Regulator reforms China’s IPO process, leaving share pricing to market forces, with bourses to vet disclosures
- Reform will ‘give the right of choice to the market’ and make IPOs more transparent, the China Securities Regulatory Commission says
- The new registration-based system, based on US models, reflects Beijing’s intention to further internationalise China’s capital market
China’s securities regulator will fully relinquish its role in reviewing initial public offerings (IPOs), transferring the vetting power to the stock exchanges while giving market forces full sway over share pricing.
Currently the regulator is responsible for reviewing listing documents and has a final say in share pricing.
The IPO reform is designed “to give the right of choice to the market,” and make IPOs more transparent and predictable, the statement said.
The CSRC published draft rules governing the eased IPO mechanism and is soliciting public opinions until February 16.
Under the registration-based system, the exchanges will require full information disclosure by companies once they submit their listing applications.
Applicants will receive the green light to raise funds on the stock market once the exchange confirms the truthfulness of the disclosures.
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“A market-based IPO system will make fundraising activities fair to every company looking to access stock-market funds,” said Ivan Li, a fund manager at Loyal Wealth Management in Shanghai. “The decision to expand the reform shows that the regulator is determined to drive China’s stock market rules on par with international practices.”
China has the world’s second-largest stock market, with a market value of US$11 trillion.
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The system for new-share offerings has long been an issue on the mainland market, offering fertile ground for corruption and dereliction.
Prices of IPO shares were frequently set artificially low to facilitate fundraising by state-owned companies. Nearly all IPOs on the mainland surged on the first trading day due to low offering prices.
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The new registration-based system is based on US models, and the reform reflects Beijing’s intention to further internationalise China’s capital market, which is now off-limits to foreign companies.
In 2020, the ChiNext board, a trading platform for technology start-ups, began adopting the registration-based system on a trial basis.
Beijing aims to liberalise the stock market to broaden access to capital for its promising technology start-ups.
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In the draft rules, the CSRC stipulates that only companies that comply with China’s national industrial policies will be eligible for IPO issuance.
Tensions between the US and China have been driving more mainland firms to float shares on the domestic market.
Unlike the stock market in developed countries, where regulators are responsible only for ensuring fairness, justice and transparency in share sales and trading, the CSRC is also tasked with maintaining market stability.
