The market is happy with the new regulation regarding rate reductions

On Monday, the Chinese stock exchange welcomed Friday’s new regulation, which includes 31 measures to streamline the reduction of share capital of major shareholders, with the benchmark Shanghai Composite Index gaining 1.14 percent and closing at 3,124.04 points.

Shenzhen Component Index and technology-focused ChiNext in Shenzhen, Guangdong province rose 0.88% and 0.68%, respectively. Market specialists say that the new regulation is intended to ensure greater stability on the A-share market.

On Friday, the China Securities Regulatory Commission, the country’s top securities regulator, announced a new regulation with immediate effect aimed at solving common problems in the A-share market.

The CSRC concluded that major shareholders should not reduce their shareholding through restricted stock through a fraudulent divorce, short sale or in an unregulated manner.

Under the new regulation, major shareholders cannot reduce their holdings through block trades or centralized auctions when the share price falls below the net asset value per share or fails to meet dividend standards.

The total number of shares sold by significant shareholders in any three-month period should not exceed 1 percent of the company’s total number of shares.

Meanwhile, major shareholders are required to disclose cuts to their holdings in advance. The new regulation stipulates that an illegal reduction of shares will be ordered in order to buy back and pay the difference to a listed company.

Shareholders owning 5 percent of a listed company, beneficial controllers, board members, supervisors and senior management should all comply with the new regulation in the context of the distribution of their shares, the CSRC said.

Independent financial analyst Guo Shiliang hailed the new regulation as the “most stringent” of its kind, “eliminating almost all previous rate reduction loopholes.” In the future, more attention should be paid to managing the market value of enterprises.

“The other side of the coin is the long-term position of a shareholder in his own company, which is the key to increasing the confidence of A-share investors,” he said.

Tian Lihui, director of the Institute of Finance and Development at Nankai University, said the new regulation toughens the crackdown on illegal downsizing or downsizing in a roundabout way. It is very important to secure the stability of the secondary market, protect the rights of individual investors and create a healthy stock exchange ecosystem, he said.

The resolution from central regulators and efforts to crack down on violations and illegal activities have helped build a healthier A-share market, said Liu Chenming, chief strategist at GF Securities.

In this context, investors have begun to view industry-leading companies and companies with core competitiveness as worthy of long-term investment and greater exposure.

Chen Guo, chief strategist at China Securities, said investors may be strategically optimistic about the A-share market given recent regulatory moves on share reductions and the resumption of IPO revisions.

International investor confidence in A-shares is also growing, largely due to the 9.3% average annual growth in business income reported by companies included in the MSCI China Index, said Wendy Liu, JPMorgan’s chief equity strategist in Asia and China, citing the latest annual financial reports.

Listed companies from the Internet, telecommunications, medical and energy sectors contributed to business improvement, she said.