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Interview With Zhang Ning, Former Director Of Shanghai Securities Regulatory Bureau

2020/10/20 9:56:00 0

Director Of Shanghai Stock Exchange

On November 26, 1990, Shanghai Stock Exchange was established on the Bank of Huangpu River.

With more than 1700 companies and a total market value of more than 40 trillion, the Shanghai Stock Exchange has become the fourth largest exchange in the world. As a product of China's reform and opening up, it embodies the wisdom and painstaking efforts of policy makers and builders. There are many difficult times in the 30-year history.

Why didn't the Shanghai stock exchange use gestures and blackboard writing? How did the computer centralized bidding trading system come out? How did China's first QDII product litigation case be solved?

As one of the founders, Zhang Ning recalled the scene of that year, and every step was vivid.

According to the reporter of the 21st century economic report, she drafted and submitted the preparatory documents of Shanghai Stock Exchange and the approval documents submitted to the people's Bank of China. She also drafted or participated in the preparation documents of Shanghai Stock Exchange, the articles of association of Shanghai Stock Exchange, member management measures and business rules of the trading market. Zhang Ning is a witness of history and one of the participants.

As one of the few female cadres at the bureau level of the securities regulatory system, Zhang Ning has held the posts of director of Shanghai Securities Regulatory Bureau and director of Shanghai Inspection Bureau for more than 9 years, and then transferred to Deputy Secretary of the Party committee and chief supervisor of Shanghai Stock Exchange.

In two interviews with Zhang Ning totaling more than four hours, she recounted the details of the trading rules formulated 30 years ago and tried her best to restore the original history. Today, Zhang Ning has stepped down from the front-line regulatory post for eight years, but she still pays close attention to the reform of China's capital market. She has unique views on topics such as financial openness and investor protection.

Bond with the capital market: laying the foundation for the future preparation of the exchange

Before the establishment of the stock exchange in the 21st century, how did you get married with Shanghai Stock Exchange?

Zhang Ning: I went to Fudan University in 1982 and stayed as a teacher after graduation. In November 1984, Shanghai Feile audio first issued shares to the public. I was very interested. I went to Jing'an Business Department of industrial and Commercial Bank Trust Company and met two old masters of Shanghai Stock Market: Huang Guixian and Hu ruiquan. From them, I learned about the issue of Shanghai's first stock. Finally, I wrote an article: a preliminary study on the establishment of a stock exchange in China at this stage The first article to discuss the establishment of the stock exchange. Through the process of writing the article, I have a preliminary understanding of the overseas market.

In addition to the above one, I also wrote a paper on Financial Legislation under the financial reform. At that time, we felt that the reform of financial institutions and financial system could not be followed, and we realized the importance of law.

At the beginning of 1985, the people's Bank of China established the financial administrative department (HKMA). My two papers were just related to it, so I applied to transfer from ICBC to the people's Bank of China. Choosing to go to the HKMA is the only independent choice in my life, which determines my future career and my fate with the capital market.

21st century: what kind of accumulation has your previous career experience in the HKMA of the people's Bank of China in preparing for the establishment of the exchange and taking up the supervisory post?

Zhang Ning: at that time, the work of the HKMA was divided into two parts, one was audit, the other was financial institutions and market management. I mainly do the back part.

At that time, according to the cash management measures, paper shopping vouchers were illegal. I take people out to check, one by one shops run, see the ticket. This is actually a very specific small matter, but it has given me the opportunity to exercise and accumulate experience, so that I can be "proficient" in administrative punishment and know how to deal with people and how to solve problems.

At that time, the main thing to do was to examine and approve the issuance of stocks and bonds, including public issuance and internal issuance. In 1988, the whole country carried out the pilot work on the transfer of treasury bonds. We wanted to write the detailed rules for the implementation of Shanghai. I told the leaders that we should change the name because the transfer of treasury bonds was too large, and the donation, inheritance and pledge were all transfers. We should use the common international language: the implementation rules for the transaction of Shanghai treasury bonds. At that time, only Shanghai changed its name. I have also written and drafted some securities regulations.

In fact, many of the above are small things, but I think that one should start from doing small things. Without these accumulation, one can not do great things, and one can not build up a thousand miles. Many things unknowingly prepared for the establishment of the exchange later.

Preparation for the establishment of Shanghai Stock Exchange: it has established a computer centralized bidding system leading Asia

21st century: from your personal experience, what is the background for the establishment of Shanghai Stock Exchange?

Zhang Ning: the establishment of Shanghai Stock Exchange is the product of reform and opening up.

In December 1989, Zhu Rongji, then Secretary of the Municipal Committee of the CPC, held a special meeting to study the issue of finance. In addition to the members of the Standing Committee of the municipal Party committee, many bank presidents and scholars were invited to participate in the study on the two issues of "introducing foreign capital" and "whether to establish a stock exchange".

According to my understanding, the decision to set up the stock exchange at that time was top-down and more political. I remember what Li Xiangrui (then chairman of the Bank of Communications) delivered at the meeting by a vice president at that time: the establishment of the Shanghai Stock Exchange is that political interests outweigh economic interests, long-term interests outweigh immediate interests, and social benefits outweigh economic benefits.

On April 18, 1990, the State Council announced the development and opening up of Pudong in Shanghai; on April 30, the Shanghai municipal government announced ten major policies and measures for the development and opening up of Pudong, one of which was the establishment of Shanghai Stock Exchange, which was officially announced to the outside world.

In May 1990, the Shanghai Foreign Investment Commission, the Shanghai Branch of the people's Bank of China, and the Beijing Joint Office jointly held an international seminar on the securities market in Shanghai, bringing in many foreign guests. At that time, it was also announced at the meeting that the establishment of the Shanghai Stock Exchange was to be set up. As a staff member, I stood in the back, and suddenly the whole court rang out with a "bang". It took a long time to stop. I was very puzzled. At the end of the meeting, I met a representative of Morgan Stanley and asked him why he had just "exploded". He was very excited and said to me, "Zhang Ning, do you know, in the eyes of Westerners, the exchange is the highest organizational form of the capitalist market. You are still working on this, which shows that China is still in the process of reform and opening up."

After listening to this, I was greatly touched and remembered that sentence: political interests are greater than economic interests. I think the establishment of Shanghai Stock Exchange is really the product of reform and opening up.

On the opening day, Zhu Rongji also said that Shanghai Stock Exchange was the first exchange established in mainland China, which was of great significance: first, it showed that China adhered to reform and opening up; second, it was a manifestation of the implementation of the Party Central Committee's decision on the development and opening up of Pudong; third, in the process of Pudong Development and Shanghai's reform and development, we should attach importance to finance and make use of foreign securities for the society The construction and development of service.

On December 19, 1995, the fifth anniversary of the opening of the Shanghai Stock Exchange, Zhu Rongji was already a member of the Standing Committee of the Political Bureau of the CPC Central Committee and vice premier of the State Council. When I accompanied him on a tour, I heard him say that when we set up the Shanghai stock exchange five years ago, we never thought it was the situation today.

What does that mean? My understanding is that at that time, I didn't expect that the exchange would play such a big role in the economy in just five years. I would like to think of that sentence again: the long-term interest is greater than the immediate interest, which is very precise.

21st century: the rules and regulations of Shanghai Stock Exchange are drafted by you. Are there any difficulties in the process?

Zhang Ning: in 1988, I drafted the measures for the administration of Shanghai's stock exchange. It was not until 1989 when the Shanghai Stock Exchange was set up. This includes the issuance and trading of securities and the management of securities companies, which are the earliest local securities regulations in China. I saw the Securities Exchange Act of 1934 in the United States, so we also call it the securities exchange management method. This is the earliest accumulation. Without this accumulation, I can't write the rules and regulations of the exchange.

When I went to prepare for the establishment of the exchange, it was Wei Wenyuan who asked me if I wanted to go. Later, he and I divided the work: he was responsible for finding venues, and I was responsible for internal regulations. I began to draft and preside over the discussion of important systems such as the articles of association of the exchange, the management measures for members, and the business rules of the trading market.

In the drafting of the articles of association of the exchange, there is a sentence I have repeatedly thought about: the Shanghai Stock Exchange is not for profit. At that time, some people thought it was too obstinate. I said that if it was written as non-profit or non-profit, it would mean that the exchange could only be unprofitable. If it was profitable, it would be illegal. What should we do about the future development? Not for the purpose of profit-making, the implication is that it can be profitable and can continue to develop if it is profitable. I also considered to add a double insurance, written in the institutions, if there is really no profit? If the state allocates funds, the exchange can still open.

In the member management method, 1 / 3 of the directors I designed are non members. I am afraid that all of them are members, all for their own interests, and no one is considering the interests of listed companies or the interests of the state. I also designed a board of supervisors to supervise.

It is relatively difficult to write the rules of the trading market. We used to do over-the-counter trading, but the exchange is centralized bidding trading, which no one has done.

We went to the Shanghai archives to look for the old Shanghai exchange files, and we really found the trading rules of the 1930s. It's too old to use. By chance, Taiwan securities companies visited Shanghai and presented the trading rules of the Taiwan Stock Exchange to the preparatory group of the Shanghai Stock Exchange. After reading, we found that the content of the Taiwan version is basically the same as that of the old Shanghai version. We have a good idea. According to the version of old Shanghai and the text of Taiwan Stock Exchange, we began to draft the trading rules of Shanghai Stock Exchange.

However, there are also problems in drafting. Many people have proposed that this sentence should not be used, and that sentence should not be removed. When presiding over the discussion, I don't think it is possible to remove this one and that one as soon as it comes up. What should be done in case of future encounter and then add it in? The laws and regulations can't be changed all the time. They are not serious. They should be put in first, and the harmful ones should be removed.

What about centralized bidding? At that time, we wrote three kinds, one is Japanese gesture, one is the counter order in New York, the other is paper list, and the third is computer transaction. At that time, we didn't know how to deal with two kinds of computers.

One of the key figures, Xie Wei, was a teacher at the University of Finance and economics at that time. He studied mathematics and studied computers abroad. He asked me what the trading principles were. I said that I knew that the three principles of centralized bidding trading were price priority, time priority and block priority. He wrote a software according to the principle. Without him, there would have been no automated matchmaking system used by the Shanghai stock exchange immediately after its opening. I later learned that the Shanghai Stock Exchange's computerized automatic matchmaking system was the most advanced in Asia at that time.

Another internal preparation is to develop members. At that time, a foreign securities firm told me that the people's Bank of China's report to the State Council suggested that the exchange should only absorb local members. I think what we want to build is a national exchange, of course, to attract members from all over the country. However, there is a problem in this process. At that time, the people's Bank of China stipulated that a securities institution must report to the head office of the people's Bank of China for approval of its business license for the establishment of business outlets. But the departments that do not open business do not need licenses.

After consulting the leaders of the branch, I thought of a way to let these foreign companies set up a business department in Shanghai. If a certain company doesn't open business, it doesn't need the people's Bank of China to approve the business license. Then I go to Shanghai Industrial and commercial bureau to register as a legal person and use this legal person as a member of Shanghai Stock Exchange. This practice was under a lot of pressure at that time, but it was successfully solved later.

So far, the internal rules and regulations and members have been established, and the trading system has also been established, which has really established the Shanghai Stock Exchange.

Back to the regulatory position: participating in the securities market in another capacity

21st century: what has been done on the eve of the establishment of the exchange?

Zhang Ning: the establishment meeting of the exchange was held on November 26, 1990, and the process was very standardized. On the second day, I also met with the major newspapers in Shanghai.

Before its establishment, in August or September, Zhu Rongji instructed the establishment of the Shanghai Stock Exchange to do two things: first, there should be laws and regulations as the legal basis for the establishment of the Shanghai Stock Exchange; second, it must be submitted to the State Council for approval.

I admire his legal awareness to this day. I am very lucky, two things fall on me.

Before that, in 1988, I wrote the administrative measures for Shanghai's securities trading, which were published but never published. After Zhu Rongji's instruction, I took back the regulations and added two chapters to the stock exchange and the Securities Association, and published them in the newspaper around 90 months. Zhu Rongji signed and issued it on November 27, the day after the establishment meeting of Shanghai Stock Exchange, which came into effect on December 1, and the exchange opened on December 19.

In September, I drafted a request for instructions on the establishment of the Shanghai Stock Exchange and submitted it to the municipal government. In order to catch up with the time, I went back and forth to Beijing and Shanghai twice with the request of the municipal government for signature. It was late September at that time. On November 14, the State Council authorized the head office of the people's Bank of China to approve the establishment of Shanghai Stock Exchange.

In November 1990, after the establishment meeting of the exchange and before its opening, I returned to the people's Bank of China from the exchange for work needs. At that time, I was a little disappointed because I felt that the exchange was like my own child. I spent so much effort to get it out, but I left again. Fortunately, I have been involved in the capital market as a regulator and have not left the stock market. This is also a comfort.

21st century: after returning to the regulatory position, what cases have impressed you deeply in the aspect of securities inspection?

Zhang Ning: one is the violation of the law of Fuyou securities. The actual controller is Zhou Mou, the richest man in Shanghai. In 2003, Zhou's wife was investigated by the Hong Kong Independent Commission Against Corruption (ICAC). We immediately checked the securities companies controlled by Zhou and found a big problem: a $3.7 billion treasury bond repurchase was misappropriated and $1 billion was due within a week.

I called Li Xiaoxue and Tu Guangshao, then leaders of China Securities Regulatory Commission, for help, indicating that the matter was urgent. Tu Guangshao came with a team the other day. Then the municipal government, the Securities Regulatory Commission and the court held a meeting to coordinate, and finally made it clear that the trust of CITIC Securities and the freezing of assets by the court finally led to a smooth transition.

If we don't take measures in time, big things will happen. This case seems to be the investors of two treasury bonds, but a large group of ordinary depositors are behind.

Zhou after the accident, to check the whereabouts of the funds, "I took the stock speculation, I was scared to death, I dare not fry." As soon as I read the trial records, I can see that he must have manipulated the stock. Later, we found out that he manipulated XCMG shares. After he was arrested, the share price of XCMG fell a lot and lost money. We cooperated with the economic investigation and went to Shenzhen Stock Exchange to collect all transaction records. We sent 20 or 30 people to help investigate more than 20 business departments and more than 2000 accounts. Finally, the court convicted the company of manipulating the company's share price.

The second is to protect the interests of investors. In 2006, Shanghai Hua'an fund was the first to issue QDII products in China. It invested in the structural products with guaranteed minimum value of Lehman Brothers. The product amount was 100 million US dollars, and the investment amount of general investors was about 5000 US dollars. All of them were small clients. In 2008, the subprime mortgage crisis and the bankruptcy of Lehman Brothers, we immediately disposed of the risk of this product.

We began to search the assets of Lehman in China and found that there were 5 billion RMB in its QFII account, but the assets were from Lehman Europe, not from Lehman international. At this time, I saw the news that the regulators in Singapore and Japan announced that "the debt of Lehman in China will not be settled and all assets will not be allowed to leave the country". As soon as I heard that two countries had done so, I immediately reported to the meeting, but the CSRC did not have such legal authorization. I think of a way, to the court to sue, let the court freeze. Shang Fulin, then chairman of the Securities Regulatory Commission, said on the spot: as long as you Shanghai court is willing to accept it, we will take it out to you. He put the protection of investors' rights and interests in the first place.

After I reported it, the municipal government held a coordination meeting, which was supported by various departments. The court also felt that the rights and interests of investors should be protected, but they were hesitant, because foreign investment and overseas institutions were involved. Later, I learned that they had done a lot of work, repeated discussions, and finally decided to accept and carry out litigation preservation.

There's also an episode in which litigation involves finding a relationship between the product and Lehman Europe. I asked my colleagues to ask the company lawyer to find the contract text, but the lawyer couldn't find it. Subconsciously, I felt that there should be a turnaround in this matter. Later, I found Lehman Europe in the recruitment book as an overseas investment consultant of Hua'an QDII products, and quoted prices when opening. If he fails to fulfill his obligation to quote, the original open-ended fund will become a closed-end fund, which constitutes a de facto legal relationship. I said that we would go to Lehman Europe and sue him.

Finally, the court accepted the lawsuit, and it took more than a year to solve the matter, protecting the legitimate rights and interests of the majority of small and medium-sized investors. This is the first QDII product litigation case, and it is the first case in which Chinese financial institutions Sue overseas financial institutions in China and obtain compensation through settlement.

Internationalization of China's capital market: foreign listing resources should be introduced

21st century: QFII is one of the manifestations of financial openness. In recent years, China's capital market and financial industry have been opening up to the outside world. What are your experiences?

Zhang Ning: from the perspective of the securities market, the process of legalization has been done more and more standardized. There is still a lot of room for marketization and internationalization.

Internationalization has taken a big step in the past few years. At first, the market was small and there was no capacity. Therefore, the resources of listed companies should be sent to the outside world. As the Chinese market becomes larger and larger, resources should be left at home. The pace of opening to the outside world is also gradually expanding, the QFII quota is constantly relaxed, and the Shanghai Hong Kong stock connect, Shanghai Luntong, China Japan ETF interworking and MSCI index investment are gradually implemented.

With China's capital market becoming more and more international, it is necessary to introduce foreign listing resources to further enhance the international influence of capital market. In fact, as early as the 1990s, shortly after the establishment of the exchange, Mercedes Benz, Bank of East Asia and HSBC all proposed to be listed on the Shanghai Stock Exchange. At that time, China's capital market was very small, and many people thought that they would blow our share price down. But now foreign demand has been introduced, supply can also be introduced, the way can be CDR. If supply is introduced, the market will become a real international market. At present, the trading volume, market value and trading volume of A-share are ranked at the top of the global exchanges, but their international influence is still insufficient. Especially in the current situation, if American companies go public in China and increase economic ties, the situation may be different.

In terms of marketization, the registration system is actually an important step in the market-oriented reform, which will be gradually and comprehensively implemented to implement the reform decisions made at the Third Plenary Session of the 18th CPC Central Committee. In addition, innovative products should be gradually marketized. In those years, the financial futures exchange had to promote two products, one was treasury bond futures, the other was stock index futures. I suggested to Shang Fulin, chairman of the Securities Regulatory Commission at that time, that stock index futures should be promoted first, because without it, the stock market would lack risk management tools. Why does the stock always rise a little bit and then go down? Because the buyer is not at ease and is not willing to hold it for a long time. If it falls, it will lose money, and there is no tool to manage the risk. For the stock market, stock index futures are more important.

But now, our stock index futures and stock index options are not many, and they are relatively large, only for stock indexes, such as Shanghai Stock Exchange 50 or CSI 300. If you want to manage and hedge risks, you need to hold stocks corresponding to risk management tools. If you can't, there will be risks. Therefore, a large number of foreign stock options can manage and hedge the risk of stock investment.

Today, with the opening of the stock market, many foreign investors come in and more and more domestic institutional investors come in. It is necessary to provide individual stock options as a risk management tool. Index option can only manage risk along with the index, and there will be a lot of risk exposure for stock index option. For example, in the science and technology innovation board, the price of individual stocks is so high. If there is a stock option, the price may be relatively stable and the fluctuation will be reduced. Our stock market has a long bear but a short bull, which may be related to the lack of risk management workers.

Investor protection: calling for abolishing administrative penalty and strengthening civil compensation

21st century: with the promotion of the registration system reform, new situations have emerged in the market, including the bursting of new shares and the explosion of new shares. What do you think of the current situation?

Zhang Ning: the direction of the registration system is absolutely correct, and it is expected to be fully implemented soon, because this is the reform decision of the central government and the demand of the market. The listing time of enterprises is shortened, which is more transparent and faster.

The registration system will really return the origin of merger and reorganization, encourage industrial merger and acquisition, and improve the quality of listed companies. In addition, we should improve the delisting system. We should not wait for another non operating income of the rotten company to resume listing in two years, and all illegal and fraudulent issuance should be delisted.

In the follow-up punishment, administrative punishment and criminal punishment have been well coordinated. What is missing is civil judicial relief, that is, civil compensation. The revised Securities Law has improved civil liability in many aspects. Regulatory agencies should establish contact and cooperation mechanisms with courts, insurance centers and investors to assist in providing verified evidence of violations of laws and regulations, which is conducive to the recovery of civil liability.

Now the relevant judicial interpretation of civil litigation has not been changed, requiring administrative penalty in advance. However, sometimes the administrative penalty takes a long time. When the punishment is over, the money may be gone. From the perspective of protecting investors, we should go hand in hand, cancel the administrative penalty in advance, strengthen the linkage between administrative and civil affairs, timely help provide evidence to civil litigation, and really give priority to civil compensation, so as to protect the rights and interests of investors.

In addition, in the administrative punishment, the problem of individual punishment is not big, but the punishment of listed companies should be cautious. If the small and medium-sized shareholders account for 50% of the profits after listing, the small and medium-sized shareholders must pay a fine of 50% after the small and medium-sized shareholders' interests are infringed, and the result is that the small and medium-sized shareholders will pay a fine of 50% after they are listed. Therefore, if we want to punish, we should punish the main responsible person.

Focus on the present: T + 0 system is not advocated, and valuation system needs to be explored

The 21st century: before that, the market once talked about the T + 0 system. What do you think of it?

Zhang Ning: I don't advocate T + 0, which is not the origin of capital market. From the perspective of becoming a qualified rational investor, you should not value this, because you are a long-term investment, value investment. T + 0 is actually through frequent transactions to earn the price difference or handling charges. We should not encourage investors to buy and sell frequently. We should encourage individual investors to become long-term investors, or gradually withdraw and hand over stock investment to professionals. Only in this way can the market really mature. In fact, the development of American stock market has experienced such a process.

Now the trading volume of the exchange is enough, which one is important, risk or trading volume? Trading volume is not the most important thing. In order to become a standard market, financing function and market efficiency are both important. However, the liquidity of our market is not low in the world, so it is unnecessary to implement T + 0. The essence of capital market investment should be to accompany excellent companies to grow together. I agree with value investment.

21st century: Recently, a science and technology innovation board company issued at a low price, which created the minimum fund-raising amount of the science and technology innovation board. How do you evaluate it?

Zhang Ning: This is marketization, which is a process that must be taken. At present, the pilot registration system of the science and technology innovation board and the growth enterprise market, and the price is determined by securities dealers, investors and issuers, which is a market-oriented pricing process. If you set the price high, the market will fall to you. If the price is set low, the market will rise. The later pricing should follow the market rules. This is a success, not a failure, of the registration system.

Investors can't buy with their eyes closed. They have to mature gradually. Next, we may see the failure of listing. If the listing fails, we will not dare to set a high price in the future. The lesson is now visible across the market. As a securities company, good companies are listed, and bad ones are not listed. They can't make any money. They spend so much energy to become a bad company, and they can't go to the market in the end. Their follow-up investment is also in vain, and the gains outweigh the losses. In this way, the securities companies will also choose a good company to go public, which is also a guarantee for investors, forming a virtuous circle, so that each subject can establish market awareness.

Of course, there are also problems. For example, at the beginning, we don't know how to evaluate the value, especially for companies without profit, and the industry segments are different. What valuation method should be used and what valuation method is scientific? We have to explore in this process. To tell you the truth, pricing is going to take a detour, which is a kind of trial and error.

 

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