An official of the Shanghai Stock Exchange (SSE) made remarks in an interview about the “Notice of Further Strengthening Regulation on Trading at Preliminary Stage of New Shares Listing” (the "Notice" for short) recently released by the SSE.
Q: As the SSE has issued relevant notices on strengthening regulation on trading at preliminary stage of new shares listing in 2012, could you please introduce the backdrop of issuing the "Notice" this time?
A: In order to strengthen regulation on trading at preliminary stage of new shares listing and prohibit speculation on new shares, the SSE issued the “Notice of Toughening Supervision on Trading at Preliminary Stage of New Shares Listing” and the “Notice of Strengthening Supervision on Clients’ Trading Behaviors at Preliminary Stage of New Shares Listing” on March 8, 2012, which has played a positive role in guiding investors to rationally participate in new shares trading and controlling speculation on new shares.
However, as China’s securities market is still at the “Emerging and Transitional” stage, relevant market mechanisms are still incomplete, with the culture of rational investment needing to be cultivated and the problem of speculation on new shares remaining salient. Excessive speculation on new shares will not only distort the normal price forming mechanism on the capital market, but also impede the normal function in optimized allocation of resources played by the capital market, in addition to giving rise to illegal behaviors and impairing interests of investors, especially small and medium-sized investors. Prevention and prohibition against excessive speculation on new shares remains a significant regulatory task for China’s securities market.
On November 30, the China Securities Regulatory Commission (CSRC) issued the “Opinions on Further Promoting Reform of New Shares Issuance System” (the “Opinions” for short). With an aim to prevent excessive speculation on new shares on the market after resumption of new shares issuance, maintain normal trading order on the market, and protect legal rights and interests of investors, the “Opinions” requires stock exchanges to further complete the opening price forming mechanism on the first day of new shares listing as well as the trading mechanism at the preliminary stage of new shares listing, establish the trading suspension mechanism on the first day of listing based on issue prices of new shares, and strengthen restrictions on speculation on new shares.
The SSE issues the “Notice” according to the unified deployment of the CSRC, with a view to implementing the requirements of the “Opinions”, prevent and prohibit speculation on new shares, promote coordinated and sound development of primary and secondary markets, and provide a rationalized market environment facilitating the transition from examination and approval system to registration system in China's securities issuance system. The “Notice”, integrating the contents of the SSE’s 2 notices issued in March 2012, specifies relevant regulatory requirements regarding particular problems in practices.
Q: Compared with the 2 notices issued in 2012, could you tell us if there are any changes in the main content of the “Notice”?
A: Compared with the 2 notices released in 2012, there are mainly 4 changes in the content of the “Notice” as follows:
First, controlling measure on order prices on the first day of new shares listing is added. Namely, on the first day of new shares listing, effective order prices of investors should abide by the first article of the “Notice”, that is, "Any order with its price exceeding the range of the effective order price will be regarded as invalid."
Second, a new regulation is added, that is, “If no opening price appears during call auction, the first trading price of that day will be regarded as the opening price.”
Third, relevant trading information about investors of all categories will be released after the market closes on the first day of new shares listing. All market participants can log on the official website of the SSE (www.sse.com.cn) to inquire upon relevant information in the “Trading Information on the first Day of New Shares Listing” under the column “Trading Information Disclosure”.
Fourth, the rule "When the in-session turnover rate reaches 80% on the first day of new shares listing, in-session temporary trading suspension will be implemented." is cancelled. That is, the SSE will not implement in-session temporary trading suspension for new shares when the in-session turnover rate reaches 80% on the first day of new shares listing.
As for other contents of the “Notice”, such as the standard of price limit on the first day of new shares listing, as well as types and regulatory measures concerning abnormal trading behaviors involving new shares, requirements oriented to professional institutional investors, and members’ administrative responsibilities for their clients’ trading behaviors involving new shares are the same as those stated in the 2 notices released in 2012 on the whole.
Q: As new rules in the “Notice” may influence investors’ trading behaviors, which issues deserve investors’ special attention?
A: After the implementation of the “Notice”, investors are advised to pay attention to the following issues when participating in trading of new shares.
First, order prices should be kept within the limited range as stated. In order to prevent excessive speculation on the first day of new shares listing, the SSE will implement whole-day control over order prices on the first day of new shares listing. Namely, during call auction, the maximum order price should not be 120% higher than the issue price while the minimum order price should not be 80% lower than the issue price; and the effective order price during consecutive auction should neither be 120% higher than the maximum limit of order price (or 144% higher than the issue price) nor 80% lower than the minimum limit of order price (or 64% lower than the issue price) during call auction. Presently, the technological system of the SSE has developed and launched relevant application for controlling prices on the first day of new shares listing.
Second, it is possible that prices for new shares may reach the order price limit at market opening. Investment risks in the following cases deserve attention of investors: As control over the maximum and minimum limits of order prices is implemented on the first day of new shares listing, if there is no trading during call auction on the first day of new shares listing, the first trading price of that day will be regarded as the opening price, which means the extreme situation that the opening price is the highest (or the lowest) trading price (or 144% or 64% of the issue price) is possible.
Third, it is possible that the time for in-session trading suspension is a bit later than the time when the price for trading suspension is reached. As the SSE adopts the control method of asynchronous trading suspension for in-session temporary trading suspension in its trading system, actual time for trading suspension could be a bit later than the time when the price for trading suspension is reached, with specified time for trading suspension or resumption pursuant to the SSE’s announcements.
Fourth, investors may inquire upon new shares’ trading information concerning investors of all categories on the very day. In order to further strengthen trading information disclosure on the first day of new shares listing, the SSE will release the trading information concerning investors of all categories on the very day, in addition to announcing the names of the top 5 business departments with the largest amounts of new shares bought or sold, as well as relevant volumes and amounts in buying or selling on the first day of new shares listing, according to Article 5.4.3 in the Trading Rules of the SSE. All market participants can log on the official website of the SSE (www.sse.com.cn) to look for relevant information in the “Trading Information on the first Day of New Shares Listing” under the column “Trading Information Disclosure”.
Fifth, participants with serious rule-breaking behaviors can be identified as unqualified investors. In order to crack down on the rule-breaking behaviors of malicious speculation on new shares by very few investors, the regulatory measure of “identifying the account owner to be an unqualified investor” was firstly prescribed in the “Notice of Toughening Supervision on Trading at Preliminary Stage of New Shares Listing” released in 2012. Although the SSE has not yet implemented this regulatory measure so far, after resumption of new shares issuance this time, the SSE will identify some very few investors conducting malicious speculation on new shares as unqualified investors, in a bid to limit their rights of participation in trading at the preliminary stage of new shares listing in a certain period of time.
The SSE hereby reminds investors of the necessity in learning and abiding by relevant rules in the "Notice", and rationally participating in trading of new shares. The SSE also requires all member units to perform their administrative responsibilities for clients’ trading behaviors. In addition, all professional investors should voluntarily conform to the rules in the "Notice".