The China Securities Regulatory Commission (hereinafter, the “CSRC”) promulgated new versions of the Measures for the Issuance and Underwriting Administration of Securities (Directive No. 121), the Measures for the Administration of Initial Public Offerings and Listing of Stocks (Directive No. 122), and the Measures for the Administration of Initial Public Offerings and Listing on the Growth Enterprise Market (Directive No. 123) on January 1, 2016. With respect to the initial public offering (IPO) system, the main revisions consist of the following three major aspects:
1. Issuance conditions are relaxed. For enterprises listed on the A-share main boards of the Shanghai and Shenzhen stock markets, Directive No. 123 removed the provisions regarding the regulatory authoritiesÕ review of the enterpriseÕs independence and utilization of raised capital; it is now the issuerÕs responsibility to state such in the prospectus to the extent that the basic requirements of independence as stipulated by the regulatory authorities have been met. This is an important corresponding change to the law relating to the transformation from an IPO “approval system” to a “registration system.”
2. Offline inquiries and placements are restricted. Under the Measures for the Issuance and Underwriting Administration of Securities, there are two main approaches for setting the price of an IPO, namely, offline price inquiry (“Offline Inquiry”) and direct pricing through autonomous negotiation between the issuer and the major underwriter (“Direct Pricing”). Article 4 of the new version of the measures additionally stipulates that “in case of a public offering of not more than 20 million shares without a plan to transfer old shares, the issuance price shall be determined by Direct Pricing.” Article 9 contains an additional provision stipulating that “in case of an IPO where direct pricing is conducted, all shares shall be offered to online investors, and there may not be any offline inquiries and placements.” It is generally believed that the new provisions primarily seek to better ensure that general investors can subscribe to stocks at fair prices on online platforms by reducing the gray area of offline inquiry and placement prices.
3. No prepayment is required at the time of subscription. In the past, investors were required to make the subscription payment when subscribing to new shares even before the shares were placed. As a result, stock market liquidity was affected with a substantial amount of money being frozen, resulting in abnormal fluctuations in stock prices, The new version of the Measures for the Issuance and Underwriting Administration of Securities specifically stipulates that online and offline investors do not need to make the subscription payment at the time of subscription until the shares are placed, after which the payment may then be made in full. Further, “an online investor who fails to make full payment cumulatively for three times in 12 months shall be prohibited from participating in new share subscriptions for six months”
The Standing Committee of the National People’s Congress adopted a resolution on December 27, 2015 to authorize the State Council to adjust the relevant applicable provisions and implement the stock issuance registration system reforms before the Securities Law of the People’s Republic of China is formally amended. Therefore, subsequent amendments introduced by the State Council and the CSRC to the laws and regulations relating to the issuance of securities still require close observation.