Part III: Illegal Information Disclosure
Case 3: Read “Information” with Sharp Eyes
Source: China Securities Regulatory Commission www.csrc.gov.cn
In the public securities market, information disclosure is of great importance. On the one hand, information disclosure takes the important mission to convey the development status and factors affecting rise or fall of the share price of a quoted company; on the other hand, information acquisition is an important basis for the investors to make investment decisions, and every move made by a quoted company, and any information disclosed, especially, any major positive or negative information tightly catches the investors’ minds. Nevertheless, at this stage, when some quoted companies have accessed to the new third board market, it seems that they have not been aware of the fact that they have been transformed into public companies, and they process and disclose information at will, and some companies who are still in the preparatory stage have made a lot of advertisements or overstated publicity to the market in haste, they would actually catch the public’s attention tightly in the short run, but the untrue and inaccurate information may mislead the investors during dissemination, thus making the investors to misunderstand and follow suit. If the preparation process comes to failure at the end, then, the investors will suffer from monetary losses as well as breakdown of their investment expectations.
Quoted company Y ever made an advance information publicity. At a product launch, company Y disclosed to a number of media present that it would complete the second and third round of financing amounting to RMB 222 million Yuan soon, and this financing be realized through joint investment by several domestic well-known investment institutions. But it was found through investigation that the information told by company Y at the product launch site was not consistent with that disclosed on the information disclosure platform specified by National Equities Exchange And Quotations, and the third round of financing for this company was in the stage of program discussion and preliminary negotiation with investment institutions. Nevertheless, this piece of unreal news was stirred up rapidly during dissimilation through mad propaganda and extensive reporting by the famous financial media present at the site, which may make the investors to become very interested in the company, further mislead them to make investment decisions. For the illegal behavior of company Y, National Equities Exchange And Quotations talked with company Y for the self-disciplined supervision measures according to Article 6.1 of the Business Rules of Stock Transfer System for Nationwide Medium and Small-sized Enterprises (Trial) (hereinafter referred to as the Business Rules) and Article 47 of the Detailed Rules on Information Disclosure.
Quoted company C also made a similar situation. The board chairman and directors of this company told undisclosed or overstated information to the media for several times successively, for example, company C disclosed on the information disclosure platform specified by National Equities Exchange And Quotations in October that it would acquire 9.9% of the stock equity of a well-known company at price of USD 40 million through its wholly-owned subsidiary which had been approved by the board of directors, but this piece of news was extensively reported by the media in September, and the acquisition price reported by the media was USD 400 million, 10 times of the proposed acquisition price, and company C just let things go and didn’t take any actions for clarification against the reporting made by the media. For this illegal behavior of this quoted company, both the company and its information disclosure obligor were punished seriously by China Securities Regulatory Commission.
Superficially, the above two quoted companies were eager to attract the public’s attention, greatly publicize the positive news and build their images of rapid development to the investors, but actually, this piece of news which looked like being full of beautiful prospects was just a flower in the mirror and the moon in the water to the investors, unable to be touched or becoming blurred when being touched. This kind of behavior is disregard of the market laws and regulations and irresponsibility for information dissemination. To be specific, the above two companies mainly violated Article 20, 25 and 29 of the Measures for Supervision and Management on Unlisted Public Companies, Article 3 of the Directions for Supervision on Unlisted Public Companies No. 1 – Information Disclosure, Article 105 of the Business Rules, and Article 8 of the Detailed Rules of Stock Transfer System for Nationwide Medium and Small-sized Enterprises on Information Disclosure by Quoted Companies (Trial) (hereinafter referred to as the Detailed Rules on Information Disclosure): any company as well as its the information disclosure obligor shall disclose information truly, accurately, completely and timely, and shall not make any false record, misleading statement or major omission. Information can be published in the website of the company or other public media, but the contents of the information disclosed shall be fully consistent with those published on the platform specified by China Securities Regulatory Commission, and the information shall not be disclosed on the website of the company or other public media on a date before the date of disclosure on the specified platform. For information disclosure by a quoted company, it is slightly different from that by a listed company, and the major differences are that before information disclosure made by a quoted company, the information to be disclosed shall be examined by the stock exchange involved and the company shall not disclose any significant information which has not been examined by the stock exchange involved.
In case of any significant event which may greatly affect the share price, before being known by the investors, the company shall submit an interim report for this significant event immediately and publicize it accordingly. In case it is found that any significant event which may greatly affect the book value plan of the shares of a quoted company is in the preparatory stage, although the time point for disclosure has not been reached, at the time when any of the following circumstances occurs, the company shall fulfills its disclosure obligation for the first time: 1) it is hard to keep this event secret; 2) the said event has been public or there is some sayings about this event in the market, for example, the situation which was encountered by quoted company C. When untrue sayings were disseminated in the market, quoted company C should perform its disclosure obligation promptly to clarify the event, thus to transmit the true, accurate and complete information to the market; 3) the share price of the company as well as transactions of its derivatives have fluctuated abnormally.
From the above two cases regarding illegal behaviors, we have noted that untrue information is divulged over a wide coverage, and it is a mixture between true and false information, making the investors to believe that it is true. Therefore, it is here to alert the investors, during information acquisition, an investor shall pay close attention to the contents and dissemination channels of / for the information with sharp eyes, if an investor has known similar positive information of a quoted company through the public media, what has to do is to confirm whether this information is accurate, true and complete or not on the information disclosure platform of National Equities Exchange And Quotations (“information disclosure column / http://www.neeq.com.cn”), and analyze the details of this quoted company, then make investment rationally so as not to be misled by untrue information.
This article is excerpted from “Risk Warning and Prevention for Investors” - Cases of “Protecting Investors • Know Rules, Identify Risks - Read “Information” with Sharp Eyes” published on the official website of China Securities Regulatory Commission.