Securities Law must be better enforced

Securities Law must be better enforcedSecurities Law must be better enforced
China Daily Updated: 2005-04-27 06:36

The proposed amendment to the Securities Law rekindles a ray of hope for the ailing stock market, which stumbled to six-year low on Monday.

However, how long the flickering hope will last, or whether it will become stronger, will depend on more than an amended law although it was revealed the law will close many loopholes in the country's securities legislation.

The draft amendment to the Securities Law, which took effect in 1999, came under the review of top legislators on Sunday.

The following day, the benchmark Shanghai composite index continued its slump and registered its lowest closing price in six years.

The market's nonchalance towards the legal amendment, which should be, in the words of mainstream analysts and officials, a great stimulus to investor mood, shows deep-rooted distrust in the authorities' efforts to save the market.

It is not because the new amendment fails to represent the interest of investors.

Lawmakers have revealed the draft law amendment proposes to include a wider scope for civil lawsuits. Top managers of listed companies would be required to shoulder more responsibility over the disclosure of information. And an insurance fund for small investors may also be established.

All these points are key to fostering a healthy market.

Take corporate information disclosure as an example. A Shanghai Stock Exchange report said more than 83 per cent of listed companies' misconduct concerned deceptive information disclosure, which misleads investors.

Any good measures, however, take time to take effect. The new amendment, even if passed by legislators, will only rehabilitate the market gradually.

To save the market, its leadership must first come to terms with the real causes behind the low market mood.

It is widely argued that the current downward trend has been caused by disappearing investor hope over a solution to the lingering problem of non-tradable shares. As a transitional move in the reform of State-owned enterprises, listed companies in the A-share market have about 60 per cent of their shares held by the State. These are non-tradable. Last week, it was rumoured that a quick solution will be found to this issue.

The worries, expectations and despair in the wake of the rumour have shaken the market. But that is not all the story.

The recent doldrums have lasted for four years. Last year alone, the Shanghai stock index slid by 15 per cent, making it one of the world's worst performers. Each of the country's 70 million stock accounts, on average, lost more than 2,000 yuan (US$241).

What is worse, there is no sign the depressed market will improve in the near future.

Behind all this are wild market irregularities, which have forced investors to "vote with their feet" and for which the authorities are responsible.

Thanks to its loose approval procedures, the securities authorities have allowed many bad-performing companies in the market so they can benefit from cheap money from investors. It has failed to ferret out problematic companies. Moreover, it has not meted out adequate punishment for those engaged in price rigging, false information disclosure and market manipulation.

Loose regulations are a de facto encouragement for other misdeeds.

To reshape the market, the authorities must play its role of strengthening market regulation. Merely pinning their hopes on an amended law is childish.


(China Daily 04/27/2005 page6)