China Securities Regulatory Commission: Prohibits listed companies from carrying out illegal and irregular activities under the name of market value management.

On November 15th, the China Securities Regulatory Commission issued the "Guidelines for the Supervision of Listed Companies No. 10 - Market Value Management" (referred to as the "Guidelines"), which will be implemented from the date of publication. It is mentioned in the guidelines that listed companies are required to improve the quality of the company as the basis, enhance operational efficiency and profitability, and integrate mergers and acquisitions, equity incentives, employee stock ownership plans, cash dividends, investor relations management, information disclosure, share buybacks and other methods in a lawful and compliant manner, to promote the reasonable reflection of the investment value of listed companies. The "Guidelines" clearly define the responsibilities of the board of directors, directors, and senior management of listed companies, and make specific requirements for companies that are main index constituents to establish market value management systems and disclosure of valuation improvement plans for long-term undervalued companies. At the same time, the guidelines explicitly prohibit listed companies from engaging in illegal and irregular actions under the guise of market value management. The full text is as follows: CSRC Issues "Guidelines for the Supervision of Listed Companies No. 10 - Market Value Management" In order to implement the "Opinions of the State Council on Strengthening Supervision, Preventing Risks, and Promoting the High-quality Development of the Capital Market" (State Council [2024] No. 10) and further guide listed companies to focus on their own investment value and effectively enhance investor returns, the CSRC has formulated the "Guidelines for the Supervision of Listed Companies No. 10 - Market Value Management" (hereinafter referred to as the "Guidelines"), which will be implemented from the date of publication. The guidelines require listed companies to improve the quality of the company as the basis, enhance operational efficiency and profitability, and lawfully and compliantly use mergers and acquisitions, equity incentives, employee stock ownership plans, cash dividends, investor relations management, information disclosure, share buybacks, and other methods to promote the reasonable reflection of the investment value of the listed company based on the actual situation. The guidelines clearly define the responsibilities of the board of directors, directors, senior management, and other relevant parties of listed companies, and make specific requirements for companies that are main index constituents to establish market value management systems and disclose valuation improvement plans for long-term undervalued companies. At the same time, the guidelines explicitly prohibit listed companies from engaging in illegal and irregular behaviors under the guise of market value management. Prior to the issuance of the guidelines, the CSRC solicited public opinions on the guidelines. As per the feedback received, various parties generally approved of the guidelines and provided valuable opinions and suggestions based on practice, including responsibilities of directors and senior management, the scope of companies that are main index constituents, disclosure requirements for market value management systems, and the implementation of valuation improvement plans. After careful study, the major opinions related to the guideline provisions have been adopted. In the future, the CSRC will further strengthen policy interpretation and carry out relevant work to implement the guidelines. "Guidelines for the Supervision of Listed Companies No. 10 - Market Value Management" Article 1 In order to effectively promote the enhancement of investment value of listed companies and strengthen investor returns, in accordance with the Company Law of the People's Republic of China, the Securities Law of the People's Republic of China, the Opinions of the State Council on Strengthening Supervision, Preventing Risks, and Promoting the High-quality Development of the Capital Market, and the Measures for the Administration of Information Disclosure by Listed Companies, these guidelines are formulated. Article 2 Market value management referred to in these guidelines means the strategic management activities carried out by listed companies based on improving the quality of the company to enhance the investment value and shareholder return capacity of the company. Listed companies should firmly establish a shareholder return consciousness, take measures to protect the interests of investors especially small and medium-sized investors, operate honestly and in compliance with regulations, focus on their core business, operate stably, cultivate and utilize new productive forces, promote the improvement of operational level and development quality, and based on this, manage investor relations, enhance the quality and transparency of information disclosure, and if necessary, actively take measures to boost investor confidence and promote the reasonable reflection of the investment value of the listed company based on the quality of the listed company. The quality of a listed company is the foundation of the company's investment value and an important lever for market value management. Listed companies should focus on improving their quality, lawfully and compliantly use various methods to enhance the investment value of the listed company. Article 3 Listed companies should focus on their core business, enhance operational efficiency and profitability, and, based on their own circumstances, comprehensively use the following methods to promote the reasonable reflection of the investment value of the listed company based on the quality of the company: (1) Mergers and acquisitions; (2) Equity incentives, employee stock ownership plans; (3) Cash dividends; (4) Investor relations management; (5) Information disclosure; (6) Share buybacks; (7) Other lawful and compliant methods. Article 4 The board of directors should attach importance to the improvement of the quality of the listed company, establish long-term goals for the investment value of the listed company based on current performance and future strategic planning, fully consider the interests and returns of investors in decision-making on corporate governance, daily operations, mergers and acquisitions, and financing, adhere to prudent management, avoid blind expansion, and continuously enhance the investment value of the listed company. The board of directors should closely monitor the market's reflection of the value of the listed company. When the market performance significantly deviates from the value of the listed company, they should carefully analyze and judge the possible reasons and actively take measures to promote the reasonable reflection of the investment value of the listed company based on the quality of the listed company. When establishing the compensation system for directors and senior management, the level of compensation should be matched with market development, individual capabilities and value, contributions to performance, and sustainability of the listed company. The board of directors is encouraged to establish a long-term incentive mechanism, fully utilize tools such as equity incentives and employee stock ownership plans, reasonably set granting prices, target groups for incentives, number of shares, and performance evaluation conditions, strengthen the consistency of interests between management and employees and the long-term interests of the listed company, and stimulate the initiative and enthusiasm of management and employees to enhance the value of the listed company. The board of directors is encouraged to promote the mechanism arrangements for share repurchases in the company's articles of association or other internal documents based on the company's share structure and business needs. Listed companies with conditions are encouraged to make preliminary financial planning and reserves according to the repurchase plan arrangement. Listed companies are encouraged to cancel repurchased shares in accordance with the law. The board of directors is encouraged to establish and disclose medium-to-long-term dividend plans based on the company's development stage and operating conditions, increase the frequency of dividends, optimize the dividend schedule, reasonably increase the dividend rate, and enhance the sense of achievement for investors. Article 5 The Chairman of the Board should actively supervise the implementation of the resolutions of the board of directors to enhance the investment value of the listed company, promote the continuous improvement of relevant internal systems that enhance the investment value of the listed company, and coordinate measures to promote the reasonable reflection of the investment value of the listed company based on the quality of the listed company. Directors and senior management should appropriately discharge their responsibilities, abide by laws and regulations, strengthen integrity and self-discipline, and actively promote the implementation of the board of directors' decisions to enhance the quality of the listed company, effectively protect the interests of minority shareholders, and enhance the investment value of the listed company. The above measures are aimed at regulating the behavior of listed companies and protecting the interests of investors, while also promoting the healthy development of the capital market.Actively participate in various activities to enhance the investment value of the listed company, such as attending performance briefings, investor communication meetings, and other investor relations events, to enhance investors' understanding of the listed company.Directors and senior management can formulate and implement shareholding plans in accordance with the law and regulations to boost market confidence. Article 6 The board secretary shall handle investor relations management and information disclosure related work, establish smooth communication mechanisms with investors, actively collect and analyze market expectations and judgments of the investment value of the listed company and its operations, and continuously improve the transparency and accuracy of information disclosure. The board secretary should strengthen public opinion monitoring and analysis, closely follow various media reports and market rumors, and promptly report to the board if there are potential impacts on investor decision-making or the trading price of the company's stock. Listed companies should clarify announcements in a timely manner based on the actual situation, and respond through official statements, press conferences, or other legal and compliant methods. Article 7 Encourage controlling shareholders and actual controllers to hold onto the company's shares for the long term to maintain relative stability in the company's control. Controlling shareholders and actual controllers may boost market confidence by implementing shareholding plans in accordance with the law and regulations, voluntarily extending share lock-up periods, voluntarily terminating share reduction plans, or committing not to reduce their shares. Listed companies should actively communicate with shareholders and guide them towards long-term investments. Article 8 Companies included in major stock indexes should establish a market value management system, which should at least specify: Responsible department or personnel for market value management; duties of directors and senior management; Specific monitoring and warning mechanisms for the company's market value, price-to-earnings ratio, price-to-book ratio, or other applicable indicators compared to industry averages; Measures to be taken in cases of continuous or significant stock price declines. Companies included in major stock indexes should disclose the status of the market value management system after board review and provide special explanations on the implementation of the system during annual performance meetings. Other listed companies can reference the provisions of the first two paragraphs based on their actual circumstances. Article 9 Companies with long-term trading below book value should formulate a valuation enhancement plan for the listed company, which should be disclosed after board review. The content of the valuation enhancement plan should be clear, specific, and executable, avoiding language that may cause confusion or mislead investors. Companies with long-term trading below book value should assess the effectiveness of the valuation enhancement plan at least annually, and if improvements are needed, they should be disclosed after board review. Companies with price-to-book ratios below industry averages should provide a special explanation on the implementation of the valuation enhancement plan during annual performance meetings. Article 10 Listed companies, controlling shareholders, actual controllers, directors, and senior management should enhance compliance awareness and avoid the following behaviors in market value management: Manipulating information disclosure by controlling the pace of information disclosure, selectively disclosing information, or disclosing false information to mislead or deceive investors; Engaging in insider trading, leaking insider information, manipulating stock prices, or collaborating with others to manipulate the market for illegal gains, disrupting the order of the capital market; Making predictions or commitments regarding the securities of the listed company or their derivative products; Not implementing share repurchases through dedicated accounts, not implementing share increases through corresponding real-name accounts, and violating information disclosure or stock trading rules with regard to share increases or repurchases; Directly or indirectly disclosing confidential project information; Other behaviors that violate laws, regulations, or China Securities Regulatory Commission provisions. Article 11 If major stock index companies fail to disclose the establishment of the company's market value management system or long-term undervalued companies fail to disclose the company's valuation enhancement plan as stipulated in Articles 8 and 9 of this guideline, the China Securities Regulatory Commission may take corrective measures, regulatory discussions, or issue warning letters according to Article 170(2) of the Securities Law. Article 12 If listed companies, controlling shareholders, actual controllers, directors, senior management, etc., violate this guideline and also violate other laws, regulations, or China Securities Regulatory Commission provisions, the China Securities Regulatory Commission will handle them in accordance with the nature and severity of the violations. Article 13 For listed companies without controlling shareholders or actual controllers, the largest shareholder with a stake exceeding 5% and their concerted action parties shall follow the relevant provisions of Articles 7 and 10. Article 14 Definitions under this guideline: Major stock index companies refer to: Companies included in the CSI A500 Index; Companies included in the SSE 300 Index; Companies included in the SSE STAR Market 50 Index, SSE STAR Market 100 Index; Companies included in the ChiNext Index, ChiNext MidCap 200 Index; Companies included in the B Shares 50 Index; And other companies specified by the stock exchange. Short-term continuous or significant declines in stock prices refer to circumstances where: The cumulative decline in the closing price of the company's stock over 20 consecutive trading days reaches 20%; The closing price of the company's stock is lower than 50% of the highest closing price in the past year; And other circumstances specified by the stock exchange. Long-term undervalued companies refer to listed companies whose closing price has been below the net asset value per share attributable to ordinary shareholders audited in the most recent fiscal year for 12 consecutive months. Article 15 This guideline shall be implemented from the date of issuance. This article was adapted from the official website of the China Securities Regulatory Commission, edited by GMTEight: Jiang Yuanhua.