China Securities Regulatory Commission (CSRC) Has Released Strong Regulatory Signals For Two Consecutive Weeks, And Has Completed The Deployment Of "Zero Tolerance" Strike

"We will resolutely implement the" zero tolerance "policy, centralize the deployment of inspection and law enforcement forces, innovate the organizational mode of investigation, adhere to the all-round attack, adhere to all-round accountability, continue to maintain the high-pressure situation of securities fraud, counterfeiting, and" pseudo market value management "and other securities violations, strengthen law enforcement deterrence, purify the market ecology, and promote the healthy and stable development of the capital market." Liu Yongqiang, deputy director of the Inspection Bureau of China Securities Regulatory Commission, said in a press conference recently.

Just a week ago, Chen Jiecai, another deputy director of the Inspection Bureau of China Securities Regulatory Commission, attended the news conference of that week to introduce the crackdown on securities illegal activities such as market manipulation and insider trading.

It is very rare for two deputy directors of the inspection bureau to make arrangements for the inspection and law enforcement work.

In fact, since July 6, the general office of the CPC Central Committee and the general office of the State Council (hereinafter referred to as the "opinions") publicly released the opinions on cracking down on securities illegal activities in accordance with the law (hereinafter referred to as the opinions), the CSRC has made frequent actions in the inspection and law enforcement work for half a month.

In addition to introducing the crackdown on illegal securities activities such as market manipulation and insider trading, the CSRC also deployed special law enforcement actions and issued the administrative punishment measures for securities and futures violations and the guiding opinions on urging securities companies to return to their original positions and fulfill their responsibilities under the registration system.

"It can be said that the" zero tolerance "signal continuously released by the regulatory authorities is becoming stronger and stronger." A partner of a law firm in Beijing said.

In the recent 16 major typical cases investigated and handled by the CSRC in accordance with the law, there are also "insider trading" figures. Visual China

Cracking down on market manipulation and insider trading

"There are many subjects involved in market manipulation and insider trading, with long illegal chain and serious harmful consequences. Moreover, the means are hidden. It is highly misleading to investors and destructive to market trading order. Therefore, we must severely punish them." Recently, Chen Jie said when introducing the CSRC's crackdown on illegal securities activities such as market manipulation and insider trading.

In fact, market manipulation and insider trading have seriously damaged the order of market transactions, seriously interfered with the play of market functions, and seriously infringed upon the legitimate rights and interests of investors. They are "persistent diseases" that affect the healthy development of the securities market, and have always been the focus of the CSRC's strict crackdown on inspection and law enforcement.

According to the data released by the CSRC, since 2020, the CSRC has launched 90 market manipulation investigations and 160 insider trading cases, accounting for 52% of the new cases in the same period. Among them, 176 cases of market manipulation and insider trading were subject to administrative penalties, with the cumulative amount of fines and confiscations exceeding 5 billion yuan. In addition, the CSRC also transferred 41 clues and 123 insider trading cases to the public security organs, accounting for 76% of the total transferred cases and 330 suspects.

In the recent 16 major typical cases investigated and handled by the CSRC in accordance with the law, there are also "insider trading" figures. In the name of market value management, the actual controllers and major shareholders of individual listed companies conspire with private equity institutions, traders and capital allocation agencies to use the advantages of capital and shareholding to raise the company's share price. In addition, major shareholders of listed companies sell their stocks ahead of time to avoid losses when they learn the company's performance loss information. Some listed companies have insider trading in planning major events for many times.

According to Tian Lihui, President of the Institute of financial research of Nankai University, market manipulation is to influence or manipulate the market price by means of fraud and other improper means with the help of information superiority or capital strength, so as to induce securities investors to buy and sell securities blindly, thus transferring risks and seeking improper profits. Market manipulation will distort supply and demand, change market expectations, induce excessive speculation, lead to market failure and damage the interests of investors“ Manipulation of the securities market is the focus of supervision, which needs to be severely cracked down. "

It is worth mentioning that in recent years, a new form of "pseudo market value management" has emerged in the illegal activities of insider trading.

Just in May this year, ye Fei, a former private equity fund manager, reported the inside story of "pseudo market value management" in the industry, and reported that the relevant listed companies were suspected of "killing pigs". In the same month, market participants also reported that a team was suspected of manipulating the share prices of listed companies and offered bribes to social security funds and insurance institutions, inviting the latter to participate in lock positions.

In this regard, Chen Jie disclosed that in 2020, the CSRC verified 15 cases of market manipulation in the name of "market value management", accounting for 18% of all cases of market manipulation verified in the same period. In the future, the CSRC will rely on the exchange's big data monitoring technology to strengthen the comprehensive analysis and judgment of illegal clues of abnormal trading account information, improve the accuracy of the whole chain crackdown, and intensify the crackdown on illegal behaviors such as market manipulation in the name of "market value management".

Focus on financial fraud and capital occupation by major shareholders

While giving great attention to market manipulation and insider trading, the CSRC is also focusing on cracking down on illegal activities such as financial fraud, fund occupation and illegal guarantee.

Specifically, among the 16 major typical cases investigated by the CSRC, such as fabricating inventory and trading business, abusing accounting standards and policies to inflate profits, and using various means to whitewash the company's performance.

"Some companies have repeatedly been involved in illegal activities, and a small number of directors, supervisors and senior executives have violated their duty of loyalty to the company, and organized and planned financial fraud to cover up the misappropriation of funds." Liu Yongqiang defined the above behavior as "seriously eroding the basis of market integrity and destroying the information disclosure system".

In addition, there are also cases that seriously infringe on the interests of listed companies and affect the quality improvement of listed companies. It includes the actual controllers and major shareholders of listed companies who occupy a large amount of funds of listed companies for a long time and violate the rules of guarantee, some occupy the funds of listed companies to repay bank loans and cash bills, and some privately engrave the names of the listed companies above the official seal to provide guarantee for the actual controllers.

"Whether it is financial fraud, capital occupation, or illegal guarantee, it is essentially the quality problems of listed companies themselves." The partners of the Beijing law firm said.

"Market regulation should always pay attention to these old problems." Liu Yan, a professor at Peking University Law School, believes that China's system construction has been relatively sound in improving the quality of listed companies. But the concept of collective decision-making and social responsibility of modern domestic companies is not firm. In the past, large shareholders and actual controllers used to regard the assets of enterprises as their own, and the boundary of "group and self" was not clear. The big shareholders of listed companies are used to the fact that the small shareholders have no right to speak, but they have not thought that this is a public enterprise and should be responsible for the society.

In Liu Yan's view, in this case, it is particularly important for the regulatory authorities to strengthen relevant law enforcement efforts“ Law enforcement is a continuous process. At present, it is not difficult to find illegal behaviors relying on big data. It is still necessary to crack down on them accurately and hit one after another. It is not possible to make the violators have fluke psychology, so as to purify the market environment. "

Just on July 15, China Securities Regulatory Commission (CSRC) just released the administrative punishment measures for illegal acts of securities and futures, which provides strong institutional support for further improving the effectiveness of inspection and punishment.

Tian Lihui said that the implementation of law enforcement needs to clarify the authority and seriousness of securities inspection, and severely punish those who dare to interfere with the implementation of securities law enforcement. At the same time, the securities inspection should continuously improve the technical means, the illegal ways of the securities market should be constantly innovated, and the securities law enforcement should be "one foot high, one foot high".

Supervise and urge securities firms to return to their positions

To improve the quality of listed companies, it is also an important part to compact the responsibility of securities companies in the position of "gatekeeper".

"Since the pilot registration system, the internal control level of securities companies and the practice quality of investment banking business have improved, but many problems have also been exposed. Some securities companies have not really possessed the concept, organization and ability to match the registration system. The internal control is not perfect, the project selection is not prudent, and the inspection is not strict, which affects the quality of listed companies and the image of the industry." Ren Shaoxiong, deputy director of the institutional Department of the CSRC, pointed out that.

Therefore, on July 9, China Securities Regulatory Commission (CSRC) issued the guiding opinions on supervising securities companies to return to their original positions and fulfill their responsibilities in investment banking business under the registration system (hereinafter referred to as the opinions).

In the opinion, it is clear that the system and rules will be improved and the standardization level of supervision and practice will be enhanced. In terms of specific content, the CSRC will strengthen the construction of investment banking practice standard system, improve the supervision rules or mechanism arrangements of investment banking business such as guidance acceptance, due diligence, working papers, information disclosure, on-site inspection and on-site supervision, and optimize the standards and procedures of guidance and acceptance without new access.

The CSRC also disclosed that it will timely revise and improve the on-site inspection regulations and on-site supervision guidelines for IPO, further clarify the inspection and supervision standards, timely report the inspection and supervision results, and improve the transparency.

With regard to the high proportion of IPO withdrawals with high market attention in the early stage, the opinions will further expand the scope of on-site inspection and supervision, adhere to the principle of "declaration means responsibility". For the items withdrawn after receiving the on-site inspection or supervision notice, the CSRC and the trading places will organize verification according to law, and resolutely put an end to "breaking through the customs with illness".

"At the beginning of the year, more than 80% of the first-time enterprises' information disclosure quality spot check list published by the Securities Industry Association failed to pass the inspection, so they chose to withdraw the materials on their own initiative. In July, another round of on-the-spot inspection was organized, and 19 enterprises were selected. At present, there is no withdrawal. The responsibility of the compaction agency does play a certain role. " There are senior investment banks in Beijing said.

It is worth mentioning that among the 16 major typical cases investigated by the CSRC recently, they have seriously deviated from their professional ethics and lost their role as "gatekeepers". Liu Yongqiang disclosed that the relevant audit institutions of listed companies unilaterally rely on the information provided by the company to conduct "account copying" audit, and have not implemented sufficient audit procedures for fraud risk matters, and even have agreed with listed companies on the types of audit opinions in advance.

"In the early stage, there were also a lot of laziness and non verification of IPO manuscripts by intermediary agencies, and the quality of manuscripts was not up to standard, which led to the withdrawal of materials by the companies to be listed. Now, under the registration system, the sponsor and audit institutions will also be the focus of cracking down on illegal activities of securities. " The senior investment bankers pointed out.

However, people close to the regulatory authorities pointed out that promoting the return of investment banks is not only a problem of investment banks themselves, but also involves issues such as regulatory systems and market constraints. Therefore, it is also clear in the "opinions" that a sound working mechanism will be established and improved to enhance the regulatory force. Specifically, the Securities Regulatory Commission should establish a regulatory cooperation mechanism for the investment banking business of securities companies, strengthen overall coordination, strengthen supervision and inspection, and enhance the regulatory joint force and regulatory efficiency.