A milestone in capital market transformation

On Dec 28, the revised Securities Law of the People's Republic of China was approved and adopted by the Standing Committee of the National People's Congress, the country's top legislature, and it will come into effect on March 1.

Compared with the original law, the revised law substantially raises the bar in the punishment of illegal activities and rule violations, strengthens the requirement of information disclosure and improves the system to protect investors' rights and interests, which is of far-reaching significance for China to build a rules-based and transparent capital market.

The adoption of the law is a milestone event in the process of transforming China's securities market into a market-oriented, rules-based and international one.

In recent years, the number of rule violation cases in China's securities market has remained high. According to Wind Info, there were 1,917 cases of rule violation by A-share listed companies last year.

The number was much higher than the 1,203 cases in 2017, although it was a slight decrease from the level of 1,968 in 2018. There were a total of 685 listed companies that engaged in rule-violation activities last year, accounting for 18.22 percent of all A-share listed companies. Most violations were related to information disclosure.

The revised Securities Law substantially raises the maximum punishment in this area to 10 million yuan ($1.44 million) from only 600,000 yuan in the original law. The previously low penalty for committing a crime has undoubtedly encouraged the occurrence of illegal activities and resulted in some serious law violations with bad social impact.

For example, Chinese pharmaceutical firm Kangmei Pharmaceutical engaged in one of the country's largest financial frauds totaling $12.7 billion last year. The company's stock price plunged by more than 75 percent in less than two months, causing huge losses for investors.

The emphasis on information disclosure and investor protection is crucial to improving the efficiency of the financial market. Information is the basis of investors' decision-making process. Timely and complete information disclosure will help improve the efficiency and liquidity of the financial market and a sound mechanism for the protection of investors' rights and interests can ensure investors' legitimate profits and help promote the healthy development of the financial market.