Tighter stake-sale rules aim to stabilize bourse

Experts welcomed moves by the China Securities Regulatory Commission to tighten rules governing stake sales by big shareholders in listed companies.

Analysts said on May 30 that the new rules will make the stock market more stable and sustainable in the long term, and will strengthen investor sentiment.

Stake sales by major shareholders through block deals have often been blamed for market volatility that have rattled small investors.

The new policy requires major shareholders to divulge detailed information on all aspects of their stake sales via mechanisms like block deals. It also covers the sale of private placement shares and equity transfers via agreements.

The definition of "major shareholders" has also been revised to include those who hold 5 percent or more of shares in a company, besides senior managers.

"The improved system will guide major shareholders to reduce their holdings in a standardized, reasonable and orderly manner, which will help stabilize market expectations and shore up investor confidence," says the CSRC.

Li Zhilin, dean of the Enterprise and Economic Development Research Institute of East China Normal University, says the new policy is in alignment with a slew of recent measures aimed at reducing leverage and related risks that have been hurting the financial markets.

In the past, big shareholders' stakes were subject to a lockup period. When such shares became tradable, inadequate information disclosure requirements used to cause volatility in stock prices, eventually bringing windfall gains to sellers at the expense of retail investors.

The new policy now plugs such loopholes and will ensure transparency as well as fair distribution of gains, says Li.

"This move helps restore investor confidence and puts the stock market on a steady and bullish track."

Sun Jinju of Guotai Junan Securities Co wrote in a research note that investors will now focus more on long-term growth of a company and yields from its good performance (such as through dividends) than on overnight share price surges.

The move will further strengthen the fundamental idea of investment in the stock market, which will enable more people to participate and to gain from the growth of companies, he wrote.

Yang Delong, executive manager of Qianhai Kaiyuan Fund Management Co, says the new rules are significant for the A-share market because they protect retail investors, thus boosting their sentiment.

"In the past, some big shareholders disposed of their holdings in a 'clearance sale' manner - 'everything must go' - which hurt share prices as well as retail investor confidence. The move will certainly help the securities market to rebound amid global bullish sentiment," Yang says.

However, the new policy may affect private placements, pre-IPO funds and private equity funds, market insiders say. Tightened regulation could hurt liquidity in secondary market trading, says a report from China Fund.

Xinhua contributed to this story.

wuyiyao@chinadaily.com.cn