China’s top economic planner, securities regulator and 20 other government bodies have joined forces to punish listed companies that break stock market rules.
In addition to penalties imposed by the China Securities Regulatory Commission, listed companies and associated people, including company directors, controlling shareholders and senior executives, would face punishment from the other agencies, CSRC vice-chairman Jiang Yang said on Monday.
“The joint effort is designed to improved the integrity of listed companies,” Jiang said. “It will more sharing of information between government agencies.”
The securities regulator had agreed to share information with other government bodies about listed companies and individuals who had broken the law or were found to have been involved in dishonest practices, according to a statement issued on Monday.
Those found guilty could face be banned from issuing enterprise bonds, prohibited from selling bonds on the interbank market and barred from launching stock incentive schemes, it said.
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They could also be banned from bidding for government procurement contracts, and barred from setting up brokerages, fund management firms and futures companies.
The statement was jointly issued by the National Development and Reform Commission, the People’s Bank of China, the finance ministry and customs. The action also involves China’s insurance, banking, foreign currency, food and drug, environment and product quality watchdogs.
“The misconduct of some listed companies and their dishonesty in relation to information disclosure will hurt the interests of the companies and their investors,” Jiang said.
Chen Xingyu, an analyst with Phillip Securities, said the move was part of the central government’s push to strengthen corporate oversight and would advance the ongoing reforms of the capital market.
The mainland’s regulatory system has been criticised as fragmented, and Chen said the sharing of information between agencies would go some way to improving communication.
“However, it will take some time until more detailed measures are announced, and it has to be done gradually,” Chen said.
He also said the move was also aimed at strengthening monitoring and risk management of the country’s bond market as default risks loomed.
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The bond market is regulated by the NDRC, the central bank and the securities regulator.
The NDRC oversees the issuance of non-financial corporate bonds known as enterprise bonds, which are issued by institutions affiliated with central government departments, local government-linked institutions, state-controlled enterprises, and other big state entities. Many of these entities are controlling shareholders of the mainland’s listed companies.
The CSRC regulates plans by listed firms to issue “company bonds”, while the central bank manages the “financing bills” market, a platform used by certain institutions that can freely issue instruments.
The NDRC’s enterprise bond approval process is regarded as the toughest of the three.
But even with strict processes in place, default risks have risen as economic growth has slowed.
Chen Kang, chief bond analyst at SWS Research, said default risks might not be the focus of the joint agency effort but they were definitely one of the risks in the bond market.
“Listed companies need to be more transparent as the government relinquishes control over bond issues during the process of marketisation,” Chen said.