(Yicai Global) March 2 -- Any future securities law revision should drastically increase penalties for violations as transparency is essential to the capital market, warned a CPCC member and former chairman of China's securities regulator.

Small amount of penalties envisioned in some laws fail to serve as a deterrent and the cost of violating laws and regulations is relatively low for violators, said Xiao Gang, former chairman of China Securities Regulatory Commission, or CSRC, in an interview with the state-run Securities Times today. As the core of the capital market is information transparency, market fraud should be severely punished, he suggested.

"I think, in the future, securities law revision should increase the amount of penalties but should treat violations distinctively according to their nature and severity," Xiao said.

The problem of low penalties for violations of securities law is a distressing issue, he pointed out, warning both the capital market risk and bubble risk are factors that put company share prices out of their real value.

The stock exchange is like a virtual economy, which is different from the general commodity price formation mechanism, he said, but if the stock price is too far from the company's real value, it is a bubble. During the development of the capital market, it is imperative to prevent such bubble. This involves a lot of essential work. For example, raising the quality of listed companies is an important requirement. How to effectively protect the rights and interests of investors is also an important issue within this context, Xiao added.

Chinese A-share initial public offering system reform to help serve listing of unicorn companies is an innovation over approval-based IPO system, Xiao said. China should actively create conditions to promote market-oriented, registration-based IPO system in line with the country's conditions and should also further improve the delisting system.

Lessons From the 2015 Stock Market Crash

Commenting on the lessons of the volatile stock market in 2015, Xiao said: "I think it is right to make stringent regulations. As the former CSRC chairman, I need to reflect on this."

One of the lessons for the abnormal fluctuations in the stock market in 2015 is that it was relatively weak in regulation especially the oversight of leveraged financing. Whether it was the leverage of securities companies, fund companies or trust companies, CSRC did not make sufficient supervision on the highly leveraged investment of the society as a whole and regulatory coordination was also not enough, he said.

Since then, the financial regulatory system has undergone constant reforms based on lessons from the experience. The stringent regulation on the market now is also essential to establish an effective regulatory system, Xiao added.