To thoroughly implement the guiding principles of the Central Financial Work Conference and the "Several Opinions of the State Council on Strengthening Regulation, Preventing Risks and Promoting High-quality Development of the Capital Market", and in accordance with the unified deployment of CSRC, Shenzhen Stock Exchange (SZSE) officially released nine supporting business rules on April 30, 2024. The relevant person in charge from SZSE answered questions from the press about the formulation and revision of the rules.

1. Could you please introduce the overall situation of the business rule release this time?

A: On April 12, the State Council issued the "Several Opinions on Strengthening Regulation, Preventing Risks and Promoting High-quality Development of the Capital Market" (hereinafter referred to as the new "Nine National Rules"). The CSRC has formulated a number of supporting policies to establish a "1+N" policy system for the capital market. SZSE has earnestly implemented the new "Nine National Rules" and the policies of the CSRC, with a focus on building a safe, regulated, transparent, open, vibrant, and resilient capital market. To strengthen supervision, prevent risks, and promote high-quality development, we remain committed to market-oriented and law-based reforms, and enforce strict regulation. Specifically, we strictly control the market access, enhance supervision over listed companies, implement strict delisting criteria, and reinforce the responsibilities of intermediary institutions. By formulating and revising the supporting business rules at the stock exchange level, we aim to further improve the basic institutional system and promote the functioning of the market, ultimately supporting the high-quality development of the capital market.

SZSE has revised and issued 9 business rules, which are divided into three categories. Firstly, rules regarding the examination of offering and listing. Six rules fall into this category, namely "Rules Governing the Review of Stock Offering and Listing", "Rules Governing the Review of Major Asset Restructuring of Listed Companies", "Measures for the Administration of Listing Review Committee and the Review Board for Mergers, Acquisitions, and Restructurings", "Interim Provisions on the Application and Recommendation of Enterprises for Offering and Listing on the ChiNext Board", as well as "Guidelines for Acceptance of Application Documents" and "Guidelines for On-site Supervision". These rule revisions mainly aim to strengthen the control of market access, enhance the financial indicators for listing, refine the positioning of the ChiNext Board, strengthen financial authenticity review, intensify on-site supervision efforts, prevent "clearance" dividend distribution of pre-IPO companies, and tighten the responsibilities of intermediary institutions. Secondly, rules regarding offering and underwriting. This category includes one rule, i.e. the "Guidelines for Matters of Concern in Investment Value Research Reports". Its main purpose is to implement strict regulatory requirements on high-priced surplus raised funds, standardize how underwriters issue investment value research reports, and strengthen the supervision over offering and underwriting. Thirdly, rules regarding the regulation of listed companies. Two rules fall into this category, namely the "Rules for Share Listing" and "Rules Governing the Share Listing on ChiNext Board". These rule revisions mainly aim to strengthen ongoing regulatory requirements, optimize listing requirements, impose strict cash dividend requirements, tighten delisting standards, so as to accelerate a normalized delisting mechanism that ensures prompt and thorough delisting.

Meanwhile, in accordance with the requirements of the CSRC, SZSE is actively drafting and revising other supporting business guidelines based on market feedback, which will be released to the market as soon as possible.

2. SZSE has solicited public comments on the "Rules Governing the Review of Stock Offering and Listing" and other business rules in the early stage. Could you briefly describe the relevant situation?

A: From April 12 to April 19, 2024, SZSE solicited public comments on the "Rules Governing the Review of Stock Offering and Listing" and other business rules through various forms. At the same time, we also solicited opinions from our members and relevant market institutions on rules and guidelines including the "Interim Provisions on the Application and Recommendation of Enterprises for Offering and Listing on the ChiNext Board". During this period, market participants paid great attention and actively participated. They highly valued the work focus on strengthening supervision, preventing risks, and promoting high-quality development, and generally affirmed the proposed supporting business rules. Meanwhile, some constructive suggestions were put forward for rule improvement, mainly involving strengthening self-regulation of offering and listing reviews, refining board positioning and review criteria, and improving the transition period for delisting standards, and adjusting dividend indicators.

SZSE attaches great importance to the opinions and suggestions from all market participants. We have carefully analyzed and classified them into categories for consideration and adoption. Some of them have been incorporated into the rule revision. After thorough evaluation, reasonable and feasible suggestions have been integrated into relevant rules. For instance, certain rules were revised to enhance the penalties on intermediary institutions during IPO and restructuring reviews. Some shall be incorporated into specific work. A considerable number of comments were related to the optimization of processes, such as strengthening measures against financial fraud and fund misappropriation, and refining the positioning and review criteria for the Main Board. These suggestions will be fully considered in the process of IPO review and supervision of listed companies to continuously improve and optimize relevant work. The unadopted suggestions will continue to be evaluated for feasibility and implementation based on market development.

Next, SZSE will intensify business training and publicity efforts, explain the rules in detail, and ensure their thorough implementation.

3. How are the standards for further refining the ChiNext Board positioning?

A: Optimizing board positioning is an important step for improving the multi-tiered capital market system and promoting high-quality development. Based on practical experience, SZSE has revised the "Interim Provisions on the Application and Recommendation of Enterprises for Offering and Listing on the ChiNext Board" to strictly control the IPO access, support innovative and start-up enterprises having growth potential, and promote the development of new quality productive forces. This revision further clarifies the specific standards for positioning the ChiNext Board, optimizes the quantitative indicators for assessing enterprise growth, and enhances its adaptability and guidance.

Firstly, we have further clarified the standards for innovation, creation, and creativity. The new rules emphasize that enterprises applying for listing on the ChiNext Board shall be able to break away from traditional economic growth methods and productivity development path through innovation, creation, and creativity, so as to promote the high-level application of scientific and technological achievements, innovative allocation of production factors, deep transformation and upgrading of industries, and the development of new driving forces. Or, they shall be able to promote the deep integration of new technologies, new industries, new formats, and new models with traditional industries, leading to a high-end, intelligent, green industry landscape, and enhancing the ChiNext ability to serve new quality productive forces.

Secondly, we have moderately increased the revenue growth rate requirements. The new rules emphasize the growth requirements of ChiNext. The compound growth rate indicator for operating revenue in the positioning evaluation criteria of ChiNext has been increased from 20% to 25% to support growth-oriented innovative and start-up enterprises with development potential to go public on the ChiNext Board.

Thirdly, we have added corresponding issuer and sponsor examination requirements. Issuers are now required to explain and sponsors to verify whether the issuer promotes the development of new quality productive forces through innovation, creation, and creativity. Specific explanations and verification requirements have been included in the appendix to further strengthen the accountability for issuers and intermediary institutions.

4. What revisions have been made to the Guidelines for Acceptance of Application Documents?

A: The new "Nine National Rules" clearly require the inclusion of pre-listing "clearance" dividend distribution and other situations in the negative list for offering and listing. In response, SZSE has revised the "Guidelines No. 1 for the Review of Stock Offering and Listing - Acceptance of Application Documents" to include a new negative list and specify the requirements for relevant application documents. Sponsors shall issue a special verification opinion on whether the issuer has engaged in sudden "clearance" dividend distribution in the past three years and shall include the verification opinion in the application documents. Recently, in response to questions from the press, we have clarified the specific criteria for the "clearance" dividend distribution: the cumulative dividend amount for the three-year reporting period exceeds 80% of net profits for the same period; or the cumulative dividend amount exceeds 50% of net profits for the three-year reporting period and exceeds 300 million yuan, while the total proportion of working capital replenishment and loan repayment in the raised funds is higher than 20%.

In addition, the "Guidelines No. 1 for the Review of Stock Offering and Listing - Acceptance of Application Documents" will incorporate the "key minorities", including the issuer and its de facto controller(s), directors, supervisors, and senior management, into the negative list for offering and listing if they have significant negative factors such as poor reputation as outlined in the CSRC's "Provisions on the Supervision of Counseling on Initial Public Offerings of Stock and Listings". Sponsors are also required to provide a special verification opinion and include it in the application documents.

5. How does this revision further strengthen on-site supervision, and in what ways is this reflected?

A: On-site supervision is an extension of the review of application documents, and serves as an important means to strictly control the access to offering and listing. To further implement the spirit of the CSRC's policy documents such as "Opinions on Strictly Controlling the Access to Offerings and Listing and Improving the Quality of Listed Companies at the Source (Trial)", and implement the requirement of "responsibility upon application", SZSE has revised the "Guidelines No. 4 for the Examination of Stock Offering and Listing - On-site Supervision". We strengthen on-site supervision in the following three aspects.

Firstly, the principle of "comprehensive supervision" is clarified. To curb the phenomenon of "automatic withdrawal upon supervision", we make strict supervision measures to clarify that an issuer's withdrawal of its listing application or a sponsor's cancellation of their support for a supervised project does not affect the implementation of the supervision process.

Secondly, the scope of on-site supervision is expanded. In addition to the problem-oriented on-site supervision, "random selection" supervision has been added. Based on the quality assessment of listed companies, projects will be randomly selected at irregular intervals and in different proportions to initiate on-site supervision on the sponsors. Apart from the review process, if there are significant issues that may affect the issuer's compliance with offering, listing, or disclosure requirements after the project has been approved by the listing review committee and before the stock starts trading, the on-site supervision can be initiated when necessary.

Thirdly, the effective coordination between on-site supervision and self-regulation is strengthened. Clear measures have been set for any violations discovered during supervision, including appropriate self-regulation or disciplinary actions. If sponsors or securities service institutions refuse, obstruct, or evade on-site supervision, or falsify, conceal, or destroy evidence materials, their applications will not be accepted for a certain period.

6. What is the main content of the guidelines for the preparation of investment value research reports and how to further improve the quality of these reports?

A: The investment value research report provided by underwriters is an important reference for offline investors when participating in IPO inquiry and bidding. To further strengthen the supervision of the inquiry, pricing, and allocation in IPO processes, address the issue of high-priced over-raising, and encourage underwriters to provide more objective and impartial investment value research reports, SZSE has formulated the "Guidelines No. 4 for Offering and Underwriting Business - Matters of Concern in Investment Value Research Reports (Trial)". The guidelines mainly focuses on two aspects.

Firstly, the requirements for the report content have been refined. Based on regulatory practices, the exchange will closely examine key aspects like fundamental analysis, profit forecasts, valuation analysis and conclusions, and risk warnings in the submitted investment value research reports. If the valuation conclusion shows a premium compared to the industry or similar companies, or if the fundraising exceeds the expected valuation, the guidelines requires detailed analysis to fully assess the prudence and rationality of the valuation conclusions and strengthen risk disclosures.

Secondly, a post-event regulatory mechanism has been established. On the basis of daily supervision, a retrospective regulatory mechanism has been established to regularly review the realization of profit forecasts and differences between the valuation conclusions and post-IPO market value. If investment value research reports are found to be prepared without due diligence, regulatory measures or disciplinary actions will be taken. Additionally, reputation constraints will be reinforced, and supervisory efforts will be intensified to ensure that underwriters fulfill their responsibilities.

7. What are the specific considerations regarding the strict measures for subpar dividends in the listing rules for the Main Board and the ChiNext Board?

A: This rule revision introduces the "special treatment risk warning" (ST) measures for subpar cash dividends, focusing primarily on profitable companies that have retained earnings but either distribute no dividends for a long time or have a low dividend ratio. This measure applies if a company had a positive net profit in the last fiscal year, and both its parent company's and consolidated statements' retained earnings were positive at the end of the fiscal year. The main purpose is to impose stronger constraints on listed companies to encourage them to provide returns to investors. The ST risk warning is not a "delisting risk warning" (*ST), so companies receiving an ST solely for not meeting dividend standards will not be delisted.

In terms of implementation, the cumulative dividend performance over the past three years will be evaluated. An ST will only be applied when both the three-year cumulative dividend ratio (total cash dividends in the last three fiscal years is less than 30% of the average net profit for those years) and the cumulative dividend amount (less than 50 million yuan for the Main Board and 30 million yuan for the ChiNext Board over the past three fiscal years) fails to meet the requirements. The criteria were set to balance the need for investor returns with the company's ongoing development. During the three-year evaluation period, companies can establish their own dividend plans based on profitability and cash flow, and are not required to maintain a fixed dividend ratio each year. The rules also consider specific cases for ChiNext companies with high R&D investment. ChiNext companies will be exempted from the ST imposition if their cumulative R&D investment over the past three fiscal years exceeds 15% of cumulative operating revenue or exceeds 300 million yuan.

In the process of rule revisions, SZSE has conducted a comprehensive assessment, taking into account the impact on the market and the time for companies to adapt. The rules will take effect on January 1, 2025. The term "last three fiscal years" refers to the fiscal years from 2022 to 2024. During the transition period, affected companies can increase their cash dividend levels or repurchase and cancel shares to improve their ability to return to investors.

8. Based on the feedback collected from the delisting rules revision consultation, how will the rules be published and what are the next steps for implementation?

A: During the public consultation period, various market participants, especially individual investors, have put forward valuable opinions and suggestions on optimizing and improving the delisting system. Their comments included refining the delisting criteria, intensifying the crackdown on significant violations, optimizing the implementation arrangements, and strengthening investor protection during delisting process. Overall, there is a broad consensus on strengthening delisting supervision. After the consultation, under the guidance of CSRC, SZSE has carefully reviewed the feedback and thoroughly researched the relevant matters. The following are further clarifications regarding the formulation of the delisting rules and the requirements for subsequent implementation.

Firstly, we will achieve precise delisting and advance it steadily. This rule revision aims to strictly implement the new "Nine National Rules" on "strengthening delisting supervision". The Main Board's financial delisting criteria tighten revenue thresholds, while the Main Board A-share (including A+B shares) trading criteria raise market value thresholds, considering market conditions, board positioning, and corporate development. The revisions to the compliance-related and major violation-related delisting criteria reflect a scientific and strict regulatory approach. Overall, this rule revision targets "shell zombie" companies and "rotten apples", focusing on companies having repeated frauds or misappropriation of funds by controlling shareholders without rectification. It highlights the quality and investment value of listed companies, and does not target "small-cap" companies. At the same time, transitional arrangements ensure a smooth shift between old and new standards, clarify investor expectations, and enhance risk disclosure.

Secondly, we will enforce stronger supervision and strict regulation. This revision of the delisting rules focuses on cracking down on malicious violations such as financial fraud and fund misappropriation. First, for delisting due to serious violations, a multi-level delisting system is in place. Based on the existing rules for fraudulent offering of IPO and restructuring listings, financial fraud to evade delisting, and five major safety criteria, this revision tightens the two-year fraud criteria and adds one-year serious fraud and three-year continuous fraud criteria. This scientifically defines the scope of major violations to further intensify the crackdown on serious financial fraud. Second, companies with failed internal controls and misappropriation of funds by controlling shareholders will be strictly delisted, especially for repeated or uncorrected cases.

Thirdly, we will ensure strict accountability and reinforce remedial measures. Accountability and investor protection will continue to be strengthened. On one hand, we will resolutely impose disciplinary sanctions on delisted companies that have engaged in violations of laws and regulations, use "public identification" measures to severely punish those responsible. We will work with regulatory departments and judicial organs to strengthen administrative penalties, criminal prosecution, and civil compensation, ensuring a multi-level approach to penalizing violators. On the other hand, we will strengthen risk disclosure efforts for companies at risk of delisting and clarify investor expectations. If there are acts that harm the interests of investors, such as false records, we will promote the use of representative litigation, advance compensation and other methods to safeguard the legitimate rights and interests of investors.

Next, SZSE will assume primary responsibility for implementing delisting, diligently fulfilling our duties in delisting decisions, information disclosure supervision, and trading monitoring. We will strengthen delisting supervision to establish a normalized system ensuring prompt and thorough delisting.

9. What specific measures will be taken to strengthen restructuring supervision and reduce the value of "shell" resources?

A: Mergers and acquisitions (M&A) restructuring are important ways to optimize resource allocation in the capital market and powerful tools to support listed companies in becoming stronger. The new "Nine National Rules" emphasizes the need to intensify the reform of M&A restructuring, and take multiple measures to stimulate the market. The CSRC issued the "Opinions on Strengthening Supervision of Listed Companies (Trial)", which encourages listed companies to use shares, cash, targeted convertible bonds, and other tools for M&A restructuring.

To prevent "shell zombie" companies and "rotten apples" from using "deceptive" restructuring, overpriced M&As, and blind cross-industry acquisitions to aid principal shareholders to cash out and avoid delisting, the new "Nine National Rules" explicitly call for stronger supervision of M&A restructuring, thereby further reducing the value of "shell" resources. The CSRC's "Opinions on Strictly Implementing the Delisting System" also requires strict supervision of M&A restructuring of companies on the risk warning board (ST companies). Next, SZSE will conduct refined supervision of major asset restructuring involving "shell" companies, strictly supervise companies that lack sustainable operating capabilities and are imposed *ST due to revenue and profit issues, and companies that are nearing the trading-related delisting thresholds, so as to strictly prevent illegal "shell protection" and "shell speculation". We will also broaden the on-site inspection coverage for major restructurings involving other *ST and ST companies to ensure proper asset quality.

While strengthening the regulation of "shell" company restructuring, policies and measures such as improving the "small-sum rapid" review mechanism, appropriately increasing the flexibility of target valuations, and encouraging mergers and acquisitions have been successively implemented. These efforts are continuously improving the regulatory environment of the M&A restructuring market. To support the efficient acquisition of high-quality assets by industry leaders, for the restructuring implemented by high-quality leading listed companies, rapid review shall be conducted in accordance with Article 43 of the "Rules Governing the Review of Material Asset Restructuring of Listed Companies". Next, SZSE will continue to support listed companies in implementing standardized restructuring transactions and help them inject high-quality assets and increase their investment value.

10. With a large number of newly formulated and revised rules, how has SZSE arranged the implementation schedule?

A: To ensure smooth implementation of the newly formulated and revised rules, SZSE has made the following transition arrangements based on the characteristics of the rules and market feedback.

Firstly, rules regarding the review of offering and listing will come into effect from the date of issuance. For IPO projects that have not been approved by the Listing Review Committee, they shall meet the new listing requirements for the Main Board and the ChiNext Board. For IPO projects that have been approved by the Listing Review Committee, the provisions of the original review rules shall apply. For IPO projects that have not been approved by the Listing Review Committee and do not meet the new listing requirements or the positioning requirements of the ChiNext Board, SZSE will guide them to reapply for listing on other suitable boards and carry out subsequent examinations.

Secondly, rules regarding offering and underwriting will come into effect from the date of issuance. Institutions responsible for writing investment value research reports shall draft and issue them following the requirements of the "Guidelines for Matters of Concern in Investment Value Research Reports".

Thirdly, rules regarding the regulation of listed companies will come into effect from the date of issuance. To ensure smooth implementation of new rules on dividends and delisting and to better protect the rights and interests of investors, SZSE issued the notice regarding the issuance of the "Rules for Stock Listing" and "Rules Governing the Share Listing on ChiNext Board" and made differentiated arrangements for the implementation of new rules on dividends and delisting (including four types of mandatory delisting situations). Listed companies and investors are advised to pay attention to and be aware of these arrangements.

11. How will SZSE further implement the new "Nine National Rules" besides formulating and revising business rules?

A: The new "Nine National Rules" is a major initiative to implement the spirit of the Central Financial Work Conference and promote the high-quality development of the capital market in the new era. It is of great significance for successfully advancing the Chinese model of financial development and accelerating the construction of a strong financial nation. Under the unified leadership of the CSRC and the supervision of the Discipline Inspection and Supervision Group stationed at the CSRC by the CCDI, SZSE will thoroughly study and comprehend the essence of the new "Nine National Rules". We will grasp deeply the political and people-oriented nature of the work of the exchange, implement the decisions of the CPC Central Committee and the State Council, and the work requirements of the CSRC Party Committee. We will transform the development blueprint outlined in the new "Nine National Rules" into practical steps for building a world-class exchange. Furthermore, we will promptly implement the "1+N" policy documents by breaking down tasks, ensure clear responsibilities, and take effective measures to achieve the objectives quickly.

Firstly, we will maintain regulatory focus and implement the "five major supervisions". We will strengthen the construction of market rule of law, highlighting "solid foundations" and "strict supervision." We will prioritize strict supervision and ensure effective implementation of new rules. Meanwhile, we will ensure comprehensive whole-process supervision of listed companies, impose strict responsibilities on intermediary institutions, enhance trading supervision, crack down on violations, so as to market fairness, openness, and justice. Secondly, we will keep the bottom-line thinking and prevent and resolve risks in key areas. We will coordinate development and security, strengthen risk monitoring and prediction, and dynamically assess risks in key areas. Additionally, we will improve systemic risk identification and hold fast to the capacity of preventing systemic risks, thereby promoting the improvement of mechanisms to attract long-term capital and enhance market stability. Thirdly, we will adhere to overall coordination and collaboration to better serve high-quality development. We will improve market functions by establishing a green financing channel mechanism for technology enterprises and guiding funds to prior support sectors of the country. We will also deepen communication and coordination with local governments and relevant departments to enhance the quality of listed companies and form a joint force to promote the high-quality development of the capital market. By doing so, we aim to cultivate new quality productive forces and improve the quality and efficiency of serving the real economy. Fourthly, we will adhere to self-improvement and strengthen the construction of the cadre team. We willingly accept the supervision from the Discipline Inspection and Supervision Group stationed at the CSRC by the CCDI and closely cooperate with the Group. We will promote discipline education, strengthen anti-corruption risk control, and reinforce supervision over public authority. By incorporating supervision requirements into the entire process of work, improving the work style, and building a team that excels in supervision, we will provide strong support for high-quality exchange development.