New Securities Law follows market rules

Editor's note: China's top legislature recently passed the revised version of the Securities Law, which takes effect on March 1. This is the second comprehensive amendment to the law since it came into force in 1999. 21st Century Business Herald comments:

The law was first revised in 2005, and work on the second amendment began in 2013. The amendment tones down the "privileges" in the Securities Law.

The existing law allows the top securities regulator, not market investors, to decide which "good" companies would be included on the registration list, which could lead to corruption.

The amended law, on the other hand, will treat the registration system as a cornerstone of a fair market, cancel the issuance examination committee and authorize the State Council, China's Cabinet, to promulgate stipulations on the specific scope of the securities issuance registration system.

The amended law shows China is determined to operate its securities market based on market rules and adhere to the "disclosure philosophy" established by the 1933 Securities Act of the United States. In the past, China's top regulator also emphasized the centrality of the information disclosure regulation, but the old securities issuance model failed to make investors believe "sunshine is the best preservative and street lamp the best police".

The amended law will also set the legal basis for China to expand the pilot registration-based system for initial public offerings in the A-share market and better implement the de-listing system in the securities market.

There have been increasing calls for the regulator to intensify the de-listing regulation to weed out underperforming companies, but under the existing issuance approval system, it is hard for the authorities to do so, as the companies are not listed based on market rules. With the enforcement of the amended Securities Law, this system is expected to change.