CSRC's reforming chairman steps down

Guo once said at a forum in Beijing that his agency would use rigorous measures to clamp down on irregular practices and that this would include amendments to the laws. He made the comment following the release of Guidelines from the CSRC reforming information disclosure and pricing control for initial public offerings (IPOs) in May 2012.

The ambitious chairman kept his word. A report from Sina Finance sates that over 70 pieces of legislation were amended or issued under Guo.

On November 6, the CSRC issued the Tentative Provisions on Strengthening the Regulation of Unusual Share Transactions in Connection with Material Asset Reorganisation of Listed Companies(中国证券监督管理委员会关于加强与上市公司重大资产重组相关股票异常交易监管的暂行规定), which became effective on December 17 2012.

The Provisions formalised many points in an Opinion released two years before on combating insider trading. The Provisions were unique because they clearly provided that if there is insider trading related to the material assets reorganisation by the companies involved, the transaction will be adversely affected.

“The insider trading and fraudulent acts punishment potentially changes the role of the CSRC: less approvals and more effort on investigation and punishing illegal acts,” said Dai.

Delisting is also a huge problem on China's capital markets. According to statistics from Shenyin Wanguo Securities cited in the Wall Street Journal around 80 companies in China have been delisted since 1990 with 2,493 companies now listed. Since September 2012, 827 Chinese companies had been delisted since 1990 from global stock markets outside mainland China.

Guo sought to change this through rules that sped up the delisting of junk shares, but this rule will not come into effect until 2015. This was unpopular with shareholders as they do not want to see companies they have invested in removed from the market.

Differing views

Guo's departure has split opinions. Some market observers have praised him for the reforms put in place, while others were angered by some of his policies.

In particular, local governments did not like the delisting rules as they use listed companies to finance local projects, which then provide tax revenue and jobs. Commercial banks were also unhappy as there is a high chance of credit default when a company is delisted.

In order for Guo to tackle insider trading, his IPO review procedure has led to a backlog of some 800 firms waiting to list on the country's capital markets. This has also been a headache for private equity funds as one of the main strategies to exit China is through IPOs.

“Guo created hardship for IPO applicants, sponsors as well as accountants and lawyers. But to be fair, he helped to correct wrong doings rampant in the market. I really appreciate his contribution,” said Dai.

But some have said that Guo was not reformist enough and he failed to tackle the big issue that investors could not make money off the A-share market.

Xiao Gang has been named as the new chairman and his background shows that he is outspoken and interested in understanding foreign markets. “The condition of the market demands more changes, even changes to the reforms by Guo. Xiao has to respond,” said Dai.

By David Tring

Further reading:

CSRC lays down the law on insider trading

Increasing transparency

Why new reforms from CSRC could change the IPO market