Securities Law of the People's Republic of China (2019 Revision)

Securities Law of the People's Republic of China (2019 Revision) Order of the President of the People's Republic of China (No. 37) The Securities Law of the People's Republic of China, as adopted at the 15th Session of the Standing Committee of the Thirteenth National People's Congress of the People's Republic of China on December 28, 2019, is hereby issued, and shall come into force on March 1, 2020. Xi Jinping, President of the People's Republic of China December 28, 2019 Securities Law of the People's Republic of China (Adopted at the 6th Session of the Standing Committee of the Ninth National People's Congress on December 29, 1998, amended for the first time in accordance with the Decision to Amend the Securities Law of the People's Republic of China adopted at the 11th Session of the Standing Committee of the Tenth National People's Congress on August 28, 2004; amended for the first time at the 18th Session of the Standing Committee of the Tenth National People's Congress on October 27, 2005; amended for the second time in accordance with the Decision to Amend Twelve Laws Including the Cultural Relics Protection Law of the People's Republic of China adopted at the Third Session of the Standing Committee of the Twelfth National People's Congress on June 29, 2013; amended for the third time in accordance with the Decision to Amend Five Laws Including the Insurance Law of the People's Republic of China adopted at the Tenth Session of the Standing Committee of the Twelfth National People's Congress on August 31, 2014; and amended for the second time at the 15th Session of the Standing Committee of the Thirteenth National People's Congress on December 28, 2019) Table of Contents Chapter I General Provisions Chapter II Securities Offering Chapter III Securities Trading Section 1 General Provisions Section 2 Securities Listing Section 3 Prohibited Trading Acts Chapter IV Acquisition of Listed Companies Chapter V Information Disclosure Chapter VI Investor Protection Chapter VII Stock Exchanges Chapter VIII Securities Companies Chapter IX Securities Depository and Clearing Institutions Chapter X Securities Service Institutions Chapter XI Securities Associations Chapter XII Security Regulatory Authorities Chapter XIII Legal Liability Chapter XIV Supplemental Provisions Chapter I General Provisions Article 1 This Law is developed for the purposes of regulating securities offering and trading, protecting the lawful rights and interests of investors, maintaining the social and economic order and safeguarding public interest, and promoting the development of the socialist market economy. Article 2 This Law shall apply to the offering and trading of stocks, corporate bonds, depositary receipts and other securities lawfully recognized by the State Council within the territory of the People's Republic of China. The matters not provided for in this Law shall be governed by the provisions of the Company Law of the People's Republic of China and other relevant laws and administrative regulations. This Law shall apply to the listing and trading of government bonds and shares of securities investment funds. If it is otherwise provided for in any other law or administrative regulation, such provisions shall prevail. The administrative measures for the offering and trading of asset-backed securities and asset management products shall be developed by the State Council under the principles of this Law. Where the offering and trading of securities outside the People's Republic of China disrupt the order of the domestic market of the People's Republic of China and infringe upon the lawful rights and interests of domestic investors, the violator shall be punished in accordance with the relevant provisions of this Law and shall be subject to legal liability. Article 3 The offering and trading of securities shall follow the principles of openness, fairness and impartiality. Article 4 The parties to securities offering and trading activities shall have equal legal status and follow the principles of free will, compensation, and good faith. Article 5 The offering and trading of securities shall comply with laws and administrative regulations. Any fraud, insider trading or manipulation of the securities market shall be prohibited. Article 6 The operation and administration of the securities industry shall be separated from the operation and administration of banking, trust and insurance industries, and securities companies shall be formed separately from banking, trust and insurance business institutions, except as otherwise provided for by the state. Article 7 The securities regulatory authority of the State Council shall conduct centralized and unified supervision and administration of the national securities market in accordance with the law. The securities regulatory authority of the State Council may form local offices as required, and such local offices shall perform their duties of supervision and administration according to authorization. Article 8 The auditing organs of the state shall conduct the auditing supervision of stock exchanges, securities companies, securities depository and clearing institutions, and securities regulatory authorities in accordance with the law. Chapter II Securities Offering Article 9 The public offering of securities shall meet the conditions prescribed by laws and administrative regulations, and shall be legally reported to the securities regulatory authority of the State Council or the department authorized by the State Council for registration. No entity or individual may offer securities to the public without legal registration. The specific scope and implementation procedures of the securities offering registration system shall be prescribed by the State Council. It shall be deemed as a public offering under any of the following circumstances: (1) Offering of securities to unspecified investors. (2) Offering of securities to more than 200 specified investors accumulatively, without calculating the number of employees implementing the employee stock ownership plan in accordance with the law. (3) Other offering conduct prescribed by laws and administrative regulations. Securities shall not be placed privately in such forms as advertisements, public inducement and disclosure in any disguised form. Article 10 An issuer that applies for the public offering of a stock or corporate bond with the option to be converted into shares by means of underwriting in accordance with the law or applies for the public offering of other securities subject to sponsorship rules prescribed by any law or administrative regulation shall retain a securities company as its sponsor. The sponsor shall observe business rules and industrial norms, have good faith and act with due diligence, prudentially inspect the issuer's application documents and information disclosure materials and supervise the issuer's standard operation. The measures for the administration of sponsors shall be provided for by the securities regulatory authority of the State Council. Article 11 Whoever applies for the formation of a joint-stock limited company for the public offering of a stock shall meet the conditions prescribed in the Company Law of the People's Republic of China and other conditions prescribed by the securities regulatory authority of the State Council with the approval of the State Council, and submit an application for the public offering of the stock and the following documents to the securities regulatory authority of the State Council: (1) The bylaws of the company. (2) The promoter's agreement. (3) The name or title of the promoter, the number of shares subscribed for by the promoter, the type of capital contribution and the capital verification certificate. (4) The prospectus. (5) The name and address of the bank that receives subscription funds as the agent. (6) The name of the underwriting institution and the relevant agreement. Where a sponsor is retained in accordance with the provisions of this Law, the offering sponsorship letter issued by the sponsor shall also be submitted. Where the formation of a company shall be reported for approval as provided for by any law or administrative regulation, the relevant approval documents shall also be submitted. Article 12 A company that has an initial public offer (IPO) of a new stock shall meet the following conditions: (1) It has a sound and well-functioning organizational structure. (2) It has sustainable operation capability. (3) No audit report with clean opinions on its financial accounting report in the most recent three years has been issued. (4) The issuer or its controlling shareholder or actual controller has not committed any crime of corruption, bribery, encroachment upon property, embezzlement of property or disturbance of the socialist market economic order in the most recent three years. (5) Other conditions prescribed by the securities regulatory authority of the State Council with the approval of the State Council. A listed company that offers a new stock shall meet the conditions prescribed by the securities regulatory authority of the State Council with the approval of the State Council and the specific administrative measures shall be prescribed by the securities regulatory authority of the State Council. A company that offers a depositary receipt to the public shall meet the conditions for the IPO of new stocks and other conditions prescribed by the securities regulatory authority of the State Council. Article 13 A company that offers a new stock to the public shall submit an application for the public offering of the stock and the following documents: (1) The business license of the company. (2) The bylaws of the company. (3) The resolution of the shareholders' meeting. (4) The prospectus or other public offering documents. (5) The financial accounting report. (6) The name and address of the bank that receives the subscription funds as an agent. Where a sponsor is retained in accordance with the provisions of this Law, the offering sponsorship letter issued by the sponsor shall also be submitted. If underwriting is conducted in accordance with the provisions of this Law, the name of the underwriting institution and the relevant agreement shall also be submitted. Article 14 A company may use the funds raised through the public offering of a stock according to the purpose set out in the prospectus or other public offering documents. The change of the use of funds shall be subject to a resolution of the shareholders' meeting. If the unlawful change of use of funds is not corrected or not recognized by the shareholders' meeting, the public offering of the new stock is not allowed. Article 15 A company that offers a corporate bond to the public shall meet the following conditions: (1) It has a sound and well-functioning organizational structure. (2) Its average attributable profits in the most recent three years are sufficient to pay the one-year interest of the corporate bond. (3) Other conditions prescribed by the State Council. The funds raised through the public offering of a corporate bond shall be used for the purpose set out in the measures for the offering of corporate bonds. The change in the use of funds shall be subject to a resolution made at the bondholders' meeting. The funds raised through the public offering of a corporate bond shall not be used for covering the deficit or non-production expenditure. A listed company that offers a corporate bond with the option to be converted into shares shall, in addition to meeting the conditions prescribed in paragraph 1, comply with paragraph 2 of Article 12 of this Law, unless the listed company converts the corporate bond by acquiring the shares of the company according to the measures for the offering of corporate bonds. Article 16 Whoever applies for the public offering of a corporate bond shall submit the following documents to the department authorized by the State Council or the securities regulatory authority of the State Council: (1) The business license of the company. (2) The bylaws of the company. (3) The measures for the offering of corporate bonds. (4) Other documents prescribed by the department authorized by the State Council or the securities regulatory authority of the State Council. Where a sponsor is retained in accordance with the provisions of this Law, the Offering Sponsorship Letter issued by the sponsor shall also be submitted. Article 17 Under any of the following circumstances, no corporate bond may be offered to the public anew: (1) The company violates the contract on the corporate bond offered to the public or other debts, or has postponed the payment of the relevant principal and interest, and such status still exists. (2) The company changes the use of funds raised through the public offering of a corporate bond in violation of this Law. Article 18 The format and ways of submitting application documents by an issuer for the public offering of securities in accordance with the law shall be prescribed by the organ or department in charge of registration in accordance with the law. Article 19 The application documents for securities offering submitted by an issuer shall fully disclose the information required by investors for making value judgments and investment decisions, and the content shall be true, accurate and complete. Securities service institutions and their employees that issue relevant documents for securities offering shall strictly perform their statutory duties and guarantee the veracity, accuracy and completeness of the issued documents. Article 20 Where an issuer applies for an IPO of a stock, it shall, after submitting application documents, disclose the relevant application documents in advance according to the provisions issued by the securities regulatory authority of the State Council. Article 21 The securities regulatory authority of the State Council or the department authorized by the State Council shall be responsible for the registration of securities offering applications according to statutory conditions. The specific measures for the registration of public offering of securities shall be prescribed by the State Council. According to the provisions of the State Council, a stock exchange, among others, may examine an application for the public offering of securities, judge whether an issuer meets the offering conditions and information disclosure requirements, and urge the issuer to improve the information disclosure content. A person participating in the registration of a securities offering application according to the provisions of the preceding two paragraphs shall not be a party of interest of the offering applicant, shall not directly or indirectly accept any gift from the offering applicant, shall not hold the securities involved in the registered offering application, and shall not have any private contact with the offering applicant. Article 22 The securities regulatory authority of the State Council or the department authorized by the State Council shall, within three months as of accepting securities offering application documents, make a decision on whether to approve the registration or not according to statutory conditions and statutory procedures, but the time required for an issuer to supplement or amend its offering application documents according to the relevant requirements shall not be included in the aforesaid period. If the registration is disapproved, the reasons for disapproval shall be stated. Article 23 After a securities offering application is registered, the issuer shall, according to the provisions of laws and administrative regulations, announce the public offering documents before the public offering of securities and place such documents at designated places for public reference. Before securities offering information is disclosed in accordance with the law, no insider may disclose or divulge such information. An issuer shall not offer securities before announcing public offering documents. Article 24 Where the securities regulatory authority of the State council or the department authorized by the State Council finds that the decision made by it on approving securities offering registration fails to meet statutory conditions or statutory procedures, it shall revoke the offering registration decision and order the issuer to cease the offering, if securities have not been offered; or revoke the offering registration decision if securities have been offered but not been listed. The issuer shall refund funds equivalent to the issue price plus interest calculated at the bank deposit rate for the corresponding period to securities holders. The issuer's controlling shareholder and actual controller and the sponsor shall assume joint and several liability with the issuer, unless they are able to prove that they have no fault. Where a stock issuer conceals any important fact or fabricates any major false content in the prospectus or any other securities offering document, if the stock has been offered and listed, the securities regulatory authority of the State Council may order the issuer to repurchase the securities or order the liable controlling shareholder or actual controller to buy back the securities. Article 25 After the offering of a stock in accordance with the law, the issuer shall be responsible for changes in the issuer's business operation and proceeds. The investment risks resulting from such changes shall be borne by investors themselves. Article 26 Where the securities offered by an issuer to unspecific investors shall be underwritten by a securities company as provided for by any law or administrative regulation, the issuer shall enter into an underwriting agreement with the securities company. The form of proxy sale or exclusive sale shall be adopted for the underwriting of securities. “Proxy sale of securities” means an underwriting form, whereby a securities company sells securities on behalf of the issuer and returns all unsold securities to the issuer at the end of the underwriting period. “Exclusive sale of securities” means an underwriting form, whereby a securities company purchases all securities of an issuer according to the agreement or purchases all remaining unsold securities by itself at the end of the underwriting period. Article 27 An issuer that offers securities to the public has the right to legally select a securities company for underwriting at its own will. Article 28 Where a securities company underwrites securities, it shall enter into an agreement on proxy sale or exclusive sale with the issuer, which shall indicate the following matters: (1) The name and domicile of the party and the name of its legal representative. (2) The type, quantity, amount and issue price of securities under proxy sale or exclusive sale. (3) The term of proxy sale or exclusive sale and the beginning and ending dates. (4) The methods and date of payment for proxy sale and exclusive sale. (5) The expenses for proxy sale or exclusive sale and settlement methods. (6) The liability for the breach of contract. (7) Other matters prescribed by the securities regulatory authority of the State Council. Article 29 A securities company that underwrites securities shall inspect the veracity, accuracy and integrity of public offering documents. If it finds any false records, misleading statements or material omissions, it shall not conduct sales activities; and if it has conducted sales activities, it shall immediately cease such activities and take corrective measures. A securities company that underwrites securities may not commit any of the following conduct: (1) Conducting advertising or publicity or other publicity and promotion activities that are false or mislead investors. (2) Soliciting the underwriting business by means of unfair competition. (3) Committing any other violation of the provisions on securities underwriting. Where a securities company commits any conduct set out in the preceding paragraph and causes any loss to any other securities underwriting institution or investors, it shall assume compensatory liability in accordance with the law. Article 30 Where an underwriting syndicate is retained to underwrite securities offered to unspecific investors, the underwriting syndicate shall consist of securities companies as the principal underwriter and participants. Article 31 The term for securities proxy sale or exclusive sale shall not exceed 90 days. A securities company shall, within the period of proxy sale or exclusive sale, guarantee that the securities under proxy sale or exclusive sale are sold to subscribers in priority, the securities company shall not reserve in advance any securities under its proxy sale or purchase in advance and sustain any securities under its exclusive sale. Article 32 Where a stock is offered at a premium, the issue price thereof shall be determined through negotiation between the issuer and the securities company that underwrites the stock. Article 33 Where a stock is offered by proxy sale, and the number of shares sold to investors fails to reach 70% of the number of shares to be offered to the public after the expiration of the period of proxy sale, it shall be deemed as an offering failure. The issuer shall refund funds equivalent to the issue price plus interest calculated at the bank deposit rate for the corresponding period to stock subscribers. Article 34 In the public offering of a stock, upon the expiration of the period for proxy sale or exclusive sale, the issuer shall report the stock offering information to the securities regulatory authority of the State Council for recordation within the prescribed time limit. Chapter III Securities Trading Section 1 General Provisions Article 35 The securities traded by any party to securities transactions in accordance with the law must be securities offered and delivered in accordance with the law. Securities not offered in accordance with the law shall not be traded. Article 36 Where the Company Law of the People's Republic of China or any other law has restrictive provisions on the period of transfer of securities offered in accordance with the law, such securities shall not be transferred within such a period. The transfer of a company's shares held by shareholders holding 5% or more of shares of a listed company, the actual controller, directors, supervisors and senior executives, as well as other shareholders holding shares offered by the issuer prior to the IPO or shares offered by a listed company to specific investors shall not violate any laws, administrative regulations, and the provisions issued by the securities regulatory authority of the State Council on the holding period, sale time, number of shares sold, sale methods, and information disclosure, among others, and shall comply with the business rules of the stock exchange. Article 37 Securities offered to the public shall be listed and traded on a stock exchange formed in accordance with the law or traded on any other national stock trading place approved by the State Council. Securities placed privately may be transferred on a stock exchange, any other national stock trading place approved by the State Council, or the regional equity market formed according to the provisions of the State Council. Article 38 Securities shall be listed and traded on the stock exchange in the form of open and centralized trading or other forms approved by the securities regulatory authority of the State Council. Article 39 Securities may be traded by the parties to securities transactions in a paper form or other forms prescribed by the securities regulatory authority of the State Council. Article 40 An employee of a stock exchange, securities company or securities depository and clearing institution, a staff member of a securities regulatory authority, as well as any other person prohibited by any law or administrative regulation from participating in stock trading shall not, within his or her term of office or the statutory period, hold or trade in a stock or other securities of the equity nature directly or in any assumed name or in the name of any other person, or accept any stock or other securities of the equity nature from any other person as the gift. The shares or other securities of the equity nature held by anyone before he or she becomes a person set out in the preceding paragraph must be transferred in accordance with the law. Employees of a securities company implementing an equity incentive plan or an employee stock ownership plan may, according to the provisions of the securities regulatory authority of the State Council, hold or sell the company's stock or other securities of the equity nature. Article 41 Stock exchanges, securities companies, securities depository and clearing institutions, securities service institutions and their employees shall keep confidential the information on investors in accordance with the law, and shall not trade in, provide or disclose the information on investors in an illegal manner. Stock exchanges, securities companies, securities depository and clearing institutions, securities service institutions and their employees shall not divulge trade secrets to which they have access. Article 42 A securities service institution and its employees that produce such documents as audit reports and legal opinions for the offering of securities shall not trade in such securities within the underwriting term of such securities or within six months after the expiration of the underwriting term of such securities. Except as otherwise prescribed in the preceding paragraph, the securities service institution and its employees that produce such documents as audit reports and legal opinions for the issuer and its controlling shareholder, actual controller or the acquirer or the party to material asset transactions shall not trade in such securities from the date of accepting the entrustment to five days after the aforesaid documents are disclosed to the public. If the date on which the aforesaid work is actually carried out is earlier than the date on which the entrustment is accepted, such securities shall not be traded from the date on which the aforesaid work is actually carried out to the fifth day after the aforesaid documents are disclosed to the public. Article 43 The fee charge for securities transactions shall be reasonable, and the charging items, fee rates and administrative measures shall be publicized. Article 44 Where any shareholder holding 5% or more of shares, director, supervisor or senior executive of a listed company or a company of which the stock is traded on any other national stock trading place approved by the State Council sells the stock or other securities of the equity nature of the company held thereby within six months after the purchase thereof, or purchases the stock or other securities within six months after sale, the proceeds generated therefrom shall be owned by the company. The board of directors of the company shall take back the proceeds, unless the securities company holds 5% or more of shares for purchasing remaining after-sale shares in exclusive sale, and under any other circumstance prescribed by the securities regulatory authority of the State Council. The stock or other securities of the equity nature held by a director, supervisor, senior executive or a natural person shareholder as mentioned in the preceding paragraph shall include the stock or other securities of the equity nature held by his or her spouse, parents or children and by making use of any other person's account. Where the board of directors of a company fails to implement the provisions of paragraph 1, the shareholders shall have the right to require the board of directors to implement such provisions within 30 days. If the board of directors of a company fails to implement such provisions within the aforesaid period, the shareholders shall have the right to directly file a lawsuit with the people's court in their own names for the interests of the company. Where the board of directors of a company fails to implement the provisions of paragraph 1, the liable directors shall assume several and joint liability in accordance with the law. Article 45 Program trading automatically generated by computer programs or conducted based on assigned trading orders shall comply with the provisions issued by the securities regulatory authority of the State Council and be reported to a stock exchange, and shall not affect the system security or the normal trading order of the stock exchange. Section 2 Securities Listing Article 46 Whoever applies for securities listing and trading shall file an application with the stock exchange, which shall be subject to the examination and approval of the stock exchange according to the law, and a listing agreement shall be entered into by both parties. The stock exchange shall arrange for the listing and trading of a government bond according to the decision of the department authorized by the State Council. Article 47 Whoever applies for securities listing and trading shall meet the listing conditions prescribed in the listing rules of the stock exchange. The listing conditions prescribed in the listing rules of a stock exchange shall provide for the number of years of operation, financial status, minimum public offering ratio, corporate governance and credit records, among others, of the issuer. Article 48 Where a stock listed for trading falls under any circumstance where the listing thereof shall be terminated as prescribed by the stock exchange, the stock exchange shall terminate the listing and trading of the stock according to its business rules. Where a stock exchange decides to terminate securities listing and trading, it shall make an announcement in a timely manner and file a report with the securities regulatory authority of the State Council for recordation. Article 49 Any entity may apply to the review organ formed by the stock exchange for the review of the listing and trading disapproval and listing and trading termination decision made by the stock exchange. Section 3 Prohibited Trading Acts Article 50 Any insider who has access to inside information on securities trading or who has unlawfully obtained inside information is prohibited from using such inside information to conduct securities trading activities. Article 51 The insiders who have access to inside information on securities trading include: (1) the issuer and its directors, supervisors, and senior executives; (2) shareholders holding 5% or more of shares of the company and their directors, supervisors, and senior executives, and the actual controller of the company and its directors, supervisors, and senior executives; (3) the company of which the controlling shares are held or which is actually controlled by the issuer and its directors, supervisors, and senior executives; (4) the personnel who have access to the inside information of the company in virtue of their positions held in the company or their business exchange with the company; (5) the acquirer of a listed company or parties to material asset transactions, and their controlling shareholders, actual controllers, directors, supervisors and senior executives; (6) the relevant personnel of stock exchanges, securities companies, securities depository and clearing institutions and securities service institutions who may have access to inside information by virtue of their positions or work; (7) staff members of securities regulatory authorities who may have access to inside information by virtue of their duties or work; (8) staff members of competent departments and regulatory authorities who may have access to inside information in their performance of statutory duties of administering securities offering and trading or listed companies and their acquisitions and material asset transactions; and (9) other personnel who may have access to inside information as provided for by the securities regulatory authority of the State Council. Article 52 “Inside information” means undisclosed information relating to the issuer's business or financial affairs, or may have a significant impact on the market price of securities of the issuer in securities trading activities. The major events set out in paragraph 2 of Article 80 and paragraph 2 of Article 81 of this Law fall under inside information. Article 53 Any insider who has access to inside information on securities trading or has unlawfully obtained inside information may not trade in the securities of the relevant company, or divulge such information, or advise any other person to trade in such securities prior to the disclosure of such inside information. Where the acquisition of shares of a listed company by a natural person, legal person or an unincorporated organization holding 5% or more of shares of the company individually or jointly with others through agreements or other arrangements is otherwise provided for in this Law, such provisions shall prevail. Whoever conducts insider trading, causing any loss to investors, shall assume compensatory liability in accordance with the law. Article 54 The employees of stock exchanges, securities companies, securities depository and clearing institutions, securities service institutions and other financial institutions as well as the personnel of the relevant regulatory departments or industry associations shall be prohibited from using any undisclosed information other than inside information to which they have access by virtue of their positions to conduct securities trading activities relating to such information in violation of the relevant provisions, or explicitly or implicitly instructing any other person to conduct the relevant trading activities. Whoever uses undisclosed information to conduct trading, causing any loss to investors, shall assume compensatory liability in accordance with the law. Article 55 No one is allowed to manipulate the securities market by any of the following means, so as to affect the securities trading price or securities trading volume: (1) Concentrating independently or by collusion the advantages in capital or the advantages in shareholding or the advantage in information so as to carry out colluded or continuous transactions. (2) Colluding with any other person to carry out securities transactions with each other according to the time, price or ways as agreed to in advance. (3) Conducting securities trading among the accounts under the actual control of his or her own. (4) Placing frequent or large orders and canceling orders not for the purpose of concluding transactions. (5) Inducing investors to conduct securities trading by using false or uncertain significant information. (6) Offering public evaluation, forecast or investment advice on securities or the issuer, and conducts securities transactions contrary to the evaluation, forecast or investment advice. (7) Conducting activities on any other relevant market so as to manipulate the securities market. (8) Manipulating the securities market by other means. Whoever manipulates the securities market, causing any loss to investors, shall assume compensatory liability in accordance with the law. Article 56 No entity or individual is allowed to fabricate or disseminate false information or misleading information, so as to disrupt the securities market. Stock exchanges, securities companies, securities depository and clearing institutions, securities service institutions and their employees, as well as securities associations, securities regulatory authorities and their staff members are prohibited from making false statements or giving misleading information in securities trading activities. The securities market information disseminated by any media must be true and objective, and the dissemination of misleading information is prohibited. The media and their staff members engaged in the reporting of securities market information may not conduct securities trading in conflict with their duties. Whoever fabricates or disseminates false information or misleading information, which disrupts the securities market and causes any loss to investors, shall assume compensatory liability in accordance with the law. Article 57 A securities company and its employees are prohibited from committing any of the following conduct that damages clients' interests: (1) Trading securities for any client against the entrustment thereof. (2) Failing to provide any client with trading confirmation documents within the prescribed period of time. (3) Trading securities for any client without the entrustment thereof, or trading securities under the guise of any client's name. (4) Inducing any client to conduct unnecessary securities trading in order to charge commissions. (5) Committing any other conduct against the expression of the client's true intention, which damages the client's interests. Whoever violates the provisions of the preceding paragraph, causing any loss to clients, shall assume compensatory liability in accordance with the law. Article 58 No entity or individual is allowed to lend the securities account thereof or borrow any other person's securities account to conduct securities trading in violation of the relevant provisions. Article 59 The channels for the flow of funds to the market shall be broadened in accordance with the law, and the flow of funds to the stock market in violation of any provision is prohibited. Investors are prohibited from using fiscal funds and bank credit funds to trade in securities in violation of any provision. Article 60 Solely state-owned enterprises, solely state-owned enterprises and companies in which the state has a controlling stake that trade in stocks listed for trading shall comply with the relevant provisions of the state. Article 61 Stock exchanges, securities companies, securities depository and clearing institutions, securities service institutions and their employees shall report any prohibited trading acts discovered in securities trading to the securities regulatory authority in a timely manner. Chapter IV Acquisition of Listed Companies Article 62 An investor may acquire a listed company by means of tender offer or agreement and other legal means. Article 63 When the voting shares offered by a listed company as held by an investor through securities trading on the stock exchange or jointly with others through agreements or other arrangements reach 5%, the investor shall, within three days after the event occurs, submit a written report to the securities regulatory authority of the State Council and the stock exchange, notify the relevant listed company and make an announcement thereon. The investor may not trade in the stock of the listed company within the aforesaid period, unless under any circumstance prescribed by the securities regulatory authority of the State Council. After the voting shares offered by a listed company as held by an investor or jointly with others through agreements or other arrangements reach 5%, the investor shall, according to the provisions of the preceding paragraph, make a report and announcement each time when the proportion of voting shares offered by the said company increases or decreases by 5%. From the day when the event occurs to the end of three days after the announcement is made, the investor may not trade in the stock of the listed company, unless under any circumstance prescribed by the securities regulatory authority of the State Council. After the voting shares offered by a listed company as held by an investor or jointly with others through agreements or other arrangements reach 5%, each time when the proportion of voting shares offered by the said company increases or decreases by 1%, the investor shall notify the listed company and make an announcement thereon on the day immediately after the event occurs. Whoever purchases the voting shares of a listed company in violation of paragraph 1 or 2 shall not exercise the voting right of the shares that exceed the prescribed ratio within 36 months after purchasing them. Article 64 The announcement made in accordance with the provisions of the preceding Article shall cover the following content: (1) The name and domicile of the shareholder. (2) The name of the stock and the number of shares held. (3) The date when the shareholding or the increase or decrease in the shareholding reaches the statutory ratio, and the source of funds for the increase in shareholding. (4) The time when the voting shares of a listed company change and the methods of change. Article 65 Where an investor continues to purchase shares when the voting shares offered by a listed company as held by an investor through securities trading on the stock exchange or jointly with others through agreements or other arrangements reach 30%, the investor shall, in accordance with the law, make a tender offer to all shareholders of the listed company for acquiring all or part of the shares of the listed company. It shall be agreed upon in a tender offer for acquiring part of the shares of a listed company that, if the number of shares the shareholders of the target company promise to sell exceeds the number of shares intended to be acquired, the acquirer shall carry out the acquisition on a pro rata basis. Article 66 The acquirer shall, before making a tender offer according to the provisions of the preceding Article, announce the report on the acquisition of a listed company, which shall indicate the following matters: (1) The name and domicile of the acquirer. (2) The acquisition decision of the acquirer. (3) The name of the listed company to be acquired. (4) The purpose of acquisition. (5) The detailed description of the shares to be acquired and the number of shares intended to be acquired. (6) The term and price of the acquisition. (7) The amount of funds required for the acquisition and fund guarantee. (8) The proportion of the number of shares of the target company held by the acquirer to the outstanding shares of the company, when the report on the acquisition of the listed company is announced. Article 67 The acquisition period as specified in a tender offer shall be not less than 30 days but not more than 60 days. Article 68 Within the period of acceptance as specified in the tender offer, the acquirer may not withdraw its tender offer. If an acquirer needs to modify a tender offer, it shall make an announcement in a timely manner, indicating the specific modification matters, and it shall not fall under any of the following circumstances: (1) Lowering the acquisition price. (2) Reducing the number of shares intended to be acquired. (3) Shortening the acquisition period. (4) Other circumstances prescribed by the securities regulatory authority of the State Council. Article 69 All the terms and conditions of acquisition in a tender offer shall apply to all shareholders of the target company. Where a listed company offers different types of shares, the acquirer may propose different acquisition conditions for different types of shares. Article 70 In the case of acquisition by tender offer, during the acquisition period, the acquirer may not sell the stock of the target company, or purchase the stock of the target company beyond the forms and terms as specified in the tender offer. Article 71 In the case of acquisition by agreement, the acquirer may effect share transfer with shareholders of the target company by agreement according to the provisions of laws and administrative regulations. Where a listed company is acquired by agreement, the acquirer shall, within three days after the acquisition agreement is signed, submit a written report on the acquisition agreement to the securities regulatory authority of the State Council and the stock exchange, and make an announcement thereon. No acquisition agreement may be performed before the relevant announcement is made. Article 72 In the case of acquisition by agreement, both parties to the agreement may temporarily entrust a securities depository and clearing institution to take into custody the shares transferred under the agreement and deposit funds at the designated bank. Article 73 In the case of acquisition by agreement, if the acquirer continues to purchase shares when the voting shares offered by a listed company as purchased by the acquirer or jointly with others through agreements or other arrangement reach 30%, it shall make a tender offer to all shareholders of the listed company for acquiring all of or part of the company's shares in accordance with the law, unless the tender offer is exempted by the securities regulatory authority of the State Council. The acquirer that purchases the shares of a listed company by tender offer according to the provisions of the preceding paragraph shall comply with the provisions of paragraph 2 of Article 65 and Articles 66 through 70 of this Law. Article 74 Where, upon the expiration of the acquisition period, the equity distribution of the target company fails to satisfy the requirements for listing and trading prescribed by the stock exchange, the listing and trading of the listed company's stock shall be terminated by the stock exchange in accordance with the law. The shareholders that still hold the stock of the target co......