The China Securities Regulatory Commission (“CSRC”), China’s securities regulator, recently unveiled new guidelines (“Guidelines”) for China’s initial public offering (“IPO”) system. The guidelines were issued pursuant to feedback that was gathered from the public earlier in April.
The Guidelines present increased efforts by the CSRC to administer China’s securities market and to help restore investor confidence in what remains an uncertain economic climate. The Guidelines aim to better protect the interests of investors through greater transparency and financial integrity.
- Pricing. The Guidelines attempt to better ensure that the pricing of newly offered shares more accurately reflect enterprises’ real values. This follows other efforts by the CSRC to control the weak performance of newly offered shares, particularly where such weak performance has been preceded by unusually high offering prices.
- Disclosure Requirements. The Guidelines include strengthened information disclosure requirements from issuers and intermediary institutions. This includes a requirement to disclose further information concerning pricing and potential risks where pricing is 25% higher than the price of listed companies in the same industry.
- Participation. The Guidelines expand the scope of investors that may take part in the inquiry of new offerings by allowing underwriters to recommend five to ten individual investors to participate in the inquiry process.
- Increased Share Levels. The Guidelines include efforts to increase the number of outstanding shares of newly listed companies available in the market, alleviating problems associated with inadequate share levels. This includes the removal of a three month lock-up period after the offering of new shares acquired by institutional investors, and the increase in share levels available to institutional investors.
- Responsibilities. The Guidelines further outline the respective responsibilities of issuers, sponsor institutions, accounting firms, law firms and intermediary institutions, as they pertain to the offerings of new shares.
Analysts have commented that the Guideline’s impact on China’s IPO system will be limited, given that the Guidelines present adjustments to, rather than a fundamental reform of, China’s existing IPO framework.