Trading rules to protect investors

BEIJING－It will no longer be easy for rich shareholders of public companies to use excuses such as weddings or moving overseas to offload stocks when share prices peak.

Last year, China's securities regulator limited anyone who holds more than 5 percent of a company's shares from massive dumping of their holdings.

Compared with individuals investing their savings, major shareholders, supervisors and management enjoy advantages of asymmetric information, which can be unfair to small investors.

So offloading stocks in a fire sale manner can wreck public confidence and cause retail investors to suffer.

The 2016 rules stipulated that major shareholders, supervisors and managers should make public the number of shares, price range and reason for sales.

Bizarre excuses like paying for children's tuition and purchasing homes soon captured the headlines.

Some shareholders used the stock market like an ATM to earn quick money, and easily found loopholes in the old rules to profit from selling stocks when prices surged. This in turn caused volatility.

Those rules made things more difficult, but some began to sell stocks to institutional investors in blocks. The institutional investors then sold stocks on the market.

Major shareholders engineered the block trading to circumvent regulations.

Some shareholders profited by timing their sales, Deng Ge, a spokesperson for the China Securities Regulatory Commission, said at the weekend when the CSRC, Shanghai and Shenzhen bourses came up with the new rules.

"Such disorderly and irregular stock sales led to a very negative impact on investor confidence and the real economy," Deng said.

The latest rules are aimed to plug these loopholes as stocks transferred through block trading should not surpass 2 percent of a company's total shares in any 90 days.

Transferees are also not permitted to sell any more within six months.

The new rules will slow the pace of offloading, which will stabilize the market and support growth of companies with stable profitability outlooks, according to Sun Xiwei, chief investment strategist at CITIC Securities.

That view was echoed by Jin Haitao, a veteran investor, who said new regulations accurately targeted malpractices in the industry and will curb speculation.

The new policies also improved regulation on stock reductions through selling of non-public offering shares, information disclosure, and equity transfers.

"The new policies draw on globally accepted practices and can better protect interests of small investors," said Chen Shaoxia, chief researcher with Goldport Capital, a Shenzhen-based asset management company.