New IPO system aims to create healthy capital market

China's top securities regulator has reiterated its determination to further reshape the capital market in 2015, highlighting adjustments to stock issuance procedures to better supervise the sector.

Chairman of the China Securities Regulatory Commission (CSRC), Xiao Gang, who was speaking during the CSRC's annual work conference on securities and futures held late last week, said that 2015 will see the phasing out of the current approval-based method for initial public offerings (IPOs) and the implementation of a registration-based system.

Analysts believe the authority's actions show it is beginning to loosen its control on market access to facilitate supervision and create a healthy capital market environment.

New IPO system

Xiao said the execution of the new system would be one of the top tasks of China's capital market reform this year.

"The new system will allow the market to play a deciding role and establish a boundary for regulatory power, as well as protect investors' interests," Xiao said.

Under the current arduous approval-based IPO system, newly listed candidates often complain of grappling with complications, such as multiple rounds of reviews and the approval process spanning years. In comparison, the registration-based IPO system will focus on companies' compliance audits and be market-oriented and more transparent.

"Xiao's comments are in line with principles of the reform and will set the tone for measures in 2015," said Zou Hengchao, an analyst with Minsheng Securities.

Li Yining, honorary president of the Guanghua School of Management under Peking University, said: "The issue has been discussed since the first draft of Securities Law. Now the authority should loosen its hold and no longer regulate the capital market with parental control measures."

Shenyin and Wanguo Securities predicted the regulator would pilot its plan on the ChiNext Board this year, before comprehensive implementation in 2016.

The CSRC has also spelt out 2015's other major tasks, including improving equity market structure, launching crude oil futures, promoting the private equity market, expanding two-way market accessibility and enhancing risk prevention.

Effective supervision

China's stock market has often been criticized for insider trading and price manipulation and the government understands that it can only fully address this through an effective supervision mechanisms.

The country's top two bullet train makers, China South Rail Corp., and China North Rail, face accusations of insider trading, after senior executives on both sides allegedly bought stocks in each company before their merger was announced in 2014.

The CSRC on Friday promised it would investigate the allegations.

Another case, involving CITIC Group Corp., the largest shareholder of CITIC Securities centers on reports that it had sold big stakes to cash out over 11 billion yuan (1.8 billion U.S. dollars) in the week before it was announced on Friday that the regulator would punish it for violating margin trading rules.

Neither the company or the authority has responded to market concerns as far.

Given moves to ease its grip on market access, the CSRC has pledged to strengthen postmortem supervision and punish violators to protect the interests of investors.

The CSRC announced on Friday that 12 brokerage firms had violated margin trading businesses rules. It suspended CITIC Securities, Haitong Securities and Guotai Junan Securities from opening new margin trading accounts for three months.

This is a clear sign that the authority is taking steps to cool the market after Chinese shares rallied for nearly three months since October.

Margin trading business was behind the recent surge, as it prompted market fluctuation and speculation.

The regulator's punishment triggered roller-coaster performance in the market. The benchmark Shanghai Composite Index plunged 7.7 percent to close at 3,116.35 points, the steepest daily fall since June 2008. At the end of 2014, the index had climbed to a 5-year high.

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