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Original title: Every hot review丨Closing the loopholes in the system allows repurchase and holdings to play a more positive role
Every special commentator Xiong Jinqiu
Recently, the China Securities Regulatory Commission has revised some provisions of the “Rules on Share Repurchase of Listed Companies” and “Rules on the Management of the Company’s Shares Held by Directors, Supervisors and Senior Management of Listed Companies and Their Changes”, and solicited opinions from the public. The overall direction is to facilitate listing. The company uses market-oriented tools such as repurchase and holdings to maintain the reasonable value of the company. The author strongly supports this. At the same time, the author believes that some practical problems in the repurchase and holding increase should be fundamentally solved, so that the repurchase and holding increase can play a more positive role.
The proposed revisions to the “Rules for Share Repurchase of Listed Companies” mainly include four aspects. First, optimize and relax the conditions for repurchase, and adjust 30% of the “cumulative decline in the closing price of the company’s shares to 30% within 20 consecutive trading days” to 25%. The second is to relax the implementation conditions for repurchase of newly listed companies, from “listing for one year” to “listing for six months”. The third is to further clarify the limit range when repurchase and refinancing intersect. Fourth, the window period during which repurchase is not allowed is greatly reduced, and the window period for quarterly reports, performance forecasts or performance flash reports is adjusted from “within ten trading days before the announcement” to “within five trading days before the announcement”. The “Management Rules for the Shares Held by Directors, Supervisors and Senior Management of Listed Companies and Their Changes” also intends to significantly reduce the “window period” for prohibiting directors, supervisors and senior management from trading.
Generally speaking, the repurchase of shares by listed companies and the increase of shares held by shareholders, directors, supervisors and senior management is a reasonable market value management method and an important institutional arrangement to enhance market confidence. The regulatory authorities relax the conditions for repurchase and holding increase, which is conducive to boosting the current market confidence. The reason for setting a “window period” during which no repurchase or increase is allowed is to ensure fair transactions and prevent insider trading. Therefore, after the window period is compressed, if there are earth-shaking changes such as the quarterly reports of listed companies, and the repurchase or increase of holdings by the relevant entities is very fast, it is still necessary to pay attention to prevent the unfairness that may be caused.
In reality, although individual listed companies issued repurchase and holding increase announcements, the result of the final implementation was a very small amount of repurchase and holding increase, which was far from the planned amount, and some amounts were even zero. If it becomes a fool-like repurchase or a fool-like increase in holdings, the original repurchase and holding increase announcement may have a misleading effect on investors. In this regard, the author suggests that the repurchase and increase in holdings can be included in the supervision of the relevant entities’ “commitment”, further standardize the operation process, and clarify the legal responsibility for violating the commitment.
Compared with the increase in holdings, there may be more problems with the current repurchase. The 2018 Company Law revised the repurchase regulations, and the stock repurchase situations include “reduction of the company’s registered capital; company merger; acquisition of dissenting shareholders’ shares; use of shares for employee stock ownership plans or equity incentives; use of shares for conversion of convertible bonds. ; Necessary for the maintenance of company value and shareholders’ rights and interests (repurchase to support the stock market)”, etc. In practice, more and more listed companies repurchase shares and use them as a stock source for employee stock ownership plans or equity incentives; while some back-up repurchase, the repurchased shares can be sold to the market as treasury stocks in the future. The purpose of repurchase by A-share listed companies is no longer pure, and it is very different from the substance of repurchase and cancellation.
Listed companies repurchase shares from the market at high prices and then grant them to employees or incentive objects at low prices. From this transaction round, of course, listed companies and shareholders will suffer from this. And the temporary stock of repurchased shares will be sold to the secondary market in the future, so the impact on the market will basically be zero. The author suggests that the A-share repurchase rules should be further revised. First, the repurchase situation of “using shares for employee stock ownership plans or equity incentives” should be eliminated. The stock source of employee stock ownership plans or equity incentives should not be repurchased. , it can be solved completely by reducing the shareholding of the major shareholder or shifting the position by the listed company.
Secondly, the repurchase situation that is “necessary to maintain the company’s value and shareholders’ rights (repurchase to support the market)” should be eliminated. The current support buyback is a temporary support, with only a short-term effect. Listed companies will buy low and sell high and even harm the interests of public shareholders. Such a buyback is not true in name, so it is better to cancel it. In fact, the first type of repurchase situation stipulated in the Company Law is “reduction of the company’s registered capital”. This type of repurchase must be cancelled, and it will naturally have the effect of protecting the market. There is no need to list a single buyback situation at all.
Third, during the repurchase period, major shareholders, directors, supervisors and senior managers should be prohibited from reducing their holdings. Regardless of the type of repurchase situation, if insiders are allowed to reduce their holdings, or it is difficult to get rid of the suspicion of insider trading, the repurchase may become a tool for insiders to reduce their holdings at a high price.
The regulatory authorities have facilitated the repurchase of listed companies and the increase in holdings of relevant entities, and the intention to protect the market is encouraging. Regardless of repurchase and holding increase, only if it can actually bring benefits to public investors and prevent insiders from exploiting loopholes, the more such buybacks and holdings, the better. It is expected that the regulatory authorities will further improve the repurchase and holding increase system, plug the loopholes in the system, and maximize the positive effect of the repurchase and holding increase.
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Responsible editor: He Songlin