What is the impact of the new revised rules on the implementation of the strictest shareholding reduction rules for A-shares?

Guo Shiliang

2024-05-27 08:26Published in Guangdong financial commentator, financial columnist

  The new A-share shareholding reduction regulations have been officially implemented, and this new shareholding reduction regulation is also a major revision on the basis of the 2017 "Several Provisions on the Reduction of Shareholdings by Shareholders, Directors, Supervisors and Senior Executives of Listed Companies".

  As early as April 12 this year, the new rules for reducing holdings have been open for public comment. After a lapse of more than a month, the new rules on shareholding reduction have been more refined and improved on the basis of the solicitation of opinions in April, creating favorable conditions for filling the loopholes in A-share reduction.

  The new regulations mainly regulate the shareholding reduction behavior of major shareholders, especially controlling shareholders and actual controllers. In the new regulations, it not only blocks the detour channel for major shareholders to reduce their holdings, but also links the reduction of holdings with conditions such as breakage, net breakage, and substandard dividends, which takes into account almost all aspects.

  For example, in the new regulations, it is clarified that the controlling shareholder and the actual controller shall not reduce their shareholdings through centralized bidding transactions or block transactions in the event of a broken issue, a broken net or a non-standard dividend. According to the current market conditions of the A-share market, there are quite a few listed companies that have broken the issue or broken the net, and for the controlling shareholders and actual controllers of such companies, they cannot reduce their holdings through centralized bidding transactions or block transactions if the stock price has not returned to the net assets per share or the issue price.

  In addition, in response to the frequent occurrence of "fake divorce" detour reduction in recent years, the new regulations on shareholding reduction have also been patched. In the new rules on shareholding reduction, it is clarified that after the stock division due to divorce, dissolution, division, etc., all parties will continue to jointly abide by the shareholding reduction restrictions. Through this repair, it is estimated that the phenomenon of "fake divorce" of A-share listed companies will be significantly reduced in the future, and it is also a correction to the past detour of listed companies to reduce their holdings.

  In addition, it is also clarified that major shareholders are prohibited from selling securities or participating in derivatives trading with the company's shares as the underlying asset. At the same time, it also prohibits the refinancing and lending of restricted shares, and the selling of restricted shares by shareholders through securities lending.

  In the past, some listed companies actually "shorted" their own company shares, especially before the restricted shares were allowed to be lent, but some major shareholders of listed companies tried their best to realize them in advance.

  The main reason for setting the lock-up period is to prevent the early release of restricted shares with very low holding costs from having an unfair impact on investors in the secondary market. The lending of restricted shares itself will affect the principle of fair trade in the capital market, and the subsequent complete ban on the lending of restricted shares has finally plugged this loophole in the rule.

  In addition to the lending of restricted shares, major shareholders will also think of other ways to liquidate. For example, using the T+0 trading rules of refinancing securities to arbitrage, in disguise "shorting" their own stocks. In the context of T+0 refinancing securities, it is also convenient for the high-frequency arbitrage of quantitative funds, because the A-share market implements T+1 and refinancing securities implement T+0, and arbitrage funds use the asymmetry of trading time to achieve arbitrage purposes, and refinancing securities have also been transferred from T+0 to T+1 since March 18 this year.

  Although the upgraded version of the new shareholding reduction regulations has almost plugged the loopholes in the original rules, we still need to consider a question, why do the major shareholders of listed companies always want to reduce their holdings and sell their shares after the company is listed, instead of holding shares for a long time, and witness the development process of the company with shareholders?

  The reason for this phenomenon may be related to many influencing factors.

  Among them, the speculation at the beginning of the listing of new shares has caused the valuation of new shares to be at a high premium. In the past, companies that sold 20 yuan/share can sell at a price of 50 yuan/share, and the holding cost of major shareholders is much lower than 20 yuan/share.

  In addition, the A-share investment ecology has long created an atmosphere of "getting rich overnight" or "making quick money", such as the stock market has been in a long-term "bull short bear long" operation pattern, everyone always wants to make money as soon as possible, but they are unwilling to get rich slowly, and even everyone thinks that it is difficult to achieve slow wealth in the A-share market.

  In addition, the company has a long waiting time to go public, and many entrepreneurs regard the listing of the company as the end of their struggle. When the company's shares were officially listed, the idea of exiting came up. The energy of major shareholders is focused on reducing their holdings and realizing them, rather than doing a good job in a down-to-earth manner, and many listed companies are at the peak at the beginning of their listing, and then enter the long bear process.

  The implementation of the strictest new rules on shareholding reduction in the history of A-shares is conducive to alleviating the pressure on major shareholders in the A-share market to reduce their holdings. However, this did not fundamentally solve the problem, A-share listed companies frequently staged a wave of reductions, and some listed companies also detoured to reduce their holdings, indicating that the major shareholders' minds are no longer on operation and management, but on the reduction of stock holdings. How to guide the major shareholders, directors, supervisors and senior executives of listed companies to manage the company with heart, manage the company's market value carefully, and witness the company's development with shareholders through long-term shareholding is the key to boosting the confidence of A-share investment.

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Personal opinion, for reference only