System Perfection Of Share Transfer Markets Of The Non-listed Company

The boom in capital market requires circulation and transactions of capital. As one ofthe main ways of capital circulation, the share transfer is necessary and has practicalsignificance. After the growth of over two decades, the exchange market, representedby Shanghai and Shenzhen Stock Exchange, is playing a crucial role in the nationaleconomy development. However, with the development of market economy andneeds of social practice, the limitation of the exchange market as the only thrivingway exposes inevitably. In order to achieve further development of capital market, wemust break existing bottleneck, focus on opening up the channels of financing andshare circulation, and explore to set up a multi-level capital market system whichmeets the market entity’s needs of diversified investment and financing.The share transfer system of the joint stock company varies from different companytypes. Most scholars majored in Company Law prefer the related legal system of thelisted company with strong financing ability as well as social influence and companywith limited liability known for the significant autonomy and arbitrary norms, whileleaving a lot of blank areas of related legal system of the non-listed company. Theproblems of the non-listed company have been gradually revealed since the joint stocksystem reform. It is difficult to find the suitable solutions under the existing legalframework to deal with the regulation and adjustment of the clarification of basicconception, standardization of operative system or determination of monitor entity forthese companies. Taking an overview of the current situation of the share circulation, there is lack of a systematical share transfer market framework at first. A littleresearch on current share transfer market may show that, the chaos of share custodyregistration system, the imperfection of information disclosure system and lack ofinvestors protection system have been the several critical problems in the operation ofshare transfer market of the non-listed company in China. If there is no timely andappropriate improvement, it may lead to more problems and risks. Therefore, it hasbecome an urgent problem to research for the academic world that how to improve thelegal system of the share transfer market of the non-listed company and provide astandardized, systematical and hierarchical transfer platform for the non-listedcompany in China.Compared with Western countries, the non-listed company in China was formed inthe1980s as the product of state-owned joint-stock reform. They are quitecomplicated because of their specific background and operation mechanism. Thecompany law classify companies of diverse governance structure and differentcirculation methods simply by the number of establishment of the shares and theparticipation in investment of two types: the company with limited liability and thejoint stock companies, but not shows different effective division of the companyaccording to the corporate governance structure and capital flows, which is obviouslytoo simple and broad-brush as well as let the concept of the non-listed company existsonly on a theoretical level rather than clear and definite in the legal norms. Liquidityis the nature of shares and the corporation whose shares lack of liquidity just like apool of dead water. On the current situation of shares’ flow, the stock of the listedcompany traded on the stock exchange, but the legal channels for the transfer ofshares of the non-listed company still of non-unity and diversity. According to thearticle139of the company law, assignment of shares by a shareholder must be carriedout at a lawfully established securities exchange or in other manners stipulated by theState Council.This means that the law made mandatory choice to the legal means ofconveyance of the non-listed company shares. From the practical view, the StockTransfer Agent System and the local property right exchange market have been theshare transfer markets of the non-listed company which are compliance with the law.However, there are still a lot of obstacles and bottlenecks in the development processof above markets unfortunately. Although the implementation of the business of theoffer for sale of shares in the Zhongguancun Science Park expanded the scale of theStock Transfer Agent System, it’s still failed to change the quo of the listed enterprises uneven quality. In addition, the current range of business is limited toenterprises which are located in four high-tech park, market makers system is not yetintroduced to the system and there is also a limit on the number of shareholders andthe investment entities directly, so that the function of the securities market can notplay fully in the market of light trading. As the mainstream place for transferringshares of the non-listed company, the local property right exchange market is labeledwith “three noes“tab which can be explained non-unified trading patterns, absence ofa unified management departments and non-uniform information disclosure becauseof the lack of law, black-box operation, the unreasonable pricing mechanism and soon. In response to these problems encountered in reality, we need to integrate currentmarkets which have uneven development level hierarchy at first. For thecharacteristics of the OTC market in China are still in the early stage of development,the Stock Transfer Agent System and the local property right exchange market shouldlearn from the Shanghai and Shenzhen Stock Exchanges, whose run mode is paralleldevelopment and competition, to pinpoint their locations in a timely manner and playto their strengths in the present circumstances. In next integration process, it’s betterto develop the Stock Transfer Agent System as the national unified unlisted sharetrading platform which is similar with the OTCBB in America. However, thecoordination and cooperation of all the parties is necessary for the establishment of anational OTC market. The local property right exchange market can carry out thetransfer of shares of the non-listed company in the advanced property right exchangemarket based on communication with China Securities Regulatory Commission(hereinafter refer to as “CSRC”) and local government. It also can set different listingstandards for diverse level of the OTC market in order to achieve good results in theconstruction of a new round of multi-level capital market. All the above is the overallvision of the future development direction of the share transfer market of thenon-listed company in our country, however, the realization of the blueprint alwaysrequires specific system. From the normative framework point of view, theregulations for the share transfer market of the non-listed company inevitably containstwo blocks, they are norms for adjusting social relations occurred from the tradingactivities of transferring shares and rules deriving from intervention, management andregulation on the share transfer activities in the social and public securities marketbased on the country’s economic management authority. In a word, it can besummarized as market operation norms and market regulatory system. The operation of the securities market takes securities trading as the commencement.When the share issue completed, share custody registration is the first step in thetransfer of shares. Shares of the company with limited liability are registered by theindustrial and commercial administration, while the China Securities Depository andClearing Corporation is responsible for the equity registration of the listed company.Unfortunately, the share custody registration of the non-listed company in China hasbeen in a state of chaos. When talks about the unlisted public corporation listed in thenational equities exchange and quotations and a small part of non-public corporationsof Science and technology engaged in stock quotation and transfer, registrations forinitial and change are done by the China Securities Depository and ClearingCorporation. In addition to the above, the industrial and commercial administrationjust carries out the registration of promoters according to the law, but promoterschange does not involve modify matters of the Articles of Association, as well asregistration of non-promoters’ shares transfer or change, whether the industrial andcommercial administration or the China Securities Depository and Clearing Companywill not accept. Therefore, share custody registration of the non-listed company iscaught in "forgotten corner" in the legislation. In the next step of reform, as themarket directly docking with the stock exchange in the future, share custodyregistration of the national OTC market must be centralized, unified and national. Forthe local property right exchange market, the share custody registration should becarried out to the centralized and unified custody model conditionally. Share custodyregistration of the non-listed company in the local property right exchange market canbe operated by the local registration agency which should set up unified custodyregistration rules and system, as well as mutual coordination mechanism under theauspices of the China Securities Depository and Clearing Corporation. Furthermore,it’s necessary to improve the current market trading system, which is mainly thecentralized price-competitive transactions and the agreement transactions. As thefoundational market in the pyramid structure of the capital market, the OTC marketshould provide convenient to the circulation of securities, so maintaining certainopenness it’s essential. It is the market maker trading system, which takes thesecurities company as a party of the securities trading, that can active trading, keeplow cost and achieve effective allocation of resources based on the reasonable pricingmechanism. From the reality of our country, the different characteristics of eachtransactions and the inherent characteristics of listed companies in different markets should be taken into consideration to the choice of the market trading system of thenon-listed company. Try to establish the hybrid trading system using the combinationof a variety of trading mechanisms to adapt to the different periods, the needs ofdifferent markets and products trading would be a better choice. In this mode, thestability of the system can be maintained and the advantages of the current systemalso can be retained. As a result, it gives full play to the advantages of other tradingsystem at the right time to address the crux of the current market development and tohelp integrate the advantages of each other.Over the years, the non-listed company has been ignored by laws and regulations.Although it gained more freedom under the pale supervision, investors and the OTCmarket suffered painful disaster at the same time. In the share transfer market of thenon-listed company, firstly we must solve is the choice of the regulatory model andthe partition of regulatory functions. The first level of efficient operation of regulatoryauthority has got to be the reasonable definition of the government regulation ofCSRC and the self-regulation of Securities Association of China (hereinafter refer toas “SAC”). But it’s a pity that, the regulatory powers of CSRC “crossed the border”and influenced the field where can be adjusted by the market force. Excessiveadministrative intervention will limit the freedom of transferring shares of thenon-listed company and destruct the self-improvement function that is not conduciveto the development of the market, as well as induce moral hazard of public powereasily. As the basic supervision mode of market transactions, the self-regulation playsa dominant role in the supervision of share transfer market of the non-listed company.Anything that can be solved by self-regulation of SAC, to which the regulatoryfunctions of CSRC should give way and turn to supervise the market-orientedoperation and protection mechanism of capital market as the last line of defense in thesupervision of OTC market. In the lateral division of regulatory functions, the mainbody of supervision shows diversified situation along with the declines of markets’level and the hierarchical structure of the share transfer market of the non-listedcompany. In the matter of the competition of supervisory powers on local propertyright exchange market, it’s important to determine the dominant regulatory powerbetween CSRC-led supervision and local government-led supervision. The localgovernment is the creator and manager of the local property right exchange marketthat it can grasp the market dynamics immediately and give guidance to the listedcompany of OTC market conveniently, which become binding on local enterprises strongly in regulatory effect. On the other hand, the local government does not need tobe responsible for the integrity of the securities market, so it lacks of considerationsfrom the whole word on the configuration of the regulatory power of the multi-levelcapital market compared to CSRC. Meanwhile, in consideration of its financial targets,the local government may lax or slack supervision on the local property rightexchange market in order to take advantage of the financial gain from it. So thelimitation of the supervision implemented by the local government needs to becoordinated by the central government. As far as it is concerned, the supervisorypower on local property right exchange market can be shared by the SAC and thelocal government. But in the long run, it is SAC that should be the core of supervisorysystem when the regional and local property right exchange market develops to acertain stage. However, no matter which regulatory mode or party to perform itsregulatory responsibilities we choose, to achieve the purpose of protecting investors’interests is compulsory. According to the "Twin Peaks" theory made by Taylor aboutfinancial supervision, the protection of the interests of small and medium investors isconsidered as one of the objectives of financial supervision. The Securities Law of thePRC (hereinafter refer to as “Securities Law”) also outset that the protection ofinvestors is Securities Law’s peculiar purpose which is different from other legalnorms. Compared to the stock exchange market, the risk of investing the non-listedcompany is relatively large. The OTC market itself makes demands of the knowledgebackground, investment experience and risk tolerance of investors. If we still ignorethe disadvantage of getting information of small investors and don’t improve it, theywill be as the “streaker” in the market that their interests may be "slaughtered" bymajor shareholders at any time. So we should take the protection of the interests ofinvestors as the starting point, focus on the qualified investor system and thesuitability doctrine of securities transactions, risk warning and investor education andother representative multiple protection mechanisms of the interests of investors,designing different levels of investors access system according to the company typesand transactions. In the share transfer market of unlisted public corporations, the openaccess principle shall be implemented that the restrictions to natural persons in theadmittance and transactions procedure must be phased out. In the share transfermarket of non-public corporations, posing stringent requirements on the accesssystem of investors through direct and indirect limitation method, complemented byexemption applies of the qualified investor system under the agreement for sale is necessary. The appropriate information disclosure system is another aspect to protectthe interests of investors. Capital markets play an important role in the allocation ofresources, which can not be separated from the optimization of the investmentinformation. Demanding money raisers disclosure information to investors objectively,fully and completely can overcome information asymmetry of investors and help forrational investment choices as well as let the scarce social resources to better use. Butin the information disclosure requirements for listed companies, how to balance theprotection of the interests of investors and securities liquidity, or coordinate withfacilitating funds collection and securities markets operating efficiency is the problemwe must think about. It requires just disclosure significant information in the contentand to be simple, easy to get and understand for investors in the format. Meanwhile,it’s also necessary to make different system arrangement based on the public andinvestors’ mature degree along with implementing information disclosure exemptionsfor micro-issue in order to achieve the swiftness of the transaction, the efficiency ofmarket operation and the protection of the interests of investors.