CSRC: Strategic investors must not use agreements to hold shares on behalf of others or use other methods to avoid shareholding ratio and holding period requirements.

On January 30, the China Securities Regulatory Commission publicly solicited opinions on the "Decision on Amending the Interpretation of Applicable Laws and Regulations No. 18 of the Securities and Futures Law (Consultation Draft)". The draft opinion mentioned that strategic investors are not allowed to evade the shareholding ratio and holding period requirements through agreement to hold shares on behalf or other means. During the lock-up period, they are not allowed to short sell the shares of the listed company, participate in derivative trading with the shares of the listed company as the underlying asset, or lock in profits in other ways, indirectly reducing their holdings. If a strategic investor has an unsettled short selling contract of the shares of the listed company before obtaining the restricted transfer period shares, they should settle the short selling contract before obtaining the relevant shares. The original text is as follows: Decision on Amending the Interpretation of Applicable Laws and Regulations No. 18 of the Securities and Futures Law on "Regulations on the Management of Securities Issuance and Registration of Listed Companies" Amending Article VI to: "Understanding and Application of introducing domestic and foreign 'strategic investors' to specific objects in Article 57 of the Rules for the Management of Securities Issuance and Registration of Listed Companies" Article 57 of the Rules for the Management of Securities Issuance and Registration of Listed Companies provides that listed companies can introduce domestic and foreign "strategic investors" to specific objects when issuing shares. The following interpretation is proposed: (1) Strategic investors refer to investors who make equity investments for long-term strategic goals and seek strategic synergy value with the listed company. (2) Basic requirements Strategic investors should be willing and able to fulfill corresponding responsibilities seriously, nominate directors to participate in corporate governance, enhance the level of corporate governance of the listed company, help the listed company significantly improve its quality and intrinsic value, have a good integrity record, have not been subject to administrative penalties by the China Securities Regulatory Commission or held criminally responsible in the last three years. The subscription ratio of strategic investors in this issue should not be less than five percent of the total share capital of the listed company after the completion of this issue, and if subscribed by asset management products, the number of subscription shares should be calculated separately for each product. Strategic investors can be industrial investors or capital investors. 1. Industrial Investors Industrial investors, as strategic investors, should have important strategic resources in the same industry or related industry of the listed company. Through leading technology, market, channels, brand, and other strategic resources, they should be able to drive the industrial and technological upgrading of the listed company or enhance the core competitiveness and innovation capability of the listed company, promoting a significant improvement in the profit-making ability of the listed company. 2. Capital Investors The National Social Security Fund Council, public funds, bank wealth management, enterprise (occupational) annuity funds, commercial insurance funds (insurance companies using insurance funds for self-investment or entrusting related insurance asset management institutions or investing as a single investor through related insurance asset management institutions) as strategic investors, the relevant managers should have a deep understanding of the industrial development of the listed company and be able to help the listed company introduce strategic resources or significantly improve corporate governance and internal control, promoting the integration of market resources or enhancing core competitiveness of the listed company. (3) Strategic Cooperation Agreement Listed companies should sign a legally binding strategic cooperation agreement with strategic investors, making practical arrangements for strategic cooperation. The main content of the strategic cooperation agreement should include: the advantages of the strategic investor and the synergistic effect with the listed company, the cooperation mode, cooperation areas, cooperation goals, cooperation period; the quantity of shares that the strategic investor intends to subscribe, pricing basis, arrangements for participating in corporate governance of the listed company, holding period, future exit arrangements, default liability for not fulfilling related obligations, etc. (4) Information Disclosure Requirements Listed companies should fully disclose the purpose of introducing strategic investors, basic information of strategic investors, post-penetration equity or investor structure, main content of the strategic cooperation agreement, fundraising use arrangement, etc., in the board meeting proposal of introducing strategic investors. The audit committee of the listed company should disclose a clear opinion on whether there is any transfer of benefits in this introduction of strategic investors. During the strategic cooperation period, listed companies should disclose the situation and effect of strategic cooperation in their annual reports. (5) Responsibilities of Intermediary Institutions Sponsor institutions and issuer lawyers should diligently fulfill their verification obligations and express clear opinions on whether there is any transfer of benefits in this issue. During the continuous supervision period, sponsor institutions should continuously monitor the strategic cooperation between strategic investors and the listed company. If they find that the listed company and strategic investors have not fulfilled relevant obligations, they should promptly report to the regulatory authorities. (6) Supervision and Punishment Strategic investors are not allowed to evade the shareholding ratio and holding period requirements through agreement to hold shares on behalf or other means. During the lock-up period, they are not allowed to short sell the shares of the listed company, participate in derivative trading with the shares of the listed company as the underlying asset, or lock in profits in other ways, indirectly reducing their holdings. If a strategic investor has an unsettled short selling contract of the shares of the listed company before obtaining the restricted transfer period shares, they should settle the short selling contract before obtaining the relevant shares. If the listed company, strategic investors, sponsor institutions, securities service institutions, and other relevant parties fail to disclose relevant information in accordance with the above requirements or fulfill their duties, or if the disclosed information contains false records, misleading statements, or significant omissions, the China Securities Regulatory Commission will hold them and their relevant responsible persons legally responsible in accordance with the Securities Law, the Regulations on the Management of Securities Issuance and Registration of Listed Companies, and other laws and regulations. This article is selected from the official website of the China Securities Regulatory Commission. Editor: Liu Jiayin.