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China's new IPO rules takes effect
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08:01, June 11, 2009

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Regulator:no capital threshold to China's growth stock market

China is ready to end a de facto suspension of initial public offerings (IPOs) on the Shanghai and Shenzhen stock exchanges, after the securities regulator unveiled Wednesday the final guidelines for new IPOs.

The China Securities Regulatory Commission (CSRC) said the guidelines would take effect Thursday.

An unidentified CSRC spokesman said the commission will give approvals to applying firms any time after the guidelines become effective.

The commission announced draft guidelines on May 22 to solicit public opinions till June 5. The new guidelines aim to improve the price discovery function of the stock market, and help retail investors subscribe to newly issued stocks

The draft said the quotation system for new issues should be revised so that issue prices faithfully reflect market demand, and lead underwriters should take steps to avoid "unreasonably" high prices.

Under the new rules, stock subscribers need to use either the online or off-line subscription system, but not both, to purchase new stocks. Institutional investors used to enjoy the privilege of subscribing through both systems, while retail investors could use only the off-line system.

Three revisions were made to the draft to follow public advices that the commission deemed reasonable.

The final version said a single investor is refined to use one account only to purchase new stocks, as some institutional investors have multiple accounts. The revision is aimed to help more smaller investors get access to new stocks.

In addition, the commission said it would consider to increase the number of tradable stocks in response to suggestions the lock-down of too many stocks would do no good to curb speculation.

However, the spokesperson said shares lock-down of large shareholders would remain in place, as it is aimed to prevent frequent changes in managerial staff that could jeopardize a firm's operation and create risks and the practice is followed on many overseas markets.

The commission also added the content about improving the "clawback" and the offering suspension mechanisms upon requests of the public. The "clawback" mechanism is used in the event that the deal is subscribed by 100 times or more.

The CSRC effectively suspended all new stock issues last September, as it halted approvals. Since then the stock market has plunged more than 50 percent from its peak 6124.04 in October 2007,compared to Wednesday's closing.

The CSRC spokesman anticipated that the first few new IPOs may not be satisfactory (in boosting the market), but he believed that the goals of the new guidelines could be achieved over time, which would play a positive role in boosting the market in the long run.

A total of 32 firms are on the waiting list to launch their IPOs on the A-share market, expecting to issue a combined more than 14 billion shares.

China State Construction Engineering Corp. is expected to issue12 billion shares.


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