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The Standing Committee of the National People's Congress (NPC) made the second revision of China's Securities Law and Company Law yesterday. The draft laws will be submitted to the top legislators for further deliberations soon.
The revised draft of the Securities Law made many amendments to the old version, which came into effect on July 1, 1999.
The new draft empowers the market watchdog China Securities Regulatory Commission (CSRC), giving it more rights to efficiently supervise the country's stock market.
CSRC can freeze or seal up an individual or corporate bank account when necessary because illegal activities in the stock market are always characterized by the quick capital transfer and can lead to serious social repercussions.
On the other hand, the draft also makes some restrictions on CSRC to guarantee the fair use of its new rights. The draft law said it needs the approval of the regulator's chief in charge when freezing or closing down a bank account. Moreover, at least two investigators should be appointed to make the investigation.
The committee said the Securities Law does not cover securities derivatives such as warrants and option. The State Council will soon issue a regulation on the issuance and trading of securities derivatives.
When issuing corporate bonds (not including convertible bonds) to a certain group of investors rather than the public, the issuer does not have to appoint a sponsor, according to the draft law.
Specific provisions are also made on the responsibilities of the securities issuer, listed companies, and controlling shareholders when making information disclosures.
The draft law prohibited Securities consulting companies from using mass media agencies or other means to spread false or misleading information to investors. The consultants have to compensate investors if they spread false information.
Meanwhile, the NPC Standing Committee also made revisions to the Company Law.
The revisions were made to prevent controlling shareholders of listed companies from misusing their rights and hurting the interest of the public investors.
A listed company must appoint several internal supervisors or establish a board of supervisors, but does not have to designate an independent board of directors.
According to the current Company Law, the registered capital of a joint stock company should be at least 10 million yuan (US$1.2 million). The draft law lowered the threshold to 5 million yuan (US$ 617,000) to encourage the establishment of private enterprises and then promote economic development and employment.
Moreover, the draft stated that when a company would have serious problems and its operation would suffer greater losses for its shareholders, the shareholder could apply to the court for the breakup of the company as long as it gets the nod from a certain number of shareholders representing at least 10 per cent of the company's voting shares.
(China Daily August 24, 2005)
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