On Legal Reasoning Of Constructing The Registration System Of Stock Issuance In China

The Third Plenary Session of the 18th Central Committee of the Communist Party of China has deliberated and approved "the Decision on Major Issues Concerning Comprehensively Deepening Reform", according to which the aim of the capital market is to boost the promotion of the registration system of stock issuance.In this article, the author tries to present the whole history of the stock issuance system in China, therefore analyses the essence and the of origin of the existing problems of the systems. In reference of legislation and practices of other countries, the author then discusses the value goal, the basic principle, the primary missions, the step and scheme of reforming well as the reform measures of the registration system to provide a reference for the formulation and promotion of that system. Apart from introduction, there are five chapters in this article.In the first chapter, the author analysis the legal reasoning of the stock offering system in China, summarize some dilemmas in market regulation, and correct the misunderstanding of reform proposals of stock offering system. Referencing the Constitutional Order theory, there are three kinds of law form, which is the Statute law, the Conceptual law and the Real law. According to this method of classification, the development of stock issuance regulation system in our country can be divided into three historical stages, which is the Local Trial Period (1984-1992), the National Trial Period (1993-2000) and the Transition and Development Period (2001until now). By authorization, the China Securities Regulatory Commission (CSRC) approves stock issuance strictly, prevents speculation of new shares, limits the sale of shares rigorously, keeps a tight rein on risk, and cracks down on illegal operation. Even so, the stock issuing in our country has entered some Pause-Reboot circles and trapped in the dilemma which is called policy market, speculation market or gambling market. Come so far, there are three kinds of different solutions proposed by specialists and scholars, which is Administrative license reform plan, Stock market reform plan and Securities issue supervision system reconstruction plan. But various solutions have obvious shortcomings. In fact, registration system reform is a systemic reform, which means the reform cannot be limited to the administrative licensing, confined in the stock exchange market itself and set in only stock varieties, but do top level design following the principle of marketization and the rule of law.In the second chapter, the author analysis the origin and development of stock offering system in our country, explains the reasons for policy market, speculation market or gambling market. Policy market stemmed from risk controlling policy to control securities issuing size during National Trial Period. After "Securities Act " cancelled size controlling policy of "Provisional Regulations on the Administration of Share Issuance and Trading", applying for share issuance became one fundamental right of the enterprise. Unfortunately, the government shut down all OTC markets and failed to promote the construction of multi-level capital market, and to broaden equity financial channels of the enterprises to meet the needs of market developing. In order to ease market pressure suffered by the Shanghai and Shenzhen Exchange, the government implemented "Channel System" and "Sponsor System" successively to control applying number from the beginning of approval process. The government tried to balance the tension between the primary market and secondary market by the means of controlling the approval document for issuance, and controlling the price and allocation methods of offering. All these practices consolidated the contradictions of oversupplying from the macro level and supply falling short of demand from the micro level. In essence, the above practices were doomed to fail because they tried to promote the transformation of the market and regulation beyond the statutory framework which were contradictory to the fundamental spirit of marketization and the ruling of law. After entered the Transition and Development Period, the statute law of stock issuing system transcended the conceptual law and the real law, the contradiction between policy market and the objective laws of marketization and legalization was divided and plundered. Based on the initial purpose of easing state-owned enterprises financial pressure, securities markets developed some new characteristics, which we called speculation market. The government reduced the quantity of state owned share in order to supple social security funds, and the non-tradable shares trouble which formed in equity division reform, have become a new channel of stock speculation. The government to promote equity financing, increase the proportion of direct financing, which boost the stock market speculation. Deformity of market valuation, anomaly pattern of interests, caused the deformity of the financing mode. Gambling market dilemma came from the "market failure", including internal supervision mechanism failure which mainly from inadequate corporate governance structure, external supervision failure, and the professional service organization failure. Under the circumstances of policy market and speculation market, non-rational behavior of investors bring in a lot of impact on the formation of gambling market. The government’s invisible hand is too strong and the visible hand of markets is too weak, which resulted in three issues inextricably interwoven and reinforce each other.The third chapter is mainly about reference and comparison to the institutions and practices of registration system in some countries and regions. The United States implemented stock issuance of registration system earliest. In Securities Law of 1933, The United States established the offering supervision legal system which take the "Disclosure regulation" as the core. The registered system of legislation and operation in different countries and regions, such as the United States, Japan, South Korea, Hong Kong, Taiwan, have some common basic characteristics. Firstly, registration system has the nature of administrative license, the authorized organ audit information disclosure document with the authority of the law. Secondly, centered on information disclosure, the audit is to meet the needs of investors to obtain sufficient information to make investment decisions, help the issuers improve the quality of information disclosure, and safeguarding trade openness, fairness and justice. Thirdly, on the basis of market main body their respective responsibility, this is the precondition for the implementation of the registration system. The issuer is the first responsible of information disclosure, securities intermediaries, faithfulness and play a "gatekeeper" function, form the integrity constraints. At last but not least, to strengthen the matter later regulation and strengthen investor protection as the fundamental guarantee. As an urban economy, Hong Kong have less local issuers and investors, and exchange is relatively strong but the SEC too relatively weak for a long time, which resulted stock issuance of registration system into a dual filing system. Japan, South Korea, and Taiwan are small open economy with mature economies and markets. In those markets, the enterprise applying for offering is less, delisting of the enterprise is more than the listed companies sometimes, shares issued by the government audit gradually transition to the audit by the exchange. In fact, as a big country economy, America’s experience is worth reference. Although our existing system is mainly for reference in the above countries and regions, in the regulatory organization and responsibilities, auditing system and mechanism, and so on are the same, but there are still large fundamental difference, especially the concept of market economy and the rule of law government, economy and society foundation of integrity and autonomy and sound guarantee of law.The fourth chapter concentrates on the registration right in the legal theories and legislation system of our country. Base on the government-market relationship paradigm, the author define the registration right of stock issue as public power, which aims to reduce the information asymmetry between issuers and investors, promote trade more fair. On the legal nature, the registration right belongs to administrative permission right and exercise by government agencies or legal authority organization. The foundation of the registration rights is autonomy, not only the issuer but also market main body, especially the professional constraints of securities intermediary institutions. Stock audit rights belong to the rights of self-discipline, exercised by Exchange. The relationship between the issuer and the exchange is a contractual relationship. After a government agency registration, stock issuer can publicly issuing shares and are free to choose trading places. But, as a public company, no matter where its shares are trading, all need continuous disclosure obligations. Relative to the approval authority with recruitment conditions, registration rights only to review the quality of information disclosure of the applicant, the main concern for the adequacy, consistency and understandability. The truthfulness, accuracy and completeness of the information shall be the responsibility of the applicant. The protection of registration rights should be strengthen, enhance its independence and efficiency, and satisfy the diverse demands in its economy for investment capital and financing. After relax front-end control, accordingly, should also improve and perfect related system, especially civil relief to investors and crackdown on crime.In the last chapter, the author puts forward reform and implementation plan of refactoring share issuance system of registration. To reform stock issuing system of registration, we should transform the related concept, policy system and practice fundamentally, make a comprehensive plan from the legislative, administrative and judicial aspects, implement step by step according to the revised procedures of Securities Law, refactoring market system, restore the administrative concept, and rebuild operation mechanism. Based on the basic principles of more convenient and effective, system design should fully meet the needs of investors and issuers, make the leading role of the market and the regulatory functions of government more effective. The basic doctrine of registration system reform, including the freedom of contract, full disclosure, registered supervision, efficient and transparent, the law enforcement fair and effective, are very important. Also, registration system reform have three tasks, which is building functional perfect multi-level capital market system, constructing efficient security issuance and trading mechanism, improving the system of justice of the administrative and judicial protection. In view of the present situation that the Securities Law is being revised, we should take two steps to push forward the reform of the registration system. In the transition period, which means before the Securities Law revised, fully revised share issue rules and regulations according to the basic spirit of registration system reform, resolve the administrativization of commercial specification and the government selfish departmentalism in legislation, interpret the basic spirit and principles of the law accurately, convenient capital formation and enhance the inclusive, perfect the market discipline and enhance autonomy, optimize audit mechanism and enhance credibility, reform regulatory enforcement and strengthen the authority. After revision, we need build registration system systematically, reconstruct capital market system and registration system comprehensively, perfect supervision mechanism, promote the regulatory transition, improve the securities legal system, and strengthen the legal guarantee. We also need improve the governance system, enhance the governance capability, and further play the basic function of capital market, which is serving the real economy and wealth management.