From September 24th to October 8th, the A-share market surged, allowing people to once again catch a whiff of a bull market after a long time. However, in the following days, the market began to fluctuate, and many new investors who had just entered the market found themselves trapped. I believe in the attitude of the state and hope that the capital market can move towards a long-term and slow bull market. However, the lack of institutional mechanisms may lead to the abrupt end of a bull market, with the potential to turn previous efforts into nothing. An important aspect of this is the restraint on major shareholders.

The stock market has risen to the point where more than 200 listed companies have issued announcements to reduce their holdings. The subjects of the reduction include actual controllers, major shareholders, industrial funds, and others, which can be described as a hodgepodge. Recently, many local securities regulatory bureaus have announced cases of combating illegal share reduction, and I have found that some people have been reported by three different securities regulatory bureaus at the same time.

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An investor named Wang Xiaoqing was first penalized by the Beijing Securities Regulatory Bureau for illegally reducing his holdings by 930,000 shares of Huaxin Yongdao; then the Shanghai Securities Regulatory Bureau reported Wang Xiaoqing's illegal reduction of 1.3 million shares of Airong Software; at the same time, the Jiangsu Securities Regulatory Bureau penalized Wang Xiaoqing for illegally reducing his holdings of Baijia Technology shares.

One person being dealt with by three different securities regulatory bureaus for illegal share reduction at the same time can also be considered a record in the history of A-shares, right? This shows how rampant illegal share reduction by major shareholders is in the current market. If these are the ones that have been found out, how many more are there that have not been discovered?

In addition, a new form of disguised share reduction has emerged, which can bypass regulatory "legal reduction". Actual controllers or major shareholders transfer a portion of their holdings to others through an agreement transfer, with the lowest price being 80% of the market price, and then issue an announcement. After six months, the transferee can freely sell the shares. This form of reduction is called "contract reduction". In some cases, the actual controller of the transferee is the major shareholder themselves, who has set up a company for the purpose of reducing shares, accepting the shares transferred through the agreement transfer, and after half a year, these restricted shares become freely tradable shares.

Compared with illegal share reduction, the reduction method of "contract reduction" that exploits institutional loopholes obviously has a greater impact and influence on the stock market.

In response to the issue of major shareholders reducing their holdings, Professor Liu Jipeng from China University of Political Science and Law recently proposed three suggestions that can effectively prevent actual controllers and major shareholders from indiscriminately reducing their holdings and disrupting the hard-won bull market.

First, the prerequisite for major shareholders to reduce their holdings is that the listed company's cumulative dividends exceed the amount of financing.

When a company goes public, it raises a sum of money from the public for development. Equity financing is different from debt financing, as it does not require the repayment of principal and interest, and is considered "free money". Since the company has enjoyed the rights, it must fulfill the corresponding obligations, and dividends are one of the main obligations.

Major shareholders are not prohibited from reducing their holdings, but the listed companies they hold must first fulfill their obligations, that is, "return" the funds obtained for free that year to the majority of investors through dividends. Therefore, the first suggestion made by Professor Liu is that only the actual controllers and major shareholders of listed companies whose cumulative dividends exceed the amount of financing can reduce their holdings.Second, the reduction price must not be lower than the IPO issue price.

Some listed companies set a high issue price in order to raise more funds. A few years later, the market realizes that the company is not worth that much money at all, and the stock price falls, with the market value "shrinking." For major shareholders, even if the stock price falls below the issue price, it is still far higher than their cost. The original shares cost only a few cents each, and they can still make a lot of money when they sell them for tens of yuan or even more during the reduction.

Therefore, their focus is on how to reduce quickly, not on how to improve the company and increase the stock price.

In that case, why not stipulate that the price at which major shareholders reduce cannot be lower than the issue price at the time of the IPO? In other words, no reduction after the break.

This design is logical. Before getting the money, the company is worth that much (calculated according to the IPO price), and after getting the money and operating for a few years, the company is not worth it anymore, and what qualifications do they have to reduce?

Third, the lock-up period for "contract reduction" shares is extended to 2 years.

This is aimed at the "contract reduction" of major shareholders. As mentioned earlier, under the current new routine, as long as an announcement is issued, major shareholders can sell shares to others through agreement transfer, and the lock-up period for this part of shares is 6 months, far less than the normal restricted period.

The way to curb disguised reduction is to block the loopholes, as Liu Jipeng said, stipulate that the assignee of the agreement transfer shares must hold the shares for 2 years before they can be sold, not just 6 months later, they can reduce without any scruples. In this way, it can curb the disguised reduction that bypasses supervision.

Professor Liu Jipeng's three suggestions hit the nail on the head. If they can be implemented, the reduction of major shareholders will be strictly limited.

I would like to add one more point, to strengthen the punishment for illegal reduction, and to punish them so that they dare not reduce. When thinking about it, consider whether they can afford the punishment that needs to be borne after the illegal reduction is investigated, and they dare not reduce illegally from the bottom of their hearts.To foster a sustained and gradual bull market, unity among all parties is essential. Currently, while retail investors are buying stocks, major shareholders and actual controllers are contemplating selling, creating a lack of alignment. How can the stock index keep rising continuously under such circumstances?

Often, just as the market starts to show a slight increase, it encounters major shareholders cashing out at high levels, which erodes market confidence. It is hoped that the regulatory authorities can implement Professor Liu's three suggestions to plug the institutional loopholes.