Stricter rules on large shareholders selling shares took effect on Tuesday, as part of the country's intense efforts to protect the legitimate rights of small investors and boost their confidence.
On Tuesday, the stock exchanges of Shanghai, Shenzhen and Beijing all released detailed rules to better regulate large shareholders selling their shares in listed firms, taking effect immediately.
The China Securities Regulatory Commission said on August 27 that the controlling shareholder or actual controller of a listed company cannot reduce their holdings via the secondary market under certain circumstances, including when the company's stock price decreases below its IPO price or net asset value per share.
The three stock exchanges also said that large shareholders' holding reduction is prohibited if the closing stock price in any of the 20 trading days before the company discloses the holding reduction plan is either lower than the IPO price or lower than net asset value per share reported at the end of the most recent fiscal year or the most recent financial accounting reporting period.
In the most recent three fiscal years whose audited annual reports are disclosed, the Shanghai and Shenzhen exchanges added that holding reduction is also prohibited if the company has not distributed any cash dividends or distributed cash dividends less than 30 percent of the average annual net profits during the period. Fiscal years when the company reports negative net profits are not included in the calculation.