Guidelines on Protection of Investor Rights and Interests
for Small and Medium Enterprises Board
Chapter I General Provisions
Article 1 These Guidelines are enacted in accordance with relevant laws such as the
Company Law and the Securities Law, applicable administrative regulations and rules,
as well as the Rules Governing Listing of Stocks on Shenzhen Stock Exchange and the
Special Provisions of Shenzhen Stock Exchange on Companies Listed on SME Board,
for the purpose of earnestly protecting the legitimate rights and interests of investors,
especially that of minority investors, improving standardized operations of listed
companies, and promoting the healthy and steady development of the Small and
Medium-sized Enterprise Board (hereinafter referred to as the SME Board).
Article 2 These Guidelines apply to the companies listed on the SME Board
(hereinafter referred to as the listed companies) and their controlling shareholders and
de facto controllers, the directors, supervisors and senior officers of listed companies,
and the sponsors and sponsor representatives.
Article 3 Investors have lawful rights to access information, to participate in major
decision making, to obtain profits from investment and to select managers. Listed
companies and their controlling shareholders, de facto controllers, directors,
supervisors and senior officers shall take necessary measures to ensure investors’
exercise of the foregoing rights.
Article 4 The controlling shareholder of a listed company shall exercise its rights as a
capital contributor in accordance with law. The controlling shareholder and de facto
controller shall not infringe the right held by the listed company as a legal person to
its independent assets and shall not take advantage of their controlling status to impair
the legitimate rights and interests of the listed company and minority investors.
The directors, supervisors and senior officers of a listed company shall faithfully
perform their duties, safeguard the interests of the listed company and all investors
and assume fiduciary duties to investors.
Article 5 In case that the controlling shareholder, de facto controller, any director,
supervisor and senior officer of a listed company impairs the interests of the company
and minority investors, the listed company shall make timely disclosure, be active in
claiming compensation and, where necessary, institute legal proceedings with a
people's court. If investors institute legal proceedings in accordance with law, the
listed company shall render active cooperation and relevant conveniences.
Chapter II Emphasizing Sustained Development
and Protecting Investors’ Right to Obtain Dividends
Article 6 Listed companies shall highlight their principal businesses, enhance their
capability in self-innovation, respond proactively to market changes, improve their
core competitiveness and promote sustainable development.
Article 7 Listed companies shall improve their scientific decision-making and
management capability. The decisions made shall be scientific, democratic and
prudent and in strict accordance with laws and regulations and the articles of
association. Feasibility study of the use of funds raised and of investment projects
shall be strengthened, and earnest efforts be made to enhance the efficiency and
profitability.
Article 8 Risk alert and treatment mechanism shall be set up by listed companies.
They shall enhance their sense of risks, effectively avoid and dispel the risks that exist
in the business, market, technology, financial affairs and investment, maintain the
operation order and ensure that property of the company is safe and sound.
Article 9 Listed companies shall pay due regards to ensuring reasonable investment
return to investors, especially minority investors, and formulate policies for
continuous and steady profit distribution.
Article 10 The profits distributed by a listed company shall not exceed its total
accumulated profits distributable and such distribution shall not impair the company’s
capability for sustainable operations.
Article 11 Shenzhen Stock Exchange (hereinafter referred to as the Exchange) does
not advocate high cash dividend payout by listed companies that have posted negative
cash flows from their operating activities for two consecutive years.
Chapter III Strengthening Information Disclosure
and Protecting Investors’ Right to Know
Article 12 Listed companies and relevant persons with disclosure obligation shall, in
strict accordance with laws, administrative regulations and rules, as well as the rules
of the Exchange, truthfully, accurately, completely and timely disclose the
information that may significantly impact the price of stocks and derivatives or the
decision-making of investors, and such information may not contain falsehoods,
misleading statements or material omissions. The person with disclosure obligation
shall, based on the principle of good faith, voluntarily disclose other information that
is not required by laws, administrative regulations and rules, as well as the rules of the
Exchange.
Listed companies shall ensure that investors have equal access to the information
disclosed and shall not make selective disclosure. In case of inconsistency in the
information disclosed, the person with disclosure obligation shall state the reason
therefor and make disclosure in a timely manner. In severe cases, the person with
disclosure obligation shall make a public apology to investors.
Article 13 When making voluntary disclosure of forward-looking financial
information, listed companies shall follow the internal audit procedures, issue risk
warning to investors stating the assumption basis for such forward-looking
information and any uncertainty involved and, in accordance with actual conditions
and in a timely manner, modify the information previously disclosed.
Article 14 If the controlling shareholder or de facto controller is in any of the
following circumstances and such circumstance leads to unusual movement in the
prices of stocks and derivatives of the listed company or gives rise to market rumors,
or when required by the Exchange, such controlling shareholder or de facto controller
shall, through the listed company, report to the Exchange and make relevant
disclosure in a timely manner:
(1) significant asset restructuring of the listed company is being conducted;
(2) making such transactions with the listed company as provision of large-sum
financial assistance, conclusion of major contracts or transfer of key technology;
(3) in process of negotiations with specific investors for alteration or transfer of the
control power of the listed company;
(4) business conditions deteriorate; or
(5) other circumstances that may significantly impact the price of stocks and
derivatives of the listed company.
Article 15 The former shareholders of non-tradable shares and the de facto controllers
of listed companies (hereinafter referred to as the promisor) shall fulfill all the
commitments they make to investors and the regulatory authority in their plans for
non-tradable share reform. When preconditions for fulfilling such commitments are
about to be met or already met, the promisor shall fulfill such commitments and
disclose relevant information in a timely manner. Listed companies shall disclose in
their periodic reports the particulars of fulfillment of such commitments.
The promisor shall keep an eye on the changes in such preconditions like bonus share
distribution, transfer of surplus capital, increase of capital, pro rata issue or dividend
payout, that lead to changes in shareholding or shareholder interests. When such
circumstances arise, relevant data shall be adjusted accordingly and disclosure be
made in a timely manner.
The promisor shall pay continuous regards to its ability to fulfil its commitments. In
case any deterioration in operations or financial position leads to or may lead to its
inability for such fulfillment, the promisor shall notify the listed company and make
disclosure in a timely manner.
Article 16 Non-tradable shares holders shall strictly fulfill the commitments they
have made and perform disclosure obligations upon selling their stake. Pursuant to the
non-tradable share reform, listed companies shall disclose in their periodic reports the
shareholdings conditions and any changes thereof of former non-tradable shares
holders.
Article 17 A listed company that plans to appoint directors, supervisors or senior
officers or to renew appointments of such persons shall disclose the relationship
between such persons, the relationship between any of them and the shareholder who
holds five percent or more of shares in the company, the relationship between any of
them and the de facto controller, and particulars of any appointments of such persons
as directors, supervisors or senior officers in other institutions in the most recent five
years.
Article 18 Listed companies shall strengthen relations with minority investors.
Effective channels should be established to allow face-to-face communication on a
regular basis. An explanation meeting on the yearly report shall be held within ten
days from disclosure thereof, where the chairman of the board of directors (or
president), chief financial officer, independent directors (at least one), secretary to the
board of directors and sponsor representatives shall present themselves, at which the
following shall be addressed:
(1) the conditions and prospects of the industry to which the company belongs and the
risks involved;
(2) the company’s development strategy, conditions of business operations, use of the
funds raised, and the development of new products and new technology;
(3) the company’s financial position, operating results and their movement trends;
(4) the difficulties, impediments or contingent losses faced by the company with
respect to its business, marketing, technology, financial affairs, use of the funds
raised and its development prospects; and
(5) other issues of concern to investors.
A listed company shall announce the annual report explanation meeting at least two
trading days in advance. The announcement shall include the date and period (no less
than two hours) of the meeting, convening method (on-site/online), venue or website,
and the list of attendees of the company.
Article 19 A listed company seeking issues of new shares or convertible bonds shall,
within five working days from issuance of the notice of convening the shareholders’
general meeting, hold a meeting explaining in detail the necessity of the proposed
financing, the specific issuance plan, feasibility of the use of the funds to be raised,
and the use of the funds raised in its previous issuance.
Article 20 Listed companies shall firmly protect minority investors’ right to access its
relevant data. The Exchange advocates that listed companies establish separate
websites or web pages to launch special columns for investor relation management.
Chapter IV Improving Corporate Governance
and Protecting Investors’ Right to Participate in Decision-Making
Article 21 Listed companies shall optimize the systems relating to shareholders’
meeting, board meeting and supervisor meeting in accordance with law so as to create
a corporate governance structure that features well-defined rights and responsibilities,
effective checks and balances, scientific decision-making, risk prevention and
coordinated operations between the power organ, decision-making organ, supervision
organ and the management.
Article 22 Listed companies shall give equal treatment to all the shareholders at the
shareholders’ meeting and shall not, by means of illegal transfer of interest or
exchange of interest, influence some investors’ decision-making, manipulate the
voting results and impair the legitimate rights and interests of other investors.
Article 23 Listed companies and their controlling shareholders shall fully protect
minority shareholders’ right to propose the convening of shareholders’ meetings.
Upon receipt of a written proposal, the board of directors shall decide on this issue in
accordance with laws, regulations, and the company’s articles of association and shall
not, without justifiable cause, delay or obstruct the convening of such meeting.
Article 24 The shareholder of a listed company may publicly solicit from other
shareholders the rights lawfully held by shareholders, such as the right to convene a
shareholders’ meeting, the right to raise proposals, the right to nominate and the right
to vote. The Exchange advocates that listed companies formulate in their articles of
association the implementation rules on solicitation of shareholders’ rights. No sales
or disguised sales of shareholders’ rights are allowed in this process.
Article 25 Listed companies shall improve their voting system of shareholders’
meetings. When considering any of the following matters, a listed company shall
provide conveniences to minority investors for their participation in the shareholders’
meeting with the help of the Exchange’s trading system or Internet voting system:
(1) in a major asset restructuring of the listed company, the total price of the assets
acquired represents a premium of or over 20 percent of the audited net book value
of such assets;
(2) the major assets acquired or sold or the amount of guaranty provided by the listed
company within one year exceeds 30 percent of its latest audited total assets;
(3) any shareholder repays its debts to the company with its equity interest in the
company or with physical assets;
(4) a key affiliate of the listed company floats shares overseas; or
(5) relevant issues that have significant impact on the rights and interests of minority
investors.
Listed companies shall by all means publicize and explain relevant proposals to
minority investors and, within the three trading days prior to the shareholders’
meeting, publish announcement of such meeting.
Article 26 Minority investors are entitled to raise suggestions or inquiries relating to
the operations and relevant proposals of a listed company. These inquires shall be
addressed in a faithful and accurate manner by the directors, supervisors or senior
officers.
Article 27 A listed company shall provide in its articles of association that the
cumulative voting system shall be adopted when voting on the election of two or more
directors or supervisors. The Exchange advocates competitive election of directors or
supervisors and that a listed company provide in its articles of association that the
shareholders who individually or jointly hold one percent or more of the total shares
of the company may nominate candidates for directorship or supervisorship prior to
the shareholders’ meeting, and also that independent directors appointed account for
half or more of the total number of directors of the company.
Article 28 The Exchange advocates that a director, executive vice president or chief
financial officer of a listed company act as the secretary to the board of directors of
the company.
Article 29 Listed companies shall strengthen the fiduciary duties of directors,
establish an accountability system for directors and the board of directors, and pursue
the liability of directors and the board of directors who neglect their duties. Listed
companies shall optimize the independent director system, clearly define the
qualifications as well as the rights and obligations of independent directors, urge
independent directors to perform their duties in good faith and with due diligence, and
intensify independent directors’ supervision over the controlling shareholders,
directors and senior officers.
Article 30 Independent directors shall protect the interests of the listed company and
all the investors in an earnest manner, keep informed of the production and operations
of the listed company, and give full play to their role in the investor relation
management. The Exchange advocates that independent directors publicize their
contact details or E-mails to address investors’ inquiries and complaints, take
initiatives to investigate any misconduct that impairs the legitimate rights and
interests of the listed company and minority investors, and feed back the result of any
such investigation in a timely manner.
Article 31 Listed companies shall furnish independent directors with necessary
assistance and outlay. The Exchange advocates that a special foundation be
established to cover the necessary expenses of independent directors in their duty
performance. The establishment and use of such foundation shall be released in the
annual report.
Article 32 A listed company shall provide in its articles of association that the
shareholders who individually or jointly hold one percent or more of the total shares
of the company may raise queries or make suggestions to the board of directors on
any independent director or to dismiss any independent director who is found
incompetent for his job, or fails to perform his duties, or fails to protect the legitimate
rights and interests of the listed company and the minority investors. The independent
director being queried shall explain in a timely manner the relevant issues queried and
make relevant disclosure. Upon receipt of any queries or dismissal suggestions, listed
companies shall hold a special meeting in a timely manner to discuss relevant issues
and disclose the discussion result.
Article 33 Listed companies shall establish an audit committee, compensation and
appraisal committee and nomination committee, and enact the rules of procedures for
the special committees and disclose the same. The special committees shall be
composed solely of directors, with independent directors on such committees
constituting the majority of each committee, and be chaired by an independent
director. At least one independent director on the audit committee shall be accounting
professional.
Article 34 Listed companies shall establish an internal audit department to audit and
oversee the management of financial affairs and the establishment and
implementation of internal control system. The internal audit department shall be
accountable to and report its work to the audit committee.
The person in charge of the internal audit department may not hold any other posts
concurrently and shall be nominated by the audit committee and be appointed and
dismissed by the board of directors. Listed companies shall publicize information of
the person in charge of the internal audit department relating to his academic
background, professional title, work experience and any relation with the de facto
controller and file the same with the Exchange.
Article 35 Listed companies shall establish and improve the internal audit system.
The internal audit department shall hold a meeting with the audit committee on a
quarterly basis to report its work and the issues to be solved and shall submit a written
report to the audit committee at least once each year.
The audit committee shall, based on the internal audit report submitted by the internal
audit department and relevant materials, produce an assessment opinion in writing on
the effectiveness of the internal control of the listed company and report the same to
the board of directors. Where the audit committee identifies major flaws or risks in
the internal control of the company, the board of directors shall report to the Exchange
and make an announcement in a timely manner. The listed company shall disclose in
the foregoing announcement the flaws in its internal control, the consequence or
potential consequence thereof and the measures taken to address the issue.
Chapter V Strengthening Standardized Operation
and Improving Internal Constraint Mechanism for Investor Protection
Article 36 Listed companies shall be independent from their controlling shareholders
and de facto controllers in organization structure, business, personnel, assets and
financial affairs, and standardize related party transactions to avoid inter-trade
competition. The controlling shareholders and de facto controllers shall not intervene
with the listed companies in the decision-making, personnel appointment or dismissal
and financial affairs in contravention of the normal operation procedures and shall not
transfer the interest of listed companies by such means as unfair related party
transactions, profit distribution, asset restructuring or external investment.
Article 37 Listed companies shall clearly specify the approval authority for external
guaranty, strictly follow the deliberation procedures for external guaranty and
supervise the external guaranty by any company under their control. A listed company
shall provide in its articles of association that any external guaranty shall require the
approval of the directors representing two thirds or more of the directors attending the
meeting of the board of directors and also the consent of two thirds or more of all the
independent directors, or the approval of the shareholders’ meeting. No external
guaranty shall be provided without the approval of the board of directors or the
shareholders’ meeting.
Article 38 The Exchange advocates that listed companies establish a guaranty system
for major related party transactions. In case of acquisition of any major assets through
a related party transaction, the related party may provide guaranty for the earnings of
the listed company in the financial year following such acquisition.
Article 39 Listed companies shall ensure that funds raised be deposited in a dedicated
account and safe management of the funds be secured. The number of such dedicated
deposit accounts shall be released in the annual reports and, in case of multiple
accounts, the reasons therefore shall be stated. The annual report shall include the
measures on efficient use of the funds raised and effective security control of the
same.
Article 40 Listed companies shall pay continuous attention to the progress of its
investment projects and the profitability thereof. In case the gap reaches 20 percent or
more between the actual progress or profitability and the planned progress or
profitability of the projects, the listed company shall disclose in its periodic report the
progress of the projects and the reasons for such gap.
Article 41 Listed companies should maintain the stability and continuity of their
equity structure and management. The Exchange advocates that a listed company
establish such incentive mechanisms as stock options and employee share purchase
scheme to ensure stability of its management and employees and also advocates that
the controlling shareholders set a lock-up period on a voluntary basis for the shares
held.
Article 42 Listed companies shall regularly check on the purchases or sales of their
shares by the insiders and make a timely report to the Exchange in order to prevent
any insiders from taking advantages of the inside information in stock transactions.
Article 43 In case that any of the following occurs to any director, supervisor or
senior officer of a listed company, the Exchange advocates that the listed company
take effective measures to cancel or take back the incentive compensation or
independent director’s allowances payable or already paid to such person for the year,
and make relevant disclosure:
(1) being publicly criticized by the China Securities Regulatory Commission or
publicly censured by the Exchange or receiving more serious punishment;
(2) seriously neglecting his duty or abusing his power;
(3) his mistaken decision-making causes great losses to the company; or
(4) other circumstances as prescribed by the company.
Article 44 Self-inspection of the protection of the rights and interests of investors
shall be conducted by the listed companies on a regular basis. In any of the following
cases, a listed company shall disclose in its annual report relevant details, the impact
thereof on the company and the measures taken therefor:
(1) the company provides funds or guaranty to its controlling shareholder, de facto
controller or related party in violation of rules and regulations:
(2) the company misappropriates the funds raised or departs from planned usage
thereof without approval;
(3) the information disclosed contains falsehoods, misleading statements or material
omissions;
(4) any director, supervisor or senior officer of the company seriously neglects his
duty or abuses his power; or
(5) other cases where the controlling shareholder, de facto controller or any director,
supervisor or senior officer of the listed company impairs the rights and interests
of investors.
Sponsors and sponsor representatives shall issue an independent opinion on the
truthfulness, accuracy and completeness of the information disclosed by the listed
company in relation to the matters aforesaid.
Chapter VI Promoting Coordinated Supervision
and Improving External Supervision Mechanism for Investor Protection
Article 45 With adherence to the principle of “openness, fairness and equitability”,
the Exchange stresses disclosure-based company regulation and is keen to promote
the improvement of corporate governance and standardized operations of listed
companies, and is fully committed to protecting the legitimate rights and interests of
investors.
Article 46 The Exchange has established an archives databank of de facto controllers
and related parties of listed companies to track the basic information of and the
external investments by the de facto controllers and related parties. Listed companies
shall file the basic information of their de facto controllers and related parties and the
changes thereof with the Exchange in a timely manner.
Article 47 Various forms are taken by the Exchange to promote the legitimate rights
of investors and the steps to be taken to ensure such rights. A hotline and a mailbox
have been set up to address investor queries and complaints. A website is launched for
SME Board to enhance the awareness and ability of investors in protecting their
legitimate rights and interests. The Exchange advocates that investors, media and
relevant persons tip off any infringement upon the legitimate rights and interests of
investors to enable the Exchange to investigate based on such tip-offs.
Article 48 The Exchange is supportive to investors in protecting their legitimate
rights and interests, willing to provide necessary assistance in this endeavor.
Article 49 The Exchange organizes various activities including training programs for
directors, independent directors, qualification programs for the board secretaries and
investor relation management seminars, to enhance the awareness of listed companies’
directors, supervisors and senior officers on investor rights protection and promote
their efforts in this regard.
Article 50 The Exchange appraises listed companies in respect of investor rights
protection on an irregular basis, record the results in their good faith archives and
unveil the results to the public.
Article 51 In case a listed company, its controlling shareholder, de facto controller, or
any of its director, supervisor or senior officer violate relevant provisions of these
Guidelines, the Exchange will, in accordance with the Rules Governing Listing Of
Stocks On Shenzhen Stock Exchange and the Special Provisions of Shenzhen Stock
Exchange on Companies Listed on SME Board, adopt such measures against the
relevant violators as talk to the director, supervisor or senior officer of listed
companies, circulation of notices of criticism, public censure, and announcement of
the violator’ unsuitability for directorship or supervisorship in a listed company. In
severe cases, risk alert will be disclosed to investors.
Chapter VII Supplementary Provisions
Article 52 The power of interpreting these Guidelines rests with the Exchange.
Article 53 These Guidelines come into force as of the date of promulgation.