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Underwriters hit by stiff penalties

By Wang Jiamei (Global Times)

08:29, January 29, 2013

Soon after it slowed down approvals of new initial public offerings (IPOs), the China Securities Regulatory Commission (CSRC) started getting tougher with listing sponsors late last year as it moved to stabilize the mainland's faltering stock market and boost investor confidence.

From September 2012 to present, the CSRC has issued eight letters of warning to six brokerages - including Everbright Securities, Guoxin Securities, CITIC Securities, Pacific Securities, Guotai Junan Securities and Aijian Securities - for conducting substandard due diligence on companies whose listings they had sponsored, according to information from the sponsoring credit supervision system posted on the CSRC's website. Such warnings could result in the downgrading of a brokerage as well as the forced suspension of its individual representatives. In the past, the commission typically offered verbal warnings during regulatory meetings to offending sponsors, with only two warning letters being issued from 2004 to 2011.

"The CSRC has showed a growing tendency for giving severe punishments to listing sponsors and sponsor representatives in recent days as it works to revive investors' faith in the stock market," Li Daxiao, director of research with Yingda Securities, told the Global Times Monday.

Among the firms that have come under the CSRC's crosshairs recently, Guoxin Securities received last Tuesday its second warning letter since December for failing to provide important supplementary information regarding Xi'an Longi Silicon Materials Co - a company which reported a 90.59 percent year-on-year drop in its net profits during the first quarter of 2012 following its public trading debut on April 11 - during its share floating process. The two Guoxin sponsor representatives who signed Longi's listing have been required to take a mandatory 12-month suspension from their duties. Representatives from the other firms warned by the CSRC were required to take 3-month suspensions.

"It is very serious for a brokerage to get a letter of warning, which could greatly affect its annual rating," Li explained. "If a brokerage is downgraded from A-class to B-class, it will not only be subject to stricter oversight but also face added restrictions on offering new services or opening new branches."

The harsher punishments on listing sponsors have as regulators push to enhance their supervision of the equity market following a spat of IPOs for companies which saw remarkable slumps in their profits soon after listing. As of January 24, 27 of the 155 companies that launched IPOs on mainland bourses last year had disclosed a decline in profits for 2012, according to reports in the China Securities Journal.

Earlier this month, the CSRC also required brokerages to conduct careful examinations of the financial reports of the over 800 companies currently queued up in the mainland's IPO pipeline.


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