March 2023
Lihui Jiang and Teresa Huang
For the purpose of thoroughly implementing the decision and arrangements of the CPC Central Committee and the State Council on the full implementation of the stock issuance registration system, China Securities Regulatory Commission (hereinafter referred to as the “CSRC”) deliberated and adopted the Measures for the Administration of Initial Public Offering Stocks Registration (hereinafter referred to as the “Measures”) at its second executive meeting on February 17, 2023 to regulate the activities related to the initial public offering (“IPO”) of stocks on the main board, the STAR Market and the ChiNext, and protect the lawful rights and interests of investors and public interests. The Measures consist of six chapters, the main contents of which are as follows[1]:
1. Core Content of the Full Implementation of the Registration-based System:
The general provisions clarify the positioning of the main board, the STAR Market, the ChiNext and that the exchange fully implements the registration system for issuance and listing. At the same time, the Measures also stipulate the main responsibilities of issuers, sponsors and securities service institutions in Articles 6, 7 and 8.
2. Offering Conditions
The Measures streamline and optimize the existing main board issuance conditions, stipulating that an issuer applying for IPO shall satisfy four conditions: (1) it has a sound and well-functioning organizational structure and has conducted business operation for three or more consecutive years; (2) its basic accounting work shall be standardized and its internal control rules shall be sound and effectively implemented; (3) the issuer’s equity is clear and it has complete business and is able to conduct business operation in an independent and continuous manner in the market; and (4) it shall conduct production and business operation in comply with the provisions of laws and regulations, and the relevant entities and persons have no record of corresponding violation of laws and regulations. In addition, the Measures also stipulate that an enterprise applying for listing on the main board shall meet longer stability period requirements for its de facto controller, management team and main business compared to those applying for listing on the STAR Market and the ChiNext.
3. Registration Procedures
The Measures mainly specify the examination and registration procedures for the public offering of a stock in four aspects as follows: (1) clarifying that the exchange shall carry out the examination of the public offering and listing of the stock, and form an examination opinion on whether the issuer meets the offering conditions and information disclosure requirements; (2) specifying that the CSRC shall, within 20 working days after receiving the exchange’s examination opinion and the relevant materials, decide whether to approve or disapprove the registration on the issuer’s registration application; (3) providing that from the date when the registration application documents are filed, the issuer and other important related persons and institutions shall assume the corresponding legal liability and shall not affect or interfere with the examination and registration of the public offering and listing of the stock; (4) stipulating that the exchange and the CSRC shall improve the transparency of examination and registration work, and disclose all important nodes of the process to the public and accept social supervision.
4. Information Disclosure
The Measures take investor demand as the guidance, strengthen the information disclosure requirements and strictly implement the information disclosure responsibilities of market players. Firstly, the Measures clarify that the issuer must ensure that the information disclosed is true, accurate and complete, and must fully disclose any information necessary for investors’ value judgments and investment decisions, no matter whether there are specific provisions in the relevant rules. Secondly, the Measures strictly implement the responsibilities of the issuer and other important persons and institutions in respect of information disclosure, requiring the controlling shareholder and actual controller of the issuer to fulfill their relevant commitments disclosed in the prospectus in line with the principle of good faith. Thirdly, in view of the characteristics of enterprises on different markets, the Measures stipulate that the enterprise shall make special disclosure in accordance with the requirements of the market to be listed on. Lastly, the Measures provide that where an issuer has shares with special voting rights, it shall disclose in the prospectus the relevant information and risks, and the intermediaries shall offer professional opinions on whether the setting of such shares with special voting rights comply with relevant provisions.
5. Supervision and Administration and Legal Liability
The Measures have established a whole process supervision system and increase the accountability of the liability subjects. (1) Providing that the CSRC shall establish a supervision and restriction mechanism for offering and listing of stocks, and supervise and inspect the relevant processes of offering and listing and the performance of relevant personnel. (2) Further providing that the CSRC shall establish a supervision mechanism for the exchange’s offering and listing examination and that the CSRC shall conduct random inspections on projects in the process of the exchange’s offering and listing examination. (3) Clarifying that where the exchange violates the applicable laws and rules in offering and listing examination, the CSRC may order it to take corrective actions and hold the directly liable person accountable for such violation. (4) The CSRC and the exchange shall implement a stricter legal liability system, bring into the role of the system of prohibiting the violators from entering into the securities market, and strengthen the exchange’s self-regulation. For sponsors and sponsor representatives, the legal liability provisions of the Administrative Measures for the Sponsorship Business of the Issuance and Listing of Securities shall apply. (5) Stipulating that the exchange may take disciplinary action against relevant subjects, such as not accepting documents related to the public offering of securities from them for a longer period of time.
[1] Legislative Notes of the CSRC on the Measures for the Administration of Initial Public Offering Stocks Registration
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