. It also requires clarifying standards and procedures for the delisted companies to get listed again and the establishment of a cycle for companies to list and delist and freely change to other boards.

Private equity market

Issuance of private placement will no longer be subject to government approval, and various types of issuers are allowed to issue stocks, bonds and investment funds if they are compliant with laws and regulations.

Futures market

China will launch new futures of resource commodities, develop trading tools such as commodity options, a commodity index and carbon emission permits trade. It will also develop financial derivatives, and enrich the varieties of stock index futures, stock index options and stock options.

Cross licensing

The country will research the possibility of allowing cross licensing of securities companies, fund management companies, futures companies and securities investment consulting companies, and support other types of qualified financial institutions in applying for a license of securities futures on the basis of risk isolation. China will also support private capital in entering the securities and futures service industry.

Internet finance

The guideline for the first time posits measures to guide orderly development of Internet-based securities and futures business and formulate and improve supervision rules for the Internet-based business. China will support innovation of products, business and transaction methods through Internet technologies and support qualified Internet companies to enter the capital market and boost development of Internet finance.

Expanding opening up

The country plans to allow direct investment by individuals overseas in the domestic capital market and extend the same privilege to domestic individual investors.

When the time is right, China will expand the business scope of domestic securities and futures companies in which foreign capital is allowed to invest, and encourage them to enter overseas markets, hence becoming more globally competitive.

In addition, China will increase the connectivity between domestic and foreign stock exchanges and conduct research toward establishing mutual recognition of both domestic and foreign investment funds and stock exchange products.

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