China officials use informal channels to ‘extend’ share sales ban on some stock holders
A ban on the share sales by the directors of mainland-listed companies and other major stakeholders set to expire Friday may be informally extended as regulators seek more time to study the issue and calm skittish investors, the South China Morning Post has learned.
The China Securities Regulatory Commission said on Tuesday that shareholders should not sell shares when a six-month ban expires later this week, in what appears to be a verbal appeal for voluntary compliance against selling activities that could weigh negatively on equities.
In a related development, executives of a number of listed companies and mainland brokerages were contacted by an individual who identified himself as an official of the Shenzhen Stock Exchange on Monday evening. The individual urged them not to engage in selling activities when the six-month ban expires Friday, according to a director of a listed brokerage who asked not to be identified.
“That was a very straight forward notice. Some Shenzhen Stock Exchange official called and informed the brokers and certain directors and major shareholders of large listed companies that they should not sell any shares even after the six month ban would come to an end this Friday,” the director said.
“The Shenzhen Stock Exchange official said we are not supposed to sell any shares but did not say when the ban would be lifted. We could take this as the sale ban has effectively been extended until further notice,” he said.
The director said he has no immediate plan to sell any shares so the ban would not affect him.
“The Shanghai and Shenzhen stock markets fell so sharply on Monday and the panic selling was partly related to the expiry of the major shareholder sales ban. The mainland regulator and exchange need to react very quickly to clam down the market,” he said.
He added major shareholders would likely honour their commitments in cases where they have verbally pledged to comply.
“The mainland regulator has information on the identity of shareholders. The brokers also clearly know who own the shares. As such, no mainland brokers would dare sell shares for the major shareholders or senior executives,” he said.
On July 8 the CSRC issued a six-month ban on share sales by individuals who own at least a 5 per cent stake in listed companies, as well as directors and senior executives of those companies.
The regulator warned anyone violating the rule would be “severely dealt with”.
The ban due to expire Friday will fee up an estimated 1 trillion yuan worth of stocks.
“The expectation of the release of shares has led investors to worry about waves of shares flooding the market next week, trigger the panic selling on Monday,” said Christopher Cheung Wah-fung, a lawmaker representing the brokerage and financial constituency.
Concerns over the unrestricted share sales weighed negatively on mainland equity markets Monday, triggering a circuit-breaker shutdown that halted trading for the day once the declines exceeded 7 per cent.
Other mainland brokers said verbal cautions against further share sales had been expressed through various channels by regulators and other officials over the past few days.
“After the CSRC clearly says the ban remain in place, no brokers would dare to trade on behalf of the major shareholders,” the broker said.
The CSRC said new rules may include a requirement for the major shareholders, directors or senior executives to issue announcements during the pre-opening sessions about their share sale plans. In addition, they may also face restrictions on the proportion of shares that they can sell during a given period of time.
China permits some investors to purchase shares in a company ahead of its stock market debut under a lock-up provision lasting one to two years.