Category: Money tips Release Date: 2006-02-13
"Warrants" to address the launch of this historic split share structure problem provides a new option, but the exact how to operate, how they carry out effective monitoring, the existing relevant legal system will also be required for improvement in
Solve the split share structure, with China Securities Regulatory Commission Chairman Shang Fulin as saying that "open-bow arrows without looking back." With the first two batches of experiments step by step, in full swing are just a matter of time. In this process, the non-tradable shares tradable shareholders to give shareholders "compensation" in the form began to become more diversified, beginning with a "Major Holders" or "distributed cash", and later emergence of the "Su Gu" and "warrants."
Warrants of this financial derivative instruments to understand the history of China's securities markets of those who have not unfamiliar. In the last century, the nineties, once in Shanghai and Shenzhen Stock Exchange launched off switch placements or Zhuanzeng stock warrants.
Nine years later, warrants product in people's expectations have to reproduce in the market. June 13, 2005, Shanghai Stock Exchange issued the "Interim Measures on the Shanghai Stock Exchange Warrants Business Management (draft)"; following day, the Shenzhen Stock Exchange has also published the "Interim Measures on the Shenzhen Stock Exchange Warrants Business Management (for comments draft). " By July 18, Shanghai and Shenzhen Stock Exchange formally promulgated the "Interim Measures on Management Shanghai Stock Exchange Warrants" and the "Interim Measures on the Shenzhen Stock Exchange Certificate Management." Although the Shanghai and Shenzhen Stock Exchange after the introduction of long-simmering set of "rules of the game" is not to solve the problem of split share structure designed, but the warrant was agreed that the introduction of the market is the solution to this problem provides a historic new options.
What is the "Warrant"?
SSE's "Interim Measures" will be the C of E is defined as "the underlying issuer or its third party other than the release, the agreement holder within the required period or a specific expiration date, shall be entitled to the agreed price to the issuer to purchase or sale of the underlying securities, or to receive a cash settlement of the securities clearing price difference. "
In essence, warrants a permit holder has the right but not the obligation to the agreed prices in the appointed time to buy or sell an agreed amount of securities underlying assets. Issued by the different subjects can be classified as equity warrants warrants (or known as the company's C of E) and covered warrants (or known as the derivative C of E).
Equity warrants by the underlying issuer of securities issued by the subject matter covered warrants issuers other than the third issue. Equity warrants must be based on physical delivery of shares that the holder to pay all the warrant exercise price, the warrant issuer must deliver the shares, which will change the listed companies, the number of shares outstanding. The issuers of covered warrants and the warrant itself is involved in securities issuer or its subsidiaries do not relate to an independent third party, usually investment banks, its underlying assets can be both stocks can also be a bond, stock index , funds, currencies, commodities or a basket of securities. Covered warrants not only with physical delivery, it also uses the cash delivery. And, because the subject is covered warrants have been issued and outstanding securities, covered warrants, therefore there is no dilution effect due implementation.
Difference lies in the nature of two types of warrants the issuance of equity warrants with the purpose of financing or refinancing linked; while the issue of covered warrants will not increase the share of stock. From solving the purpose of starting-tradable shares to tradable shareholders should be distributed to covered warrants.
Warrants "Zhunsheng Zheng" problem
In theory, the C of E as a kind of flow of financial derivatives, of course, is a "securities species" can be stocks, bonds trading at the Stock Exchange. For example, the United States expressly warrants product under the "Securities Law" in the "securities" conceptual framework.
However, in China, the warrant is not a direct recognition of legal identity clear. Although from 1992 to 1996, the warrants is a legitimate China's stock market variety, but it entered into force in 1999 the "PRC Securities Law" in its provisions of Article II, only specifically enumerated in the stock and corporate bonds, two kinds of securities form, but also authorize the State Council can be sure that other types of securities. That is to say, warrants to obtain an "official" legal status, is also a need to get the State Council issued the "Zhunsheng Zheng", just approved by the SFC or the Stock Exchange, nodding approval is far from enough.
Since the warrants is defined as securities, issuance and listing of its real conditions and procedures for the conditions must be consistent with the "Securities Law" and relevant regulations. In China, "Securities Law" Article 10 explicitly "public offering of securities must comply with laws and administrative regulations of the conditions and according to the law reported to the State Council securities regulatory body or the State Council approved or authorized by the department for approval; without legal approval or approval, Any unit or individual shall not issue securities to the public. "This means that only after the Commission's review, a particular species can be public offerings of securities.
SSE "Interim Measures," Article 4 provides for "the issuance of the warrants to the listing, trading, transportation rights and information disclosure regulation, the China Securities Regulatory Commission, except as otherwise provided." And the specific provisions in other articles the conditions of issuing warrants and exchange approved by the procedural norms. However, it is clear that these provisions of the SSE with the current "Securities Act" contrary to the provisions of Article 10, is a "transgression of power." The same problem exists in the Shenzhen Stock Exchange's "Interim Measures," in. Further, even if the SFC to give the Exchange a special license, allowing it to approve the issue of warrants, such an approach is also a lack of legitimacy, because the "Securities Act" there is no provision allowing the Commission to turn its statutory powers to authorize to the exchange.
Reference to other countries and regions of the legislation, the issue of warrants for the supervision of the distinction between equity warrants and covered warrants, apply different assessment system.
Since the issuance of equity warrants expansion of companies involved in equity and financing needs, which shall be those approved by the stock issuance system, led by the China Securities Regulatory Commission issued regulation. Of course, this audit mode means that the issuance of equity warrants to comply with more stringent conditions and the real experience of a longer release cycle.
As for the issue of covered warrants, because they do not involve the financing problem, they should be reviewed grant Stock Exchange, at the same time can use the "Issuer qualification management" model, that is, exchanges in the business rules set the appropriate conditions, in line with conditions and qualified persons, according to market conditions and their own needs, at any time warrants issued to the Stock Exchange for listing. In this way, avoiding the cost for each application to be issued a long cycle. This is something to solve the split share structure for the purpose for issuers of covered warrants listed companies has become very important.
For the issue of covered warrants monitoring in Hong Kong is perhaps worth our learning, that is, on the one hand the government regulatory authority to the exchanges on the issue of warrants to conduct audits to improve regulatory efficiency and reduce transaction costs; the other hand, the government passed legislation that explicitly regulatory authorities for approval, as issuing and listing the highest authority, you can apply for release under certain circumstances the exercise of the veto power, so that not only guarantee the centralized management system of government in the operation of the securities market regulators to the major components of the highest power to control, but also prevents a result of self-regulation of the defects and lack of government regulation may be caused by the phenomenon of market failure.
Listing the ways of regulating
As for the warrants issued after the market supervision, while appropriate for the exchange to complete. In reality, China Securities Regulatory Commission has been under the "Securities Act" provisions of article 43 of the stocks listed on the approval of the authority "delegated" to the exchange, but also after the revision of the "Securities Act" is likely to give a direct exchange on the power . As a result, the listing exchange initiative card is just the right supervision.
To protect the warrants market, liquidity, national and regional laws and regulations of the securities or warrants listed on the exchange rules have made a number of provisions focused on the market value of warrants issued request, the number of warrants held by dispersion requirements. In Taiwan, the warrant listing standards, including the conditions of the underlying securities, based on the same underlying securities, the number of all warrants, a single number and dispersion of warrants on three aspects. Hong Kong, Singapore and other places warrant listing conditions essentially similar.
Taking into account the size of China's stock market listed companies, generally small, in order to prevent circulation of shares and warrants warrants triggered by the small size of the risk of price manipulation, to be listed covered warrants market in the issue size and distribution, etc. should have to meet certain conditions. Shanghai Stock Exchange, the "Interim Measures," Article 10 provides for warrants traded on the conditions, including: the need agreement warrants category, duration, exercise price, the right of the date line, line clearing the right of way line of the right to such factors as the proportion of ; warrants no less than 50 million copies; holding more than 1,000 investors in warrants shall not be less than 100 persons from the date listed on the survival time of more than 6 months 24 months less; issuers provided to meet the requirements of the performance guarantees.
As the warrant is an option with the nature of financial products, and therefore there may be a party of obligations due non-compliance issues. In order to reduce the risk warrants the product, trading in the pit all the necessary warrants variety of issuers of performance capacity to implement regulation to require issuers to provide some form of security. Once the final obligation of people for various reasons, unable to perform, the exchange will have to be the final guarantor of compliance.
From the practice of States, for unsecured covered warrants, countries or regions of the securities laws and regulations from their financial situation and risk control two aspects of the issuer provides the most stringent conditions, such as the issuer does not meet the specified conditions, it must be has the primary obligation of the guarantor as to the identity of the unconditional and irrevocable to the issuer bears the proper and timely implementation by issuers of covered warrants arising from obligations.
In other cases, the issuers of mortgage-backed covered warrants, which would require the issuer to provide the underlying stock or cash as a guarantee of the right line, which under the condition of the issuer eligibility requirements and relatively cheap.
SSE "Interim Measures" and Article 11 requires the issuer, "through a dedicated account to provide and maintain a sufficient number of underlying securities or cash, as a performance guarantee," or "provides recognized by this body as an irrevocable performance joint and several liability guarantor. "
It is worth mentioning that the performance guarantee applies only to covered warrants. As for the issue of equity warrants, then there is no problem.
In China, the Shanghai and Shenzhen Stock Exchange to provide performance guarantees for all publicly traded warrants a prerequisite, it is not necessary, after all we have for the future issuance of equity warrants to provide space.
Conflicts with the existing legal system
As our existing securities laws and regulations, does not warrant the product-related issues involved in giving answers, so to some extent makes the warrants on the launch of the lack of a sound system for support. For example, the "Securities Law" Article 106 states that the "securities company or self-commissioned to the day the securities purchased shall not be re-sold in the day." This means that "T +0" trade is prohibited. However, SSE, "Interim Measures," Article 21 provides "the date of warrants to buy the same day can be sold." This is obviously with the current "Securities Act" conflict.
As another example, "Securities Law" Article 35 provides for "dealing in securities transactions in order to spot", which provides the fundamental rejection of the legal status of derivative financial products. Warrants to be released now is essentially a call, is not "spot transaction". Revising the "Securities Act" provisions of Article 35 of the abolition of restrictions on long-term delivery before the warrants product fairs are already behind the reality of the fetters of the legal system.
Tax law system is also a problem. To tie in with resolving the split share structure reform, June 13, 2005 with the National Tax Administration of the Ministry of Finance jointly issued the tax supporting policy, which includes two减免税规定The first is "split share structure reform process due to non-tradable shareholders to tradable shareholders took place on the price of the equity transfer, waiver of stamp duty. " The second is "split share structure reform of the Central African circulating shares by way of the price paid to the shareholders of the outstanding shares of stock, cash and other income, shall be exclusively charged to shareholders of tradable shares to pay corporate income tax and personal income tax." In other words, equity arising in the course were set to solve the equity transfer and cash payment will enjoy tax exemption. So, warrants the program then? Can have a corresponding duty-free treatment? We look forward to the answer.
For the warrants program, the investment fund has not demonstrated a positive attitude, reason is the uncertainty related to the legal system led to the Fund's investment behavior in the future uncertainty. In accordance with "The People's Republic of China Securities Investment Fund Law," the provisions of Article 58, the fund assets should be used for the following investments: publicly traded stocks, bonds, securities regulatory bodies of the State Council under the variety of other securities. That is for funds to invest in warrants and other Securities and Futures Commission would have to be provided, but now only warrants products in the development of Shanghai and Shenzhen Stock Exchange rules.
There is a more important issue is the ownership percentage. "Securities Investment Fund Law" on a single fund and the same fund management company's number of funds held by the ratio of a particular stock is limited. In this way there is a doubt, the warrants held by the Fund shares whether or not to be counted into the total number of holdings. As the warrant for the funds, only a right to a certificate, without any corresponding obligation to request, so the fund is in the next row of the right is uncertain. If the warrants into shares to be included in the total number of holdings, the Fund invest in the stock room on the spot have been greatly compressed, and this either for fund investors or the securities market are not a good thing. If warrants are not included into the ownership of shares the total number of lines that when the Fund has the right to equity ratio after the overrun, but also how to solve it? The denial of the right line, or call for an immediate transfer of securities will exceed the proportion? No matter how the disposal of waste, will undoubtedly bring huge losses to the Fund.
In fact, a similar problem for the equity ratio, or limited number of holdings of institutional investors (for example: QFII, insurance, investment institutions, etc.) are the same in terms of presence.
In addition, the "Securities Act" appears for the proportion of shareholding of 5%, and on this basis, a further 5% increase or decrease in the case, the report provides justice and suspension systems, but also require a 30% share holding of the shareholder have overall acquisition of the obligation. That question will come, when the proportion of those holding a breakthrough is due to power lines caused by warrant holders, and that whether to be exempted from the relevant statutory obligations?
