NPC reviews Securities Law amendment

Country may soon adopt revision to pave way for capital market reform

The top legislature deliberated on the draft revision of the Securities Law over the weekend, signaling China may soon adopt the revision to pave the way for key capital market reforms, experts said.

On Saturday, the draft revision was submitted to a bimonthly session of the Standing Committee of the National People's Congress for a third reading, Xinhua News Agency reported. The session began on Saturday and continues through Tuesday.

Revision of the fundamental law governing the capital market has lasted for six years, with 2015 and 2017 having seen readings of two draft versions.

"The latest draft version is of great importance because it will provide legal grounds for the registration-based initial public offering system－a key reform that China's capital market has been awaiting for years," said Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology.

Unlike the second version, the latest one included rules on the new science and technology innovation board, which will pilot the registration-based IPO system, according to Xinhua.

To accommodate the progress of reforms and development of the capital market, other modifications have also been made, covering public issuance of securities, securities trading, and the protection of investors' rights and interests, Xinhua said.

Dong expects the latest version to legitimize registration-based IPO systems not only on the new board, but also across China's whole A-share market. "Once the system achieves success on the new board, it should be adopted on other submarkets as soon as possible," Dong said.

President Xi Jinping announced in November that China will launch the S&T innovation board and pilot the registration-based IPO system. Analysts expect the new board to begin trading around the middle of this year.

"The latest draft is expected to make comprehensive revisions, and it could go a long way toward restoring public investors' confidence and modernizing the regulation and governance of the capital market," said Liu Junhai, director of the Business Law Center at Renmin University of China.

Specifically, the draft likely will and should feature key reforms to foster an investor-friendly legal system, represented by strengthened information disclosure, protection of investors' rights and interests, and crackdown on legal breaches, Liu said.

China must promote the healthy development of the capital market through key institutional innovations, the Political Bureau of the Communist Party of China Central Committee, the Party's core leadership, said a statement released after a meeting on Friday.

Dong said the revised law is likely to be adopted by the end of the first half of the year, adding it is imperative and possible to expedite rolling out the revised version.

"Previously, controversies over the registration-based IPO system reform have prolonged the revision process, but now this factor has been largely lifted," he said.

"As foreign investors are set to play a bigger role in China's capital market development, the revised law should also consider clarifying the rights and obligations of overseas investors, to help them form a stable policy expectation," said Xue Yi, an associate professor of finance at the University of International Business and Economics in Beijing.