Decision of the State Council on Straightening out and Rectifying Various Types of Trading Venues to Effectively Prevent Financial Risks (GF [2011] No. 38)

People's governments of all provinces, autonomous regions and municipalities directly under the Central Government, the ministries and commissions and directly affiliated institutions under the State Council:

In recent years, for the purpose of promoting the development of the equity (such as stock rights and property rights) market and the commodity market, various types of trading venues for trading of property rights, trading of cultural artworks and mid-long-term trading of bulk stock (hereinafter referred to as “trading venues”) have been successively approved and established. However, due to poor management, violations of laws and regulations are increasingly occurring in the establishment and trading activities of trading venues, and increasingly more risks are exposed, arousing the attention of the public.

In order to prevent financial risks, regulate market order and maintain social stability, we hereby make the following decisions:

(I)  Pay high attention to risks hidden in the illegal trading activities of various trading venues

Trading venues are platforms which provide equal and transparent trading opportunities for all market participants to trade in an orderly manner, and are social and public in nature, so it is necessary to regulate them according to laws, to ensure their safe operation. In particular, securities trading and futures trading have a special financial character, involve special risks, and directly relate to economic and financial security and social stability, so such trading must be conducted at designated trading venues as approved and be governed by strict management rules. At present, at some trading venues, securities and futures trading activities are conducted without approval; serious speculation and price manipulation behaviors exist due to poor management; shareholders directly participate in trading; and there have even been occurrences of management personnel misappropriating clients' capital and business operators absconding with public money. If such issues continue developing and spreading, they will easily give rise to systematic or regional financial risks, and may furthermore affect social stability, so we must take measures to correct them as early as possible.

Local people's governments and related departments of the State Council shall unify the understanding; pay high attention to violation of laws and regulations existing in various trading venues; proceed from maintaining the market order and the social stability; and effectively straighten out and rectify various trading venues and regulate the market order. Various trading venues shall establish sound rules and regulations, and strictly follow the rules for information disclosure, fair trading and risk management. They shall establish investor management systems in conformity with risk-bearing capacity, investment knowledge and experience, to improve risk awareness and identification capability of investors, and effectively protect the legal interests of investors.

(II) Establish a working mechanism for clear division of labor and close cooperation

In order to strengthen the organization and leading of clean-up and rectification of various trading venues and market regulation, and establish a supervision mechanism with work division and interaction, the system of Inter-ministerial Joint Conference on Rectification of Various Trading Venues (hereinafter referred to as “Joint Conference”) which is led by the CSRC and attended by relevant departments is established. The main task of Joint Conference is to arrange and coordinate with relevant departments and provincial governments to clean up and rectify illegal securities trading and futures trading; supervise and establish regulation and management systems for various trading venues and traded products; and complete other tasks assigned by the State Council. The daily administrative office of Joint Conference is set in the CSRC.

The Joint Conference will not take over the regulatory functions of relevant departments of the State Council and provincial governments. For trading venues as approved by the State Council or the financial management department of the State Council for trading of financial products, the daily supervision for these trading venues shall be undertaken by the financial management department of the State Council. Other trading venues shall be regulated by the provincial governments according to the localized management principle, and the governments shall carry out effective statistical monitoring, violation handling and risk disposal. The Joint Conference shall timely communicate with relevant departments and provincial governments, strengthen the coordination, and make concerted effort to effectively rectify and regulate various trading venues.

(III)     Establish sound management system and strict management procedure

From the issue date of this decision, any trading venue (except lawfully established stock exchanges or trading venues as approved by the State Council for trading of financial productions) shall not divide its equity into equal shares for public offering; shall not carry out centralized trading such as centralized price bidding and market making; and shall not continue listed trading of equity in standard trading unit. Any investor shall buy and then sell or sell and then buy the same trade category at an interval not less than 5 trading days. Unless otherwise specified in laws and administrative regulations, the cumulative number of equity holders shall not exceed 200.

Any unit (except lawfully established trading venues as approved by the State Council or the futures regulatory authority of the State Council for futures trading) shall not carry out standardized contract transaction by the method of centralized trading such as centralized price bidding, electronic matching, anonymous trading and market making.

Establishment of trading venues for trading of financial products such as insurance, credit and gold shall be approved by relevant financial management departments of the State Council.

In order to standardize the name of trading venue, any trading venue with the name of “Exchange” (except those as approved by the State Council or the financial management department of the State Council) must be submitted to the provincial government for approval. Before approval by provincial government, the opinions of Joint Conference shall be obtained. The industrial and commercial administrative department shall not go through the procedure of industrial and commercial registration for those trading venues not approved as per the above provisions or in violation of the above provisions by using “Exchange” in the name.

(IV) Properly promote the clean-up and rectification

All the provincial governments shall immediately set up the leading groups, establish working mechanism and carry out a centralized clean-up and rectification for various trading venues in relevant regions according to the requirements of laws, administrative regulations and this decision and on the basis of the localized management principle. In particular, they must correct the illegal trading activities of securities and futures, and take effective measures to ensure the security of investor’s capital and the social stability. For trading venues engaged in illegal trading of securities and futures, it is prohibited to expand the business scope by any means, and also prohibited to add new trade category or new investor, and their trading activities shall be canceled or closed within the specified period. The trading venues which use “Exchange” in the name without approval shall be cleaned up and regulated within the specified period. During the clean-up and rectification, any new trading venue for trading of standardized products or contracts shall not be established. All the provincial governments shall prepare the clean-up and rectification plan as soon as possible, and submit the plan to the State Council for the record by the end of December, 2011.

The Joint Conference shall fulfill its responsibilities; strengthen organization, direction, supervision and inspection; and properly promote the effective and orderly clean-up and rectification. The Ministry of Commerce shall supervise, inspect and direct the clean-up and rectification on mid-long-term trading markets of bulk stock under the working mechanism of Joint Conference, and quickly prepare the management methods for trading markets of bulk stock, to orderly recover the mid-long-term trading markets of bulk stock to the spot markets. Relevant departments of Joint Conference shall divide the work by responsibility, strengthen the communication, coordinate with each other, support each other and make commitment to the work. The financial institutions shall not provide such services as underwriting, account opening, trusteeship, fund transfer, trading agency, investment consultation and insurance to the illegal trading of securities and futures. The financial institutions which have already provided the services shall timely carry out self-inspection and self-cleaning, and take appropriate remedial measures.

The State Council

　　November 11, 2011