CHINA: SZSE Releases Supporting Business Rules for Comprehensively Implementing the Registration-Based IPO System

Thursday February 23 2023

On 21^st February 2023, Shenzhen Stock Exchange (SZSE) announced that it officially introduced 30 supporting business rules and guidelines for the implementation of the across-the-board registration-based IPO system in accordance with the overall deployment of China Securities Regulatory Commission (CSRC).  

SZSE has solicited public opinions on ten major ones concerning the reviewing of stock offering and listing of enterprises and the issuance and underwriting of stocks since 1st February 2023, and has solicited opinions synchronously from members and relevant market institutions and self-regulatory organizations on six business implementation rules concerning the real-time monitoring of abnormal stock trading on the SZSE Main Board. In the course, market parties paid close attention to and participated in such topics extensively, spoke highly of the comprehensive implementation of the System and the supporting business rules for opinions solicitation, and made helpful suggestions on the revision and improvement of the rules. The suggestion are mainly on further optimization of the review procedure, refinement of the issuance and underwriting pricing and placement system, improvement of the trading mechanism arrangement, and facilitation for intermediary institutions to fulfill their duties. 

The main differences in the offering and underwriting mechanisms for the IPO on the Main Board:  

SZSE has been adhering to the market-oriented and law-based reform and has fully drawn on the experience in the pilot registration-based IPO system reform of the ChiNext Board. SZSE has formulated the Implementation Rules for Securities Offering and Underwriting Business in Initial Public Offering based on the positioning characteristics and investor structure of the Main Board and considering both the main board and the ChiNext Board. SZSE has also adjusted and optimized the pricing mechanism for offering on the Main Board and placement-related mechanisms, so as to enhance the inclusiveness and adaptability of the system and further strengthen the market constraints. The main differences mainly lie in the following three aspects: 

First, the pricing mechanism has been improved. SZSE has made clear that the price and volume of the stocks to be offered shall be determined in a market-oriented way. The direct pricing method has been retained, and the pricing reference cap has been added. The exclusion percentage cap for the highest offer has been adjusted, and the mechanisms for online investors to fill prices, the disclosure of offer information, the pricing reference values, and the issuance of special announcements on investment risks have been optimized. Futures companies have been included among the inquiry objects. Additionally, individual investors’ participation in the offline inquiry has been retained, and the market cap requirements for placement targets to participate in the offline offering have been clarified. 

Second, the placement and restricted-offering mechanisms have been optimized. The clawback mechanism has been optimized. When the online subscription multiple is high, the offline-to-online clawback ratio will be appropriately adjusted. The strategic placement volume and the number of investor participants will be specified according to the difference in the number of stocks to be offered. A restriction has been put on sales for a certain proportion of shares offered offline. The differentiated offline restricted-offering ratio requirement for large-cap stocks has been specified. 

Third, the risk prevention mechanism has been strengthened. The implementation mechanism for the over-placement option has been improved to appropriately increase the flexibility of the operation. The new response mechanisms regarding the margin payment by offline investors and secondary placement in case of major market changes have been introduced. 

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