According to the Masterplan for the Implementation of the Reform of the ChiNext Board and the Pilot Project of the Registration-based IPO System and the unified arrangement of the China Securities Regulatory Commission (CSRC), on June 12, Shenzhen Stock Exchange ("SZSE"), on the basis of the advice solicited from the market, officially released relevant business rules and supporting arrangements for the reform of the ChiNext Board and the pilot project of the registration-based IPO system, which include eight main business rules and 18 supporting detailed rules, guides and notices. SZSE news spokesman answered reporters' questions of market concerns.
I. Please give a general introduction to relevant rules released by SZSE this time.
A: We earnestly followed the plan and requirements of CSRC, set the long-term objectives of the reform of the ChiNext Board and the phased features of the pilot project of the registration-based IPO system, and took into account the characteristics of the existing market and the conditions of new enterprises entering into the market. We promoted the reform of basic regulations on issuance, listing, information disclosure, transaction and delisting as a whole and drafted, formulated, revised and improved relevant business rules and supporting arrangements on the exchange level, which involve five aspects, namely, IPO review, refinancing and M&A and restructuring review, continuous regulation, issuance and underwriting, and trading, aiming to build a sound system of rules with a clear structure and complete content. With the approval of CSRC, we officially released relevant business rules and supporting arrangements for the reform of the ChiNext Board and the pilot project of the registration-based IPO system.
The main business rules released by SZSE this time include the Rules for Review of Share Issuance and Listing on the ChiNext Board, the Rules for Review of Securities Issuance and Listing of Listed Companies on the ChiNext Board, the Rules for Review of Major Assets Restructuring of Listed Companies on the ChiNext Board, the Administration Measures for the Listing Committee of the ChiNext Board, the Working Rules of the Industry Expert Consultant Team, the Rules Governing the Listing of Shares on the ChiNext of Shenzhen Stock Exchange (Revised in 2020), the Special Provisions for Trading on the ChiNext Board, and the Special Provisions for Refinancing Securities Lending and Securities Refinancing Business on the ChiNext Board.
In addition, we released 18 supporting detailed rules, guides and notices at the same time to further refine relevant institutional arrangements in high-level laws and main business rules. They include the Interim Provisions for Declaration and Recommendation of Issuance and Listing on the ChiNext Board, the Implementation Rules for IPO and Underwriting Business on the ChiNext Board, the Implementation Rules for Securities Issuance and Underwriting Business of Listed Companies on the ChiNext Board, the Detailed Rules for Real-time Monitoring of Abnormal Stock Transactions on the ChiNext Board (Trial), the Guidelines for the Standard Operation of Listed Companies on the ChiNext Board (Revised in 2020), the Notice on Coordination and Arrangements of Review of the Pilot Project of the Registration-based IPO System on the ChiNext Board, the Q&As on Review of IPO on the ChiNext Board, the Q&As on Review of Securities Issuance of Listed Companies on the ChiNext Board, etc.
What need to be paid special attention to is that the dates of official implementation of those business rules and supporting arrangements are different. Market participants are advised to carefully read relevant notices on the official website of SZSE to learn about specific implementation dates.
II. Earlier, SZSE asked the public for comments on eight business rules on the reform of the ChiNext Board and the pilot project of the registration-based IPO system. What main market feedback have relevant rules absorbed?
A: From April 27 to May 11, SZSE solicited comments from the public on eight business rules and received nearly 300 pieces of advice. We sorted out, evaluated and carefully studied market participants' feedback piece by piece, and fully absorbed and added reasonable and feasible advice in relevant regulations and rules. We adjusted and improved relevant rules mainly from the following three aspects:
Rules on issuance and listing review: First, further defining the positioning of the ChiNext Board. We formulated the Interim Provisions for Declaration and Recommendation of Issuance and Listing on the ChiNext Board. While ensuring inclusiveness, we set a negative list for the industries and further implemented the requirements on the reform of the ChiNext Board. Second, improving the quick micro refinancing mechanism. We set applicable conditions for micro financing in the Rules for Review of Securities Issuance and Listing of Listed Companies on the ChiNext Board to encourage and support quality listed companies with standard operation in flexibly and conveniently using the capital market for direct financing. Third, revising and refining the review time requirements. According to the new Securities Law, we put forward the "three-month" time requirement to maintain coordination of the system of rules. Fourth, adjusting relevant time arrangement for the meeting of the listing committee. The notification time of the meeting of the listing committee was changed from seven working days before the meeting convenes to five natural days, to further improve review efficiency. Fifth, defining the period of validity of financial statements quoted in the prospectus. The financial statements cited in the issuer's prospectus are valid within six months after the deadline of the disclosure of the latest financial statements. Under special circumstances, in the review stage, the issuer may apply for extending the period of validity for no more than three months. Moreover, given the special situation of the pandemic control this year, in the application acceptance stage, before 31 July 2020, the period of validity of the financial statements cited in the issuer's prospectus can be extended by one month. Sixth, releasing a notice on arrangements for coordination of review. We further improved the transparency and standard operation of the arrangements for coordination of review on enterprises under review, defined the review procedures of enterprises under review and the deadline for submission of sponsorship working paper.
Rules for continuous regulation: First, improving the listing and delisting conditions for red chip enterprises. We adjusted the listing conditions on share capital and equity structure for red chip enterprises, made clear that the share capital should be calculated based on the sum of shares and the number of depository receipts and defined the standard of “rapid growth in operating income” in the listing conditions. We also adjusted relevant standards on trading-related delisting for red chip enterprises, Second, further optimizing delisting indicators. We adjusted the market capitalization delisting indicator to that the daily closing market capitalization is less than RMB300 million for 20 trading days straight, and improved the finance-related delisting standards. Specifically, if a company, against which a delisting risk warning has been issued after its triggers finance-related delisting indicators, releases financial statements on which the qualified audit opinion is issued, the listed company will be delisted. Third, defining conditions on issuance of shares and convertible corporate bonds by listed companies. We made it clear that “listed companies shall still meet corresponding issuing conditions when applying to list shares or convertible corporate bonds on SZSE”, consistent with the actual implementation of refinancing.
Rues for trading: First, increasing the maximum number of shares declared in a single transaction. Considering the characteristics of the equity structure of the ChiNext Board and the transaction demands of investors, we adjusted the maximum number of shares declared in a single transaction in limit orders to 300,000, and that in market orders to 150,000. Second, lifting the price change limit of relevant funds to 20%. To further improve the pricing efficiency of fund products, we adjusted the price change limits of index ETFs, LOFs or structured fund Class B shares tracking indexes whose component stocks are merely ChiNext Board-listed or which involve stocks subject to 20% price limit, and LOFs with over 80% non-cash asset investment in ChiNext Board stocks or which involve stocks subject to 20% price limit. The specific list will be announced by SZSE.
III. What targeted institutional arrangements has SZSE made for red chip enterprises applying for issuance and listing on the ChiNext Board?
A: To further improve the inclusiveness of the ChiNext Board market, support quality red chip enterprises in landing the ChiNext Board and promote sustainable, healthy development of the ChiNext Board market, we made targeted arrangements in the Rules Governing the Listing of Shares on the ChiNext of Shenzhen Stock Exchange (Revised in 2020), the Special Provisions for Trading on the ChiNext Board and the Q&As on Review of IPO on the ChiNext Board regarding application of red chip enterprises for issuance and listing on the ChiNext Board and their trading on the ChiNext Board, such as relevant arrangements on valuation adjustment mechanism (VAM), calculation of share capital, recognition of rapid growth of operating income, special marking of securities, adjustment of information disclosure adaptability, application of delisting indicators and protection of investors' rights and interests, specifically:
First, laying down relevant arrangements for preferential rights in the VAM. We made it clear that when a red chip enterprise issues preferred shares with preferential rights such as agreed redemption rights to investors before getting listed, if the issuer and investors promise that they will not exercise the preferential rights during declaration and issuance, such preferred shares may be converted into common shares before the enterprise is listed, and the shares after such conversion will not be treated as “surprise shares”.
Second, adjusting the calculation caliber of share capital. Considering that red chip enterprises are much different from domestic enterprises in terms of organizational form, face value of shares and share capital requirements and relevant arrangements are within the scope of corporate governance, we adjusted the special listing conditions for red chip enterprises. Regarding relevant provisions on "share capital" in the ChiNext Board listing conditions for red chip enterprises, the number of "share capital" was adjusted to the sum of shares or depository receipts after issuance.
Third, defining the criteria of "rapid growth in operating income". We defined the specific criteria of "rapid growth in operating income" in the issuance and listing conditions from the dimensions of operating income, compound growth rate and peer comparison, and stipulated that the regulations on "rapid growth in operation income" do not apply to red chip enterprises in the R&D stage and those that are of great significance to the implementation of the national innovation-driven development strategy.
Fourth, setting special marks for securities. To warn investors of stock and depository receipt transaction risks on the ChiNext Board and protect investors' legal rights and interests, we gave special marks in an appropriate way to the stocks or depository receipts of red chip enterprises with VIEs or similar special arrangements. If such red chip enterprises no longer have relevant arrangements after getting listed, such special marks will be canceled.
Fifth, laying out adaptive adjustments to information disclosure. When a red chip enterprise adopts relevant information disclosure requirements and continuous regulatory requirements of the ChiNext Board, if it may lead to noncompliance with relevant local provisions in the place where the enterprise is registered or standards commonly recognized by the market, the red chip enterprise may apply for adaptive adjustment but shall state the reason and provide an alternative plan and legal opinions.
Sixth, adjusting indicators relating to trading-related mandatory delisting. Given that the face value of shares of red chip enterprises is in USD, HKD, etc. and is probably low and there is a big difference between depository receipts and stocks in terms of transaction price and quantity of holders, we adjusted relevant delisting conditions for red chip enterprises. When a red chip enterprise issues shares, when the "face value delisting" indicator is applicable, the standard that “the daily closing price is lower than RMB1 in average for 20 trading days straight” shall be adopted; when a red chip enterprise issues depository receipts, we adjusted the standard to that "the daily closing market capitalization is less than RMB300 million for 20 trading days straight" and made it clear that the "number of shareholders" delisting indicator is not applicable.
Seventh, emphasizing protection of investors' rights and interests. When local laws and regulations apply to the corporate governance, standard operation, etc. of red chip enterprises, we emphasized that the protection level of investors' rights and interests shall not be lower than the requirements specified in domestic laws and regulations and that the rights and interests actually enjoyed by holders of depository receipts shall be the same as those enjoyed by holders of overseas underlying securities.
SZSE will, under the unified guidance of CSRC and based on the actual market situation, further study and improve relevant institutional arrangements for domestic issuance and listing of red chip enterprises and provide convenience for return of red chip enterprises on the basis of fully ensuring investors' legal rights and interests.
IV. What are the specific arrangements for the reform of issuance and underwriting regulations of the ChiNext Board?
A: Establishing market-based inquiry, pricing and placement mechanisms centering on institutional investors is the key to improve the market-oriented level of new share offering on the ChiNext Board on all sides. In the reform of issuance and underwriting regulations of the ChiNext Board, we adhered to the market-based and rule-of-law principles. On the basis of summing up the practical experience of issuance and underwriting regulations of the Star Market and taking into account the characteristics of stock reform, we made arrangements in the following four aspects:
First, improving diversified new share offering and pricing methods. First, we set seven types of professional institutional investors as IPO inquiry objects, namely, securities companies, fund management companies, trust companies, finance companies, insurance companies, qualified overseas investors and private fund managers. Second, we retained the direct pricing method. Profit-making enterprises that issue fewer than 20 million shares and whose shareholders are not offering shares to the public may directly determine issue price. By doing so, it can reduce the issue cost of small and mid-cap companies and improve their issue efficiency.
Second, giving full play to the pricing capability of professional institutional investors. First, we increased the proportion of offline offering of new shares. We increased the proportion of offline IPO by 10%, as well as the proportion of placement to offline investors after callback and the priority placement of middle- and long-term funds, to strengthen the effectiveness of participation by professional institutional investors and promote reasonable pricing of new shares. Second, we canceled the precondition on issuing scale in strategic placement. The issuer and the underwriter may decide whether to implement strategic placement. We have laid down specific requirements on the number of strategic investors and the proportion of strategic placement for enterprises with different issuing scales, to improve the flexibility of the regulations on strategic placement.
Third, further defining market participants' responsibilities through issuance and pricing constraint mechanisms. First, we optimized the co-investment mechanism. While improving the flexibility of the co-investment regulations of sponsor institutions, we required adopting co-investment among four types of special enterprises, and urged sponsor institutions to effectively prevent and control risks and fix prices prudently and reasonably. Second, we set a lock-up period to guide offline investors to make offers prudently. The issuer and the underwriter may determine the lock-up period by lottery or by proportion. A certain proportion of securities offered offline shall be provided with a lock-up period of no less than six months. Third, we strengthened daily supervision over such market participants as issuers and intermediaries, defined violations of market participants during IPO and refinancing issuance and underwriting on the ChiNext Board, and self-regulatory measures and disciplinary punishment that SZSE may impose.
Fourth, improving refinancing issuance and underwriting mechanisms. First, we optimized the arrangement that simple procedures are applicable to the share offering to specific objects and placed the bidding link before declaration of materials, to improve the financing efficiency of quality listed companies and further strengthen the predictability of issuance results and progress. Second, we standardized and improved current mature practices, refined the issuing and pricing methods and subscription procedures for each refinancing type, and defined the situations in which issuers and underwriters may agree to suspend issuance when issuing securities to specific objects.
V. Please give a brief introduction to the main content of the Interim Provisions for Declaration and Recommendation of Issuance and Listing on the ChiNext Board.
A: To clarify the positioning of the ChiNext Board, highlight its characteristics, further improve the declaration quality of enterprises planning to get listed and promote the sustainable, healthy development of the ChiNext Board market, SZSE has formulated the Interim Provisions for Declaration and Recommendation of Issuance and Listing on the ChiNext Board to guide and regulate the declaration by issuers of the ChiNext Board and the recommendation by sponsors in four aspects:
First, we have made it clear that we will support and encourage innovation-oriented enterprises and startups that are in line with the positioning of the ChiNext Board to get listed on the ChiNext Board, support traditional industries in deeply integrating with new technologies, new industries, new forms of business and new models, implement the innovation-driven development strategy, and serve the real economy in the pursuit of high-quality development.
Second, adhering to the positioning of the ChiNext Board, based on the characteristics of the ChiNext Board featuring enterprises in high-tech industries and strategic emerging industries, we have set a negative list, and in principle we will not support enterprises in such traditional industries as real estate in getting listed on the ChiNext Board.
Third, to better support, guide and facilitate the transformation and upgrading of traditional industries, we have made it clear that traditional enterprises in the negative list that deeply integrate with new technologies, new industries, new forms of business and new models can still get listed on the ChiNext Board.
Fourth, according to the principle of "separation of the new from the old", we have stipulated that the provisions on the negative list do not apply to enterprises under review, so as to achieve good connection between old and new regulations and stabilize market expectations.
VI. Please give a brief introduction to the main content of the Detailed Rules for Real-time Monitoring of Abnormal Stock Transactions on the ChiNext Board (Trial).
A: The Detailed Rules for Real-time Monitoring of Abnormal Stock Transactions on the ChiNext Board (Trial) was formulated based on the characteristics of the ChiNext Board and provides a workable, executable abnormal transaction behavior monitoring system with the goal of classified, precision and scientific regulation. It has laid down clear qualitative and quantitative recognition criteria of abnormal transaction behaviors and regulatory measures for investors' abnormal transaction behaviors and regulates members' performance of customer management responsibilities. Specifically, it includes the following four aspects:
First, defining main types of abnormal transaction behaviors. Specifically, there are five types of typical abnormal transaction behaviors, namely, false declaration, raising or suppressing stock price, maintaining price limit, self-selling and self-purchasing and trading with counterpart, severe abnormal fluctuation, and abnormal declaration rate.
Second, quantifying the thresholds of abnormal transaction behavior indicators. It has defined different types of abnormal transaction behaviors and key components, and refined thresholds of specific indicators including declaration quantity and frequency, stock trading scale, market proportion and stock price fluctuation. Monitoring standards may be adjusted flexibly based on the development of the market.
Third, laying down recognition criteria of abnormal transaction behaviors. Abnormal transaction behaviors shall be recognized based on quantitative criteria (declaration quantity and frequency, stock trading scale, market proportion, stock price fluctuation, etc.) and qualitative analysis (stock fundamentals, important information of listed companies, overall market trends, etc.).
Fourth, enhancing members' client management responsibility. Members shall learn about clients beforehand and monitor transactions in the process, promptly identify, manage and report clients' abnormal transaction behaviors, and actively coordinate with SZSE in properly regulating abnormal transaction behaviors and jointly maintain the stock trading order of the ChiNext Board.
VII. Please give a brief introduction to the clean administration concerning the reform of the ChiNext Board and the pilot project of the registration-based IPO system.
A: Strengthening clean administration is the inherent requirement and basic guarantee to steadily promote the reform of the ChiNext Board and the pilot project of the registration-based IPO system. We have paid great attention to it, seeing the strengthening of clean administration as the key to the success and efficacy of the reform. Since the preparation of the reform of the registration-based IPO system, we have coordinated institutional development and clean administration as on a single chessboard, planned and promoted them together, and integrated the requirements of clean administration and "strictness". Under the guidance of the discipline inspection team at CSRC, we have formulated the Implementation Suggestions for Strengthening Clean Administration in the Reform of the ChiNext Board and the Pilot Project of the Registration-based IPO System and four special regulations on clean administration, as well as some 10 internal management regulations including meeting management, file management, job rotation and avoidance. We have formed a system of clean administration regulations for the reform of the registration-based IPO system that includes listing review department's internal management regulations and special regulations for clean administration.
VIII. Please give a brief introduction to next-step arrangements regarding the reform of the ChiNext Board and the pilot project of the registration-based IPO system.
A: At present, relevant business rules and supporting arrangements of SZSE have been officially released and implemented, clean administration is being advanced synchronously, the review team is in place, and all preparatory work for the reform of the ChiNext Board and the pilot project of the registration-based IPO system has been completed. In the meantime, total market technical test organization, training of intermediaries, investor education, market risk evaluation and response and other relevant work have been advanced in an orderly manner.
Next, SZSE will continue to follow the unified arrangement of CSRC, adhere to the general principle of highlighting stability and pursuing progress while ensuring stability, promote steady implementation of the reform with an open attitude, transparent standards, a clean style of work and strict disciplines, go all out to do a good job in organizing and implementing the reform blueprint drawn by the Party Central Committee, strive to build a fine project of reform, and take solid steps to enhance market participants' sense of gain from the reform. First, we will handle business and review concerning enterprises under review and new applicant enterprises in an orderly manner, do well in work handover and steadily and efficiently promote the review of the registration-based IPO system. Second, we will set up the Listing Committee of the ChiNext Board, the Industry Expert Consultant Library, the Share Issuance Standardization Committee and accounting and legal advisory committees as quickly as possible, and do a good job in selecting relevant members and experts. Third, we will continue to do well in interpreting and publicizing rules, organize series training sessions, publish investor education articles, carry out investor education activities, and strengthen market communication and guidance, to create a good atmosphere for steadily promoting the reform. Fourth, we will enhance intermediaries' responsibilities, establish an evaluation mechanism on the practicing quality of intermediaries, urge intermediaries such as sponsors to be diligent and responsible, and improve the quality of information disclosure of market participants such as issuers. Fifth, we will actively coordinate market participants in completing technological transformation, organize the whole market to complete system integration and test, business simulation and total network test, continue to follow up on members' transformation of appropriateness-related systems and stock investors' re-signing of risk disclosure statements, and fully support stable launch and smooth implementation of the reform of the ChiNext Board and the pilot project of the registration-based IPO system.
