Brokerages interpreted one by one, the regulatory bureau quickly issued a document, and the new "National Nine Articles" reshaped the order of A-shares

Zhang Qiang, who has worked in the securities industry for nearly 10 years, deeply feels that the A-share market is about to change.

On April 12, following the two "National Nine Articles" in 2004 and 2014, after 10 years, the State Council issued the "Several Opinions of the State Council on Strengthening Supervision and Preventing Risks and Promoting the High-quality Development of the Capital Market". This document, known as the new "National Nine Articles", focuses on strengthening supervision, preventing risks, and promoting high-quality development, and establishes a new order in the capital market for the next 10 years from nine perspectives.

Zhang Qiang is the head of the institutional business department of a leading brokerage firm in northern China. On April 15, the main business personnel of the business department and the investment banking department of the brokerage company where he worked held a meeting to study the new "National Nine Articles". At the meeting, the company interpreted the new "National Nine Articles" one by one, strictly required employees to abide by discipline, and conducted preliminary communication on specific businesses.

The company's leaders revealed that after the release of the new "National Nine Articles", investment banking businesses such as IPOs (initial public offerings), mergers and acquisitions and restructuring faced a cooling-off period and adjustment period of nearly one month.

Next, Zhang Qiang was busy sorting out the enterprise customer resources that he continued to track, and adjusting the allocation according to the company's main business, operating conditions, potential risk status, etc.

According to an interview with the Economic Observer, after the promulgation of the new "Nine Articles," securities practitioners have been moved to study the new policies and step up their efforts to reposition their existing customer resources; some listed companies are studying how to manage their market value, improve their own quality, and avoid touching the delisting clauses.

In addition, the Economic Observer exclusively learned that after the release of the new "National Nine Articles", local securities regulatory bureaus acted quickly and issued documents to all enterprises and intermediaries to be listed in the jurisdiction, further putting forward high-quality requirements for companies to be listed from the source, and requiring the actual controller not to blindly seek listing and excessive financing for the purpose of "collecting money".

Not only are regulators, intermediaries and listed companies in action, but investors are also moving. On April 15 and 16, the micro-cap index plummeted by nearly 20%, and funds poured into the "Zhongzitou" and high-dividend sectors.

Why does the new "National Nine Articles" affect the whole body?

Different from the first "National Nine Articles" aimed at solving the problem of equity division and the second "National Nine Articles" to "encourage innovation", Dong Zhongyun, chief economist of AVIC Securities, described the arrival of the new "National Nine Articles" as "improving the quality of listed companies and promoting new quality productivity". With major changes unseen in a century, China has shifted to a stage of high-quality development.

Dong Zhongyun analyzed that the outstanding problems exposed by the stock market fluctuations since August 2023 and other aspects of institutional mechanisms, regulatory law enforcement and other aspects need to be solved urgently. The biggest difference from the previous two "National Nine Measures" is that the new "National Nine Measures" have greatly increased the requirements for the quality and supervision of incremental and existing listed companies. On the investment side, we will strengthen the supervision of transactions and enhance the internal stability of the capital market, and on the financing side, we will enhance the inclusiveness of new industries, new forms of business and new technologies.

In the view of many interviewed practitioners, the new "National Nine Measures" promote the capital market to walk in the process of "quality improvement" - to break the previous constraints on the capital market in terms of systems and mechanisms, and to focus on "high-quality development" and "establish innovation" from all aspects such as investment and financing. The A-share ecosystem is undergoing key structural changes.

Strictly delist and promote dividends

Dong Zhongyun said that Articles 2-4 of the new "National Nine Articles" mainly involve the supervision of listed companies, highlighting the whole chain of supervision and enhancing the investment value of listed companies, focusing on three aspects: strict issuance and listing, strict and continuous supervision, and increasing delisting supervision;

Also on April 12, the China Securities Regulatory Commission (CSRC) issued the Opinions on the Strict Implementation of the Delisting System (hereinafter referred to as the "Delisting Opinions") and solicited public comments on six draft rules, including the Guidelines for the Evaluation of Scientific and Technological Innovation Attributes (for Trial Implementation). This is part of the "1+N" policy system described by Wu Qing, chairman of the China Securities Regulatory Commission. Wu Qing said: "1" refers to the new "Nine Articles of the State" itself, and "N" refers to a number of supporting system rules.

The "1+N" policy system strengthens the review and consolidation of intermediary responsibilities from the listing link, strictly supervises the stock of listed companies, and strengthens supervision from the delisting link.

After the unveiling of the new "National Nine Measures" and the "Delisting Opinions", the entry and exit of A-shares are facing unprecedented strong regulatory pressure, and the market's concerns about the delisting of small and micro cap stocks have intensified.

A private equity institution in East China said that after the introduction of the above-mentioned regulatory policies, the company adjusted its trading strategy in a timely manner and reduced the proportion of its position in small and medium-cap stocks.

A founder of a private equity firm also said that after the release of the new "National Nine Articles", the company reduced its position in small and medium-cap stocks.

On April 15, the Wind Micro Cap Index fell 8.88% and continued to fall by 10.55% on April 16. At the same time, high-dividend listed companies such as "Zhongzitou" and banks are sought after by investors, and China Haicheng (002116. SZ), Zhonggong Hi-Tech (603860. SH) a number of companies have a daily limit.

On the evening of April 16, the official website of the China Securities Regulatory Commission released "Guo Ruiming, Director of the Department of Supervision of Listed Companies of the China Securities Regulatory Commission, Answers Questions from Reporters on Issues Related to Dividends and Delisting". In response to the small-cap stocks that the market is concerned about, Guo Ruiming responded that the adjustment of the delisting indicators is aimed at increasing efforts to clear out the "zombie shells" and "black sheep", not for "small-cap stocks".

On April 17, the micro-cap index rose more than 8%.

In Zhang Qiang's view, micro-cap stocks cannot be "killed with a stick". Some small-capitalization listed companies that focus on a certain segment have great potential investment value. The relevant provisions of the new "National Nine Articles" and the "Delisting Opinions" are mainly aimed at some "junk stocks", which will gradually be "abandoned" by investors.

An investment researcher working in a large and medium-sized public offering institution said that the new "National Nine Articles" require strengthening the supervision of cash dividends of listed companies, and put forward stricter requirements for dividends, repurchases, and market value management of listed companies. Whether from the perspective of short-term investment or long-term strategic layout, the importance of dividend strategy has been further enhanced, and the value of strategic allocation has been significantly enhanced.

Yang Delong, chief economist of Qianhai Open Source Fund, believes that the new "National Nine Articles" will promote the change of market style, and investors will embrace high-performing stocks and stay away from low-performing stocks. Companies that can pay cash dividends will grow, and companies that can't create value for shareholders or even fraudulent companies will gradually leave the market. The structural differentiation of the market is the main one, and this structural situation will bring more investment opportunities.

Strictly control the entrance

The Economic Observer learned from multiple interviews that since April 16, the securities regulatory bureaus in many places have issued the "Notice on Improving the Declaration Quality of Enterprises to be Listed in the Jurisdiction" (hereinafter referred to as the "Notice") to all enterprises and intermediaries to be listed in the jurisdiction.

The Circular requires the actual controllers, directors, supervisors and senior managers of enterprises to be listed (hereinafter referred to as the "key minority") to enhance their awareness of integrity, self-discipline and the rule of law, establish a correct "view of listing", and not blindly seek listing and excessive financing for the purpose of "collecting money".

The "Circular" also puts forward requirements for intermediaries: in the counseling process, the focus should be on promoting enterprises to establish a modern enterprise system, improve corporate governance, improve the internal control system and implement it effectively, and accept internal control audits in accordance with regulations.

In addition, the Notice mentions that the company to be listed should fully cooperate with the intermediary agency in the verification and issuance supervision work to ensure that the materials provided are true, accurate and complete. Enterprises to be listed and the "key minority" who have entered the counseling and filing shall sign the "Letter of Commitment to Improve the Declaration Quality of Enterprises to be Listed". It is emphasized that the enterprise ensures that the content of the materials provided is true, accurate and complete. There are no false records, misleading statements or major omissions, and the commitment shall be fulfilled in accordance with the principle of good faith, and the corresponding legal responsibility shall be borne.

Issuance and listing access is the "first line of defense" to ensure the quality of listed companies.

In mid-March, the China Securities Regulatory Commission (CSRC) issued four policy documents, including the "Opinions on Strictly Improving the Quality of Listed Companies from the Source (Trial)", which made it clear that it is necessary to strictly control the quality of the declaration of enterprises to be listed and consolidate the "gatekeeper" responsibilities of intermediaries. In the new "Nine Articles", it is clear that pre-listing surprise "clearance" dividends will be included in the negative list for issuance and listing, and spin-offs and listings will be strictly supervised, and refinancing will be strictly reviewed.

According to the statistics of Qingke Research Center, under the slowdown of the IPO market, in the first quarter of 2024, a total of 30 A-share companies were listed, down 55.9% year-on-year and 38.8% month-on-month, respectively. At the same time, 80 companies chose to withdraw their application materials voluntarily, and the number of companies attending the meeting also decreased.

A leading brokerage in Beijing said that after the release of the new "National Nine Articles", it will be a big challenge for companies to be listed to meet increasingly stringent listing conditions and regulatory requirements. At the same time, brokerages and other intermediaries need to improve their professional capabilities to adapt to this new regulatory environment.

The new "Nine Articles" make it clear that the first responsibility of issuers and the "gatekeeper" responsibilities of intermediaries will be further consolidated, and a "blacklist" system for intermediaries will be established. Adhere to the principle of "declaration is responsibility", and strictly investigate illegal issues such as fraudulent issuance.

Recently, CITIC Securities, Haitong Securities, Huaxi Securities, Soochow Securities, and Guosen Securities have been "named" and criticized by the China Securities Regulatory Commission.

The Economic Observer has learned that the recent sponsor representative training has reported the regulatory trend: the bottom line is that sponsor institutions cannot collude with issuers to commit fraud. If the project is judged to be risky, the sponsor should not undertake the business. However, if the verification is limited, the sponsor should objectively assess and articulate the specific impact, and the auditor will understand.

Wang Jiyue, a veteran investment banker, said that the core of the new "National Nine Measures" lies in rectifying and upgrading the stock market of the capital market, especially by cleaning up low-quality listed companies to improve the quality of the overall market, so as to better protect and reward investors. In terms of financing, the regulator will still support the financing activities of high-quality companies, which also increases the work requirements and responsibilities of investment banks.

Wang Jiyue mentioned that due to the decline in the financing scale of the A-share market, there is an oversupply of investment banking business, which has led to some brokerages having to take measures such as layoffs and salary cuts to cope with market changes. In the past few years, the brokerage industry has expanded rapidly, and now it is facing stricter supervision, which will accelerate the survival of the fittest in the industry. These changes reflect the regulator's emphasis on the healthy development of the capital market, as well as the determination to improve the quality of listed companies and protect the rights and interests of investors.

Optimize inventory

"The IPO is slowing down, and the next way out is mergers and acquisitions. ”

Talking about the impact of the new "National Nine Articles" on the brokerage business, on April 18, Wanlian Securities Investment Consultant Qu Fang said.

He believes that after the introduction of the new "National Nine Articles", the regulatory review of IPOs will be more stringent, and the volume of IPO business will further shrink. However, it also opens up the growth potential of the M&A market.

The new "National Nine Articles" have made a series of arrangements for the mergers and acquisitions of listed companies, proposing to promote listed companies to enhance their investment value, encourage listed companies to focus on their main business, and comprehensively use mergers and acquisitions, equity incentives and other methods to improve the quality of development. At the same time, it is necessary to strengthen the supervision of mergers and acquisitions, strengthen the relevance of the main business, strictly control the quality of injected assets, increase the supervision of "backdoor listing", and accurately crack down on all kinds of illegal "shell" behaviors.

The above-mentioned investment researchers of large and medium-sized public offering institutions believe that with the further implementation of the new "National Nine Articles", the vitality and momentum of the M&A and restructuring market are expected to be further activated.

Recently, the Federal Reserve Securities released a report entitled "The New Deal on M&A and Restructuring is Expected to Lead the Capital Market to a New Level" (hereinafter referred to as the "Report"). The report pointed out that listed companies with a market value of more than 10 billion yuan in the A-share market have been the main force in mergers and acquisitions for many years. From the perspective of the scale of acquisitions, listed companies with a market value of more than 10 billion yuan are far ahead. In 2023, the total acquisition scale of listed companies with a market value of more than 10 billion yuan will be 1.36 trillion yuan, accounting for 76.32% of the total assets acquired by listed companies, and the total acquisition scale of listed companies with a market value of 5 billion yuan to 10 billion yuan will be 235.547 billion yuan, accounting for 13.18% of the assets acquired by listed companies. Large-capitalization listed companies with strong integration capabilities and acquisition capabilities have become the unshakable "main force" of the A-share M&A market for many years.

After the issuance of the new "National Nine Articles" A, the mergers and acquisitions and restructuring transactions carried out by A-share listed companies with more than 10 billion yuan may be accelerated.

A senior manager of the investment banking committee working at a leading brokerage firm in Beijing said that starting in 2024, the company has made it clear that it will strengthen its mergers and acquisitions business. After the promulgation of the new "National Nine Articles", some of the company's personnel engaged in equity business were also transferred to M&A and restructuring business. However, the IPO and refinancing industries are more standardized, and it is easier to make money, and it is not easy for securities companies to increase the transformation layout of mergers and acquisitions.

A-shares welcome great changes

The A-share market is ushering in huge "changes".

The above-mentioned investment researchers working in large and medium-sized public offering institutions said that the past two "national nine articles" have had a profound impact on the subsequent system optimization of the capital market, and the corresponding market performance in the long cycle is also relatively positive, and this reform will help enhance the endogenous stability of the capital market and have a positive impact on the long-term performance of the market. In the future, the survival of the fittest in the capital market is expected to accelerate, promote the liquidation of inferior listed companies, and improve the overall quality of listed companies. At the same time, the investor compensation relief mechanism in the process of delisting will be further improved, which will help better protect the rights and interests of investors.

Chen Xingwen, chief investment officer of Blacksaki Capital, believes that the release of the new "China Nine Articles" is an important milestone in the development of China's capital market, which not only has an impact on market volatility in the short term, but will also guide the behavior and expectations of market participants in the long term.

Chen Xingwen said that overall, the new "National Nine" policy will guide the market to develop in a more mature and standardized direction, and provide a more stable and reliable investment environment for institutional investors. The introduction of the new "National Nine Articles" policy has pointed out the direction for the reform of the capital market. This policy system is based on "strict supervision and strict management, strengthening the capital and strengthening the foundation", and aims to promote the solution of long-standing deep-seated problems in the capital market through the "1+N" structure. This will help improve market efficiency and transparency, and create a fairer and more orderly investment environment for investors.

A person from Wells Fargo Fund told the Economic Observer that for the public offering industry, the "New National Nine Measures" are expected to have a positive impact on the development of the industry: strong support for long-term investment and equity investment is also a higher requirement for public funds. "The comprehensive and strengthened supervision will also further standardize the behavior of public funds, strengthen compliance management and risk management. For example, employees are required to continuously improve their awareness of active compliance management, implement the front-line compliance management requirements of their positions, and actively participate in various compliance trainings. For the public offering industry, compliance will become the bottom line of business and ensure the standardization and transparency of business operations. The above-mentioned Wells Fargo fund source said.

In addition, Meng Lei of UBS Securities believes that the strategic importance of the capital market in China's economic development has been further enhanced. The historical "National Nine Measures" have consolidated the bottom of the market, and the "National Nine Measures" have guided the overall development of the A-share market in the past ten years.

(At the request of the interviewee, Zhang Qiang is a pseudonym in the article)