To further deepen the reform of the STAR Market and give full play to its role as an experimental field, under the overall guidance of the China Securities Regulatory Commission (CSRC), the Shanghai Stock Exchange (SSE) has actively advanced the introduction of the market maker mechanism on the STAR Market by drawing up the Detailed Implementation Rules of the Shanghai Stock Exchange for the Market Making Business for Stocks on the STAR Market (Draft for Comment) (hereinafter referred to as the Detailed Implementation Rules) and the Shanghai Stock Exchange Business Guide to Securities Trading No. X - Market Making for Stocks on the STAR Market (Draft for Comment) (hereinafter referred to as the Business Guide). Both documents will be open to the market for comments from now until May 28.
Approved upon review by the Committee for Comprehensively Deepening Reform of the CPC Central Committee in January 2019, the Implementation Opinions on Establishing the Science and Technology Innovation Board and Piloting the Registration-based IPO System on the Shanghai Stock Exchange proposed that the market maker system should be introduced under proper conditions. The Opinions of the CPC Central Committee and the State Council on Supporting the Pudong New Area for High-standard Reform and Opening-up and Construction of Leading Area in Socialist Modernization, issued in April 2021, proposed the introduction of the market maker system on the STAR Market. Since its launch, the STAR Market has seen smooth and orderly operation, better performance of the listed companies and rationalized structure of investors, actively supported companies with “key and core technology” for financing through listing, with the institutional arrangements withstanding the test in the market. In the context of deepening the capital market reform and strengthening the construction of the basic system, the STAR Market will continue to serve as an experimental field and introduce the market making mechanism in addition to auction trading, which will increase the depth of market orders, ease the impact of large orders on the market to a certain extent, improve market stability, reduce the bid-ask spread in the market, and cut down the trading costs for investors.
Since its official release and implementation by the CSRC on May 13, 2022, the Provisions on the Securities Companies Piloting the Business of Market-making of Stocks on the STAR Market (hereinafter referred to as the Market-making Provisions) have stipulated the access conditions and procedures for market makers on the STAR Market, in-process and ex-post regulation, etc., and provided the upper-level legal basis for the introduction of the market maker mechanism on the STAR Market. Detailed trading and regulatory arrangements for the market-making business on the STAR Market are specified in the Detailed Implementation Rules and the Business Guide in accordance with the requirements of the Market-making Provisions. First, the application for and termination of market-making services are stipulated. Adopted in the application for the stock market-making service on the STAR Market, the registration-based system encourages the sponsoring institutions qualified for the market-making trading business or the securities companies that actually control the sponsoring institutions to provide market-making services for the stocks on the STAR Market sponsored by them during the continuous supervision and guidance period. Second, the rights and obligations of market makers are clarified. Market makers should use their own funds to carry out market-making trading through dedicated securities accounts, provide two-way quotations for buying and selling in the market, and abide by relevant provisions on disclosure of changes in equity, short-swing trading, etc. Market makers who actively fulfill their market-making obligations are entitled to reduction of transaction costs or other incentives. Third, the requirements for market makers’ risk management and internal control are put forward. The market makers shall set up mechanisms for risk prevention and business isolation, improve systems of internal control and risk management, establish the regular stress testing mechanism, and ensure that the market-making business is conducted in a compliant and orderly manner.
The SSE will release relevant business rules in due course after finishing the preparations such as the collection, assessment, absorption and adoption of relevant feedback and opinions. All this aims to advance the smooth implementation of the market maker mechanism on the STAR Market and keep propelling the high-quality development of the STAR Market.
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