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China

The Provisional Regulations Banning Entrance into the Securities Industry were promulgated on March 3 1997. The Regulations outline various securities violations for professionals working in the securities industry, including the following:

Senior management at listed companies: The China Securities Regulatory Commission (CSRC), the Chinese securities regulatory body, may determine that directors and other senior management of listed companies will be banned from the securities industry, if they:

  • use fraudulent or dishonest means to obtain approval to issue their shares or to trade their shares on the stock market;
  • fail to meet their disclosure obligations, or when disclosing information, provide false or material misleading information, or omit material information which seriously damages the interests of the investor;
  • use their positions to conduct insider trading for the benefit of the company, individuals or others;
  • purchase their own shares with company funds;
  • manipulate stock prices by taking advantage of capital, information or other means; or
  • receive three administrative penalties of a warning (or more severe penalty) from the CSRC or local stock administrative office.

Senior management at securities institutions: The CSRC may determine that senior management and heads of departments at securities institutions, securities registries and settlement clearing institutions will be banned from the securities industry, depending on the circumstances, if they:

  • organize or participate in planning and formulating documents and information which contain false or misleading information, or omit material information in a share issue;
  • use their positions to conduct insider trading for the benefit of the company, individuals or others;
  • manipulate stock prices by taking advantage of capital, information or other means;
  • mix the operation of the securities institution's business with its brokerage business, misappropriate funds, or sell or mortgage client shares without authorization, or deceive clients through other material acts;
  • refuse, block or materially intervene in any CSRC supervision or inspection; or
  • receive three administrative penalties of a warning (or more severe penalty) from the CSRC or local stock administrative office.

Lawyers, accountants and asset valuers: The CSRC may determine that such professionals will be banned from the securities industry, depending on the circumstances, if they:

  • present professional documents containing false or material misleading information, or omit material information;
  • use insider information to benefit their institution, individuals or others; or
  • receive three administrative penalties of a warning (or more severe penalty) from the CSRC or local stock administrative office.

Senior management at fund management institutions: The CSRC may determine that senior management and heads of fund management and trust institutions will be banned from the securities industry, if they:

  • fail to meet their disclosure obligations, or when disclosing information, provide false or material misleading information or omit material information which seriously damages the interests of the investor;
  • use their position to conduct insider trading to benefit their company, individuals or others;
  • manipulate stock prices by taking advantage of capital, information or other means;
  • misappropriate fund assets under their management or trust;
  • make investments that violate the articles of association of the fund or trust contracts which causes material economic loss; or
  • receive three administrative penalties of a warning (or more severe penalty) from the CSRC or local stock administrative office.

Securities investment consultants: The CSRC may determine that senior management and securities investment consultants at securities investment consultancy firms will be banned from the securities industry, depending on the circumstances, if they:

  • formulate and spread false information or market rumours, or provide information to clients based on false information or market rumours which materially damage the interests of investors;
  • use their consultancy services to manipulate stock prices by conspiring with others;
  • conduct insider trading to benefit their institution, individuals or others; or
  • receive three administrative penalties of a warning (or more severe penalty) from the CSRC or local stock administrative office.

Stock issuers: The CSRC will not accept applications for public offering and listing from stock issuers, if they:

  • obtain the approval documents required for the stock issuance application and listing qualification by fraud or other dishonest means;
  • have application documents or disclosure information which contain false or material misleading information, or omit material information; or
  • offer public shares or offer public shares through disguise without the approval of the competent securities department under the State Council.

Punishment: If any of the aforementioned acts are committed, administrative punishment in accordance with the law will apply to all senior management and professionals, except stock issuers. In addition, senior management at securities institutions, fund management institutions and securities investment consultancy firms who commit any of the aforementioned acts will be dismissed from their position and will not be allowed to conduct business in the securities industry or assume senior management positions in listed companies for three to 10 years from the date the CSRC announces the punishment. If the case is serious, senior managers may be permanently banned from the securities industry.

Senior management at listed companies, lawyers, accountants and asset valuers will be liable to the same punishment, including the possibility of being permanently banned from the securities industry. On the other hand, if a listed company fails to comply with such a ban, the CSRC may stop accepting their applications for examination and approval of securities or order the suspension of the listed company's shares for a certain period of time. Likewise, the CSRC can also refuse to accept applications for public offering from stock issuers who commit any of the aforementioned acts. If the case is serious, the CSRC may permanently refuse their public offer applications.

Florence Li and Elaine Liu

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