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As regulatory authorities intensify their crackdown on illegal share reduction, the number of cases where shareholders of listed companies have been ordered to repurchase shares due to illegal share reduction has increased this year. This year, major shareholders of several listed companies, including Jinan Protein, Laiyifen, and Gaoling Information, have apologized for illegal share reductions and promised to repurchase shares as soon as possible and turn over the proceeds to the listed companies.

Illegal reduction of holdings is a major problem in the capital market. Driven by profit, there are always major shareholders of listed companies who cannot hold back and use methods such as block trading, refinancing and technical divorce to reduce holdings in various ways, infringing on the interests of investors and disrupting the market trading order.

Regulatory authorities have been keeping a close eye on illegal share reductions and have continuously stepped up their supervision. In August last year, the China Securities Regulatory Commission further regulated share reductions, and imposed strict restrictions on major shareholders from aspects such as price drops, net losses, and dividends. In March this year, the China Securities Regulatory Commission issued the "Opinions on Strengthening Supervision of Listed Companies (Trial)", strictly regulating major shareholders' share reductions and effectively preventing roundabout share reductions. These measures have put a "tight ring" on illegal share reductions, restrained related behaviors, and optimized the market ecology.

All parties in the market call for focusing on "fairness" while being "strict", correcting illegal share reduction as soon as possible, minimizing the harm to investors, and protecting the smooth operation of the market. To this end, in May this year, the China Securities Regulatory Commission issued the "Interim Measures for the Management of Share Reduction by Shareholders of Listed Companies", which clearly stated that measures such as ordering repurchases and paying the price difference to listed companies can be taken for illegal share reductions. From the past focus on post-event punishment to providing opportunities for timely correction, the penalty gradient for illegal share reduction has been extended, and the effect is worth looking forward to.

Under the new rules, the impulse of major shareholders of listed companies to reduce their holdings in violation of regulations will be effectively curbed. If a major shareholder is ordered to buy back shares and hand over the price difference due to secret reduction, not only will he not get any profit, but he may have to pay more real money to buy back shares due to rising stock prices, which can be said to be a waste of effort. Whether it is economic or reputational, the gain is not worth the loss.

By returning the illegally reduced holdings to where they came from, the time from filing a case to punishment and then eliminating the negative market impact can be shortened, which can achieve the effect of timely correction and rapid repair. On the one hand, the reduction party buys back the illegally reduced holdings, which increases the buyer power in the market, reverses the market supply and demand relationship, helps repair the stock price, and reduces the harm to small and medium-sized investors. On the other hand, listed companies can also obtain the price difference, thereby replenishing funds and compensating for the damage to the company, achieving multiple goals at one stroke.

The advantages of ordering a repurchase are obvious, such as rapid execution and timely correction. However, as an innovative measure, ordering a repurchase is still in the exploratory stage and needs to be continuously improved. For example, the current discussion in the industry is that the new regulations do not impose more detailed restrictions on the repurchase period and repurchase method of the party reducing holdings. How to prevent the party reducing holdings from actively promising to repurchase stocks on the surface, but delaying actual actions, thus prolonging the damage to the market; how to prevent the party reducing holdings from deliberately bypassing centralized bidding transactions when repurchasing stocks, and instead using methods such as agreement transfer to conduct dark operations, thereby damaging market fairness... All these need to be dynamically optimized in practice and "patched up".

Of course, while "striking early and striking small" against illegal share reduction behaviors, we must also "strike hard." For those who repeatedly commit illegal share reduction behaviors with serious circumstances, if they are only punished with corrections, the pain is not strong enough, and it is inevitable that some people will take chances and take risks. In addition to ordering repurchases, it is also necessary to strike hard and take more warning punishment measures including fines, strengthen legal accountability, and significantly increase the cost of violations. In this way, violators will feel the pain, investors will feel at ease, and all market participants will feel fairness and justice. (Source: Economic Daily Author: Li Hualin)