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it is not that former employees of the csrc system are prohibited from investing in ipo companies, but they cannot "invest improperly" - on september 6, the csrc officially issued the "regulations on the supervision of former employees of the csrc system investing in companies to be listed (trial)" (hereinafter referred to as the "regulations"), which drew a clear red line for improper investment by former employees.

in recent years, problems such as "sudden equity investment" in the ipo field have been continuously exposed. some "sensitive shareholders" hide behind the nominal shareholders of the listed companies through equity holding on behalf of others, indirect shareholding by multi-layered nested institutional shareholders, etc., forming "shadow shareholders". they invest in the companies before they are listed or acquire shares at a low price, and obtain huge profits after the listing. behind this phenomenon, there are many problems such as power-for-money transactions and interest transfer.

since 2021, the csrc has successively issued the "guidelines for the application of regulatory rules - information disclosure of shareholders of companies applying for initial public offering" (hereinafter referred to as the "information disclosure guidelines") and the "guidelines for the application of regulatory rules - issuance category no. 2" (hereinafter referred to as the "no. 2 guidelines") to strengthen supervision on "surprise equity investment", especially "inappropriate equity investment" by former csrc staff. from the results, the listing process of many companies planning to ipo has been slowed down, prolonged or even terminated, and the rectification effect is outstanding.

however, due to the lack of clear regulations on issues such as resigned employees, improper shareholding, shareholding prohibition period and how to clean up, some companies and investment institutions affected by the listing process have also publicly expressed their objections and anxieties.

in april this year, the new "nine national regulations" proposed "building a strong regulatory force with strong political, strong capabilities and strong work style", requiring strict and tight management of resigned personnel, and rectifying "shadow shareholders", improper shareholding, political and business "revolving doors", "escape resignation" and other issues. subsequently, the csrc published the draft of the "regulations" for comments on april 26.

the new rules have been officially issued, giving a clearer definition of the main issues in the early stage, and at the same time, drawing a stricter and clearer red line for prohibited behaviors. the industry expects that with the clarification of the rules, the ipo projects that have been "pending for a long time" will be further promoted.

strictly prohibit improper shareholding

in order to strictly regulate the "revolving door" between government and business and prevent former employees from abusing their public power while in office and their influence after leaving office to obtain improper and illegal benefits, the china securities regulatory commission further strengthened the supervision of former employees' shareholding behavior and, based on the "guideline no. 2", formulated the "regulations" and solicited public opinions from april 27 to may 11.

on september 6, the "regulations" were officially issued, which gave clear definitions on who is considered "former employees", what situations constitute "inappropriate shareholding", which period is the "prohibited shareholding period", which elements the "special explanation" should include, and what to do in case of improper shareholding.

resigned personnel refers to former staff members whose relevant shareholders have left the csrc system for less than 10 years at the time of the issuer's declaration.

specifically, there are four categories: one is the personnel who have resigned from the csrc’s headquarters, dispatched agencies, stock exchanges, and the national equities exchange and quotations; two is the former cadres who have resigned from other units under the csrc’s jurisdiction; three is the personnel of other units under the csrc’s jurisdiction who have been seconded to the csrc’s issuance supervision department or public company supervision department for a total of 12 months and have resigned within 3 years after the end of the secondment; four is the personnel who have been transferred from the csrc’s headquarters, dispatched agencies, stock exchanges, and the national equities exchange and quotations to other units under the csrc’s jurisdiction and have resigned within 3 years after the transfer.

improper shareholding includes six situations: one is shareholding during the prohibited period of shareholding; two is using the influence of the original position to seek investment opportunities; three is the transfer of benefits such as unfair prices in the shareholding process; four is shareholding through proxy holding; five is the source of shareholding funds is illegal and in violation of regulations; six is ​​other improper shareholding situations.

the prohibition period for shareholding is 10 years after leaving the job if the resigned personnel had served in an issuance supervision position within 5 years before leaving the job, or was a member of the association management team before leaving the job. if the resigned personnel does not fall into the circumstances listed in the preceding item, the prohibition period for shareholding of deputy division level (middle level) and above is 5 years after leaving the job, and that of personnel below deputy division level (middle level) is 4 years after leaving the job.

the special explanation submitted by the issuer, the sponsor and the issuer's lawyer needs to include six aspects, namely, basic information, source of investment opportunities, share price, source of share funds, authenticity of exit and other important matters related to the shareholding of former employees.

if there is any improper investment by a former employee, the regulations clearly state that it should be cleared up and the details of the clearing up should be explained in detail in the special explanation. if there is no improper investment by a former employee, the former employee should issue a commitment that there is no improper investment as an attachment to the special explanation.

compared with "guidelines no. 2", the "regulations" have added three new requirements.

first, the prohibition period for resigned personnel to buy shares will be extended. the prohibition period for resigned personnel who are in positions of issuance supervision or are responsible for the management of the company will be extended to 10 years; for resigned personnel other than those in positions of issuance supervision or are responsible for the management of the company, the prohibition period for resigned personnel at the department level and above will be extended from 3 years to 5 years, and for resigned personnel below the department level will be extended from 2 years to 4 years.

second, the scope of strict supervision of resigned personnel will be expanded. the scope of strict review will be expanded from the resigned personnel themselves to their parents, spouses, children and their spouses.

third, higher verification requirements are put forward. intermediary institutions should fully verify the investment background, source of funds, price fairness, and authenticity of cleanup of resigned personnel, and the csrc will verify and review the relevant work. during the implementation of the system, the stock exchange will do a good job in policy interpretation and guidance for listed companies, intermediary institutions and other parties.

draw a red line and clear the violations

in the process of capital market reform from approval system, approval system to registration system, enhancing market openness, fairness and justice, minimizing rent-seeking space in the issuance review field, and building a market-oriented and law-based listing environment have always been important directions for all parties to work together.

however, regulatory officials are constantly being brought down for abusing their positions to help others with company issuance, listing, and restructuring and accepting bribes, proving that rectifying the "revolving door" between government and business is not an overnight task.

for example, in the case of zhu congjiu's bribery which was publicly tried on september 6, according to the prosecution, zhu congjiu used the convenience of his positions as deputy secretary and general manager of the shanghai stock exchange party committee, member of the party committee, assistant to the chairman and director of the issuance supervision department of the china securities regulatory commission, member of the party leadership group and deputy governor of the zhejiang provincial government, and member of the party leadership group of the zhejiang provincial committee of the chinese people's political consultative conference from 2002 to 2022 to provide assistance to relevant units and individuals in matters such as company listing, financing loans, and business operations, and illegally accepted property directly or through others totaling more than 105 million yuan.

since the registration system reform, the csrc has abolished the ipo examination committee and delegated the examination power to the exchanges, making the issuance examination more market-oriented. however, in practice, there are still some investors who hide behind the nominal shareholders of the listed companies through equity holding, indirect holding by multi-layered nested institutional shareholders, etc., forming "shadow shareholders", and invest in the company before the listing or acquire shares at a low price, and obtain huge profits after the listing. there may also be a series of problems such as power-for-money transactions and interest transfer behind the scenes.

at the beginning of 2021, the issue of "surprise equity investment" in ipos caused heated discussions in the market. the china securities regulatory commission subsequently issued the "information disclosure guidelines" on february 5 to strengthen shareholder penetration and strengthen the supervision of equity investment behavior near ipo. among them, the resigned personnel of the china securities regulatory commission system are the key targets of investigation. at the same time, the china securities regulatory commission has launched a comprehensive investigation of the companies under review.

with the coming of strong regulation, will it be impossible for former csrc employees to invest in shares? for a time, the rumor that "the csrc will not accept any investment in companies to be listed by former csrc employees, and will suspend the review of those that have been accepted" spread quickly. in response to this, the csrc made a timely clarification on april 19, 2021, saying that "for ipo applications involving investment in shares by former system employees, the csrc will accept them normally and strictly promote the review and reexamination procedures in accordance with the law."

in order to provide clearer guidance, the csrc issued "guideline no. 2" on may 28 of the same year, stating that "improper investment shall be made by personnel who have left the csrc system and use the influence of their original positions to seek investment opportunities, transfer benefits during the investment process, invest during the prohibited period, invest as an unqualified shareholder, or the source of investment funds violates laws and regulations."

with the release of "guideline no. 2", the average review period for former employees to invest in listed companies has been significantly extended, and many ipo projects have even been suspended or shelved.

last september, the issue of eight former employees of the china securities regulatory commission (csrc) holding shares among the indirect shareholders of deyi microelectronics co., ltd., a company under review on the science and technology innovation board, attracted great attention from the market. the shanghai stock exchange subsequently issued a special press release, responding that "the eight former employees indirectly held less than one share of the issuer's shares." however, the company has withdrawn its ipo application and terminated its listing review on march 30 this year.

zhejiang mingtai holdings development co., ltd., which was accepted by the shanghai stock exchange's main board in february last year, also saw its listing process slowed down due to the issue of former employees taking shares. the project was terminated on april 7 this year.

inspur innovation technology co., ltd. (hereinafter referred to as "inspur technology"), which is currently in the registration stage, also suffered setbacks in its ipo due to "sensitive shareholders" issues. the company's application for the science and technology innovation board was accepted in october 2020, and it submitted its registration on january 28, 2022. in november of the same year, the china securities regulatory commission issued an inquiry on the registration stage.

there was only one question, which was "please provide additional information on the current holdings of the issuer's shares by the indirect shareholder chen bin, the background and reasons for the transfer of holdings since the filing, the payment of consideration and the authenticity of the transfer, and whether there is any interest transfer or other interest arrangements. please ask the sponsor and the issuer's lawyer to verify and express clear opinions." however, since then, yingshi technology's road to listing seemed to have been paused.

more than two years after submitting the application for registration, inspur technology has still not received the registration approval. recently, the company's founder liu jingkang has been "impatient" and frequently expressed his expectation for the project to move forward on social media, saying that "sensitive shareholders" have no interest transfer, have not concealed their investment, and have submitted special reports.

the latest data disclosed by the china securities regulatory commission on september 5 showed that the registration status of yingshi technology is still "under further inquiry."

yicai also noted that chengdu dexin digital technology co., ltd. (hereinafter referred to as "dexin technology") was exposed in august 2022 that five former employees of the china securities regulatory commission system "surprisely invested in the company". the company's ipo application was accepted by the growth enterprise market in june 2021. after several rounds of inquiries, it is planned to be reviewed on september 29, 2022. however, shortly after the resignation of the employees was exposed, dexin technology withdrew its ipo application on september 27, 2022.

however, the latest information shows that dexin technology has turned to the beijing stock exchange to apply for listing, and was accepted on june 28 this year. it is currently in the "inquiry" stage.

with the official release of the "regulations", the industry expects that the previously "long-pending" ipo projects will be able to be further promoted.