Explanatory Notes on the Drafting of the Measures for the Supervision and Administration of Integrity in the Securities and Futures Markets

In order to implement the requirements of the CPC Central Committee and the State Council on strengthening integrity-building, further enhance integrity in the capital market, elevate the level of integrity in the capital market, and promote its sound and stable development, and in light of practical developments and market needs, our Association has, on the basis of the Provisional Measures for the Supervision and Administration of Integrity in the Securities and Futures Markets (CSRC Order No. 106, hereinafter referred to as the “Provisional Measures”), undertaken further revisions and refinements, thereby formulating the Measures for the Supervision and Administration of Integrity in the Securities and Futures Markets (hereinafter referred to as the “Measures”). The main points are set out below:

I. Background of the Revision

As the first specialized regulatory framework on integrity in China’s capital market, the Provisional Measures, since their promulgation and implementation in 2012 and subsequent revision in 2014, have strengthened integrity-based oversight of market participants and their conduct through a series of institutional mechanisms—ranging from the definition and aggregation of integrity information to its public disclosure and access, as well as measures to impose sanctions on those who breach trust and to incentivize trustworthy behavior. These efforts have enhanced integrity awareness across the entire market and industry, played a pivotal role in advancing integrity-building in the capital market, and provided valuable explorations for the CSRC in promoting the development of a social and market‑wide credit system.

In recent years, the CPC Central Committee and the State Council have put forward numerous new requirements and guiding principles for building integrity; the capital market has witnessed new developments and emerging circumstances; and regulatory work now faces new challenges and tasks, necessitating amendments to the Provisional Measures.

(1) The CPC Central Committee and the State Council attach greater importance to integrity-building, necessitating that through…

Amend the Provisional Measures to implement the Party Central Committee and the State Council’s policies on integrity building.

Policy requirements. The 19th National Congress of the Communist Party of China, as well as the Third, Fourth, and Fifth Plenary Sessions of the 18th CPC Central Committee, have all set forth requirements for strengthening the development of social integrity. Over the past three years, the state has successively issued six specialized documents on integrity-building, including the Outline for the Construction of a Social Credit System (2014–2020), the Guiding Opinions on Establishing and Improving Systems of Joint Incentives for Trustworthiness and Joint Punishments for Dishonesty to Accelerate the Advancement of Social Integrity, and the Guiding Opinions on Strengthening the Construction of an Individual Integrity System. Meanwhile, policy documents in other sectors have also made arrangements for innovating integrity‑related regulatory systems and mechanisms, explicitly calling for the establishment of a series of new institutional frameworks for integrity building and integrity oversight. These include an integrity‑commitment system for applicants for administrative licenses, an integrity‑reporting system, an integrity‑membership system, classified management of market entities based on their integrity or creditworthiness, public disclosure of “blacklists” of serious dishonest actors, a “green‑channel” system to incentivize trustworthy parties, restrictions on financial institutions’ provision of financial services to untrustworthy entities, sanctions against dishonest actors in areas such as market access, and measures to achieve information sharing, joint punishment for dishonesty, and joint incentives for trustworthiness. These systems and mechanisms have not yet been stipulated in the Provisional Measures and urgently require incorporation through amendments to those Measures, so as to institutionalize the policy requirements.

(II) The capital market has undergone significant changes, necessitating the refinement of integrity‑based regulatory frameworks to achieve full‑coverage oversight of new sectors, new market participants, and emerging activities. In recent years, the capital market has experienced substantial evolution, posing new demands on integrity‑building efforts. Market tiers have become increasingly diversified, and financing functions have grown more sophisticated: the main board and the ChiNext have continued to expand, the New Third Board and the private‑fund market have developed rapidly, regional equity markets have been brought under standardized development, and new advances have emerged in areas such as asset‑backed securities, bonds, and futures. All these domains must be integrated into the broader framework for fostering market integrity. At the same time, there is an urgent need to further innovate and improve the mechanisms of integrity‑based regulation to keep pace with the rapid emergence and intricate interplay of new business forms, models, and practices, as well as the growing complexity of market operations. For example, in recent years, margin trading and short selling have expanded rapidly, while collateralized bond repurchase and agreed‑upon buyback transactions have also seen substantial growth. It is therefore essential to incorporate integrity‑related information from these types of transactions and to encourage relevant market participants to consult integrity records when engaging in such activities, thereby reinforcing integrity‑based constraints.

(3) In light of the problems and shortcomings in capital market institutional mechanisms exposed by the stock market’s abnormal volatility, it is necessary to strengthen the foundational integrity‑based regulatory framework. The 2015 stock market turmoil highlighted salient issues—such as “immature traders, incomplete trading systems, an underdeveloped market structure, and inadequate regulatory frameworks”—which are closely linked to low levels of integrity among market participants, an imperfect and incomplete integrity‑related institutional framework, and insufficient enforcement and weak effectiveness of integrity‑based constraints. For instance, to address immature traders and incomplete trading systems, it is essential to amend the Provisional Measures to incorporate traders and investors into integrity records and to conduct integrity‑record checks when opening securities and futures accounts. To tackle the inadequacies of the market system, it is necessary to bring securities and futures dissemination entities and personnel, as well as information on bond default events, within the scope of integrity records and integrity‑based regulation. Finally, to improve the regulatory framework, it is imperative to establish inter‑agency sharing of integrity information, implement joint punitive measures against those who lose trust, and introduce coordinated incentives for those who uphold integrity, thereby strengthening regulatory coordination, reinforcing market oversight, and mitigating market risks.

(4) Improving and strengthening the mechanisms, measures, and tools for integrity-based regulation is essential to better…

It is both a component and a crucial lever for implementing the requirement of comprehensive, stringent, and law-based regulation. Against the backdrop of streamlining administration and delegating power, while rigorously controlling market access, there is an urgent need to innovate integrity‑based regulatory approaches, mechanisms, and tools during the ongoing‑regulation phase, thereby enriching the regulatory “toolbox.” Establishing an integrity‑score system for key market participants and adopting classified management based on integrity can provide effective levers for in‑process oversight. For certain unlawful and untrustworthy practices, mere punitive measures are insufficient; additional constraints—such as public disclosure and transaction restrictions—are also required. Moreover, some sectors remain outside the scope of traditional regulatory instruments, where integrity‑based mechanisms can serve to supplement and reinforce existing frameworks. In addition, several exploratory initiatives undertaken in recent years within regulatory practice should be formalized into statutory provisions.

II. Principles and Approach to the Revision

This revision, in its overall spirit, aligns with the CPC Central Committee and the State Council’s requirements for strengthening social integrity building, further advancing the improvement and enrichment of the capital market’s integrity‑based regulatory framework. Throughout the amendment process, the guiding principle of “three integrations” was fundamentally followed:

First, it is essential to align national policy requirements with the realities of the capital market. As noted above, in recent years, the state has put forward a series of new directives on fostering social integrity and building a social credit system—guidelines that are broadly framed and strategically oriented, addressing the overall socio‑economic landscape. During the revision of the Provisional Measures, it is imperative to integrate these national objectives with the specific characteristics, underlying principles, and practical realities of the capital market and its regulatory framework, thereby designing relevant institutional mechanisms aimed at achieving comprehensive integrity records, robust penalties for breaches of trust, and effective coordinated supervision.

Second, the new institutional provisions should be integrated with the existing institutional framework. Based on more than five years of implementation and outcomes under the Provisional Measures, this system has proven to align with the intrinsic requirements and practical needs of the capital market, and its institutional framework generally conforms to the underlying principles governing integrity-building. The new demands arising from the evolving landscape can—and indeed should—be addressed within the current institutional framework by revising, enriching, and refining mechanisms related to the content and scope of integrity information, the disclosure and access to such information, as well as sanctions for breaches of trust and incentives for upholding integrity.

Third, integrate the regulatory authorities’ integrity‑based supervision with joint punitive measures for those who lose trust and joint incentive mechanisms for those who uphold it. In accordance with the arrangements of the Inter‑Ministerial Joint Conference on Building the Social Credit System under the State Council and based on the realities of capital market regulation, amendments to the Provisional Measures will be made to, while strengthening the regulatory agencies’ oversight of integrity and imposing appropriate constraints, place greater emphasis on and fully leverage the role of integrity information sharing and joint punitive mechanisms. This will help break down the barriers created by siloed integrity data, thereby addressing the limitations they impose on regulatory enforcement and truly establishing a working framework in which “a single breach of trust results in restrictions everywhere.”

III. Main Amendments

The Measures comprise six chapters and 50 articles, covering general provisions, the collection and management of integrity information, the public disclosure and inquiry of such information, mechanisms for integrity-based constraints, incentives, and guidance, oversight and administration, as well as supplementary provisions. Compared with the Provisional Measures (which consisted of six chapters and 43 articles), this version retains 39 articles—of which 24 have been revised—adds 11 new articles, and deletes 4. The key revisions are set out below:

(1) Expanding the scope of entities covered by integrity information

First, investors in the securities and futures markets are brought within the scope of entities subject to integrity information requirements, with the aim of regulating their investment activities and enhancing their awareness of integrity. Second, new categories of integrity‑information subjects are added, including companies listed on the National Equities Exchange and Quotations for Small and Medium‑Sized Enterprises, enterprises and operating institutions listed on regional equity markets, fund service providers, warehouses designated for the delivery of futures contracts, quality inspection and quarantine agencies for the underlying commodities of futures contracts, commercial banks and other financial institutions that provide custody and depository services for securities and futures business, as well as securities and futures media outlets, together with relevant personnel associated with these entities, thereby aligning with the needs of building and reforming a multi‑tiered capital market. (Article 7)

(II) Expanding the Scope of Coverage for Integrity Information

First, the unified social credit code is designated as the foundational identifier for legal persons and other organizations, ensuring the mutual matching of integrity information and providing a basis for sharing such information. Second, the integrity assessment results issued by industry associations in the securities and futures markets—covering relevant industries and market participants—are incorporated into the scope of integrity information collection, thereby enhancing the guiding role of these associations in integrity‑based regulation. Third, the following are included within the scope of information collection: refusal to comply with effective administrative penalties or supervisory measures; refusal to cooperate with inspections or investigations resulting in sanctions by competent authorities; interference with regulatory enforcement through improper means; failure to honor agreed‑upon mediation agreements in securities and futures disputes; failure by bond issuers to make timely principal and interest payments; failure by guarantors to fulfill their guarantee obligations as stipulated; as well as instances of default or breach of trust in margin trading, securities lending, stock pledge repurchase, agreed‑upon buyback transactions, and futures trading—thus achieving comprehensive coverage of both regulatory enforcement and market transaction activities. (Article 8)

(3) Establish a system of integrity commitments at the market access stage.

Based on the principle of good faith and credit enshrined in relevant laws and administrative regulations, as well as the requirements for integrity commitments at the market access stage set forth in national policies and related documents on building a culture of integrity, the Measures stipulate that, when applying to the China Securities Regulatory Commission and its branch institutions for administrative licensing, both the applicant and any relevant parties involved in the application must submit a written commitment. The commitment covers two main aspects: first, that the submitted application materials are true, accurate, and complete; and second, that they will participate in securities and futures market activities in a manner that is both honest and lawful. (Article 24)

(4) Establish a credit‑score management system for major market entities.

To fully leverage the disciplinary and constraining effects of integrity-based regulation on those who lose trust, as well as its incentive‑driving and guiding roles for trustworthy entities, we are exploring the establishment of an integrity‑points system for key market participants, including issuers, listed companies, companies listed on the National Equities Exchange and Quotations System, securities firms, futures companies, fund managers, securities and futures service institutions, and professionals in the securities, futures, and fund sectors. Based on these integrity points, we will implement classified supervision and management of the aforementioned market entities. (Article 23)

(5) Establish a “green channel” system for administrative licensing.

To strengthen incentives for law-abiding entities and improve mechanisms for rewarding and guiding trustworthy behavior, the Measures stipulate that applicants for administrative licensing who have no criminal record and whose integrity has been consistently good—such as having not been subject to administrative penalties by the relevant authorities in the past three years—shall be granted priority review. (Article 31)

(6) Strengthening integrity-based regulatory requirements in the post‑regulatory phase.

To further strengthen the deterrence and restraint of unlawful and untrustworthy conduct and to safeguard the legitimate rights and interests of investors, building on the existing provisions of the Provisional Measures, access to integrity records is hereby designated as an essential step in routine regulatory activities, including the imposition of administrative penalties, the application of market bans, the adoption of supervisory and administrative measures, and the conduct of inspections and oversight. This measure will more effectively sanction unlawful and untrustworthy behavior and increase the costs associated with such violations. (Articles 33 and 34)

(7) Strengthen integrity-based constraints in market trading activities.

First, at the account‑opening stage, securities registration and clearing institutions are required, when opening securities accounts; securities companies, when opening securities accounts on behalf of clients pursuant to the entrustment of such institutions; and futures companies, when opening futures accounts for clients, to consult the integrity records of investors and clients and to handle the relevant account‑opening procedures in accordance with applicable regulations. (Article 35)

Second, with respect to credit‑related business, it is clarified that when securities companies process applications for stock pledge repurchase, agreed‑upon buyback, and margin‑and‑short‑selling services, and when securities financing companies conduct securities lending and borrowing operations, they may access the integrity records of both clients and securities companies. Furthermore, based on the applicant’s integrity status, they shall determine whether to approve the application or set and adjust the credit limit. (Article 36)

Third, issuers, listed companies, companies listed on the National Equities Exchange and Quotations for Small and Medium-sized Enterprises, securities firms, futures companies, fund managers, and securities and futures service institutions are required, when appointing senior management and practitioners, or when engaging in market activities such as securities firms and securities service institutions undertaking securities services on a fiduciary basis, to consult the relevant counterpart’s integrity records and to take their integrity status into account as a basis for deciding whether to appoint them, accept the engagement, or determine fee standards. (Articles 37 and 38)

(8) Establish a system for publicly disclosing information on serious violations of the law and breaches of trust.

Building upon the Securities and Futures Market Information Disclosure and Inquiry Platform for Illegal and Dishonest Conduct, a public disclosure system for serious illegal and dishonest acts in the securities and futures markets shall be established. The scope of such disclosures is拟 to encompass: administrative penalties, market bans, securities and futures‑related criminal offenses, refusal to cooperate with supervisory inspections or investigations, failure to comply with legally effective administrative penalty decisions upon their expiration, as well as other serious illegal and dishonest behaviors that gravely infringe upon investors’ legitimate rights and interests and elicit strong market reactions. (Article 15)

In addition, the regulations stipulate that industry associations may establish an annual integrity‑member program and confer recognition, thereby incentivizing those who uphold good faith. (Article 40)