CHINA: SZSE Strictly Regulates ChiNext “Framework Agreement” Disclosure

Monday June 20 2016

To further intensify front-line regulatory effort, improve market transparency and protect investors` legitimate interests, Shenzhen Stock Exchange (SZSE) issued the Announcement Format for Signing Strategic Framework (Cooperation) Agreement by ChiNext Listed Companies to fully regulate the information disclosure of interest, specifically adding the following disclosure requirements:

To strengthen the disclosure of agreement performance risk.

This mainly manifests in three aspects:

• Companies should make adequate risk announcements if the key terms are not certain, such as performance schedules, cooperation scale or amount, parties` rights and interests, distribution plan and default liabilities.
• If the coming-into-force conditions or performance conditions are not yet ready, companies should offer a special reminder and disclose the preceding procedures for coming-into-force or performance.
• If the agreements involve new business, new technologies, new modes, new products or other matters of high market attention, companies should disclose the feasibility demonstration of relevant matters. In addition, risk warnings containing the source of agreed investment amount, the risk of payment capability, the risk of share lessening by majority shareholders and other content should be included.

To disclose the agreement influence on the current-year performance and operation.

The Framework Agreement Format requires that listed companies, when disclosing such agreement influence on the company, should clearly state the impact on the annual performance and operation of the current year and subsequent years and be as specific as possible on the impact to let investors set clear expectations.

To review implementation results of previous framework agreements.

In order to protect an investors` right to know, the Framework Agreement Format requests statements on the progress of the framework agreements disclosed in the most recent three years and special revelation of circumstances having no subsequent development or failing the expectations.

To keep disclosing the agreement development.

In order to prevent some companies from chasing market hotspots via framework agreement disclosure, the Framework Agreement Format sets that after the disclosure, listed companies should exert discretion in judging the progress or major changes of relevant matters and disclose important development in the form of interim reports and agreement performance progress in periodic reports.

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