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On February 1, 2023, in order to put in place the General Implementation Scheme for Fully Implementing the Registration-based IPO System approved by the CPC Central Committee and the State Council, SZSE released the exposure drafts of ten supporting business rules to the public to solicit opinions, which included the Rules for Reviewing Stock Offering and Listing, the Rules for Reviewing the Offering and Listing of Securities by Listed Companies, the Rules for Reviewing the Material Assets Restructuring of Listed Companies, the Implementation Rules for Securities Offering and Underwriting Business in Initial Public Offering, the Rules Governing Share Listing, and Trading Rules. The Press Secretary of SZSE was interviewed on issues of concern of the public.
I. Please tell us about the background and general idea for formulating and amending the supporting business rules for the full implementation of the registration-based IPO system.
Answer: The comprehensive implementation of the registration-based IPO system is a major overall reform and arrangement in the capital market after the establishment of the STAR Market, the ChiNext Board reform, the establishment of the Beijing Stock Exchange as well as the pilot project of the registration-based IPO system for the three markets. The reform is of great strategic significance to improving the functions of the capital market, raising the percentage of direct financing, and advancing high-quality development. Adhering to the guidance of Xi Jinping Thoughts on Socialism with Chinese Characteristics for a New Era, SZSE pursues progress while ensuring stability, summarizes and assesses the practices of the reform of the pilot registration-based IPO system of the ChiNext Board, and makes good preparation.
Under the unified leadership of the CSRC, SZSE formulated and amended the supporting business rules in line with the overall requirements of the comprehensive implementation of the registration-based IPO system, the provisions of the Securities Law as well as the rules of the CSRC so as to lay a good foundation for the comprehensive implementation of the registration-based IPO system. The following principles have been observed in formulating the rules.
First, strictly adhering to the guiding principles for the reform. The guiding tenet for the comprehensive implementation of the registration-based IPO system is to extensively implement Xi Jinping Thoughts on Socialism with Chinese Characteristics for a New Era and the guiding principles of the 20th National Congress of the CPC, secure the decisions and deployments made by the CPC Central Committee and the State Council and carry out the new development philosophy by closely focusing on the overall objective for creating a regulated, transparent, open, dynamic and resilient capital market in a complete, accurate, and comprehensive manner. By adhering to the general principle of pursuing progress while ensuring stability, we remain committed to policy development, non-intervention, and zero tolerance. Additionally, we stick to the strategy of being market-oriented and law-based, and the principles of respecting the intrinsic connotation of the registration-based IPO system, learning from best practices internationally, and demonstrating Chinese characteristics and features in the stage of development. Also, we stress the essence of the registration-based IPO system of leaving the options to the market, synchronously enhance supervision, advance the reform package, improve the functions of the capital market, raise the percentage of direct financing, and promote high-quality economic development. In order to comprehensively implement the guiding principles for the reform, SZSE has made great efforts to formulate and amend the supporting business rules to provide an institutional guarantee for the steady advancement of the reform package.
Second, fully drawing on existing reform experiences. We have reflected on and assessed the experiences of the reform of the pilot registration-based IPO system of the STAR Market, the ChiNext Board, as well as the Beijing Stock Exchange and to apply the effective, market-proven practices to the Main Board, such as the enhancement of the checks and balances of the review power and on-site supervision and guidance to ensure the implementation of the sponsors’ responsibility, thus maintaining reform continuity and stabilizing market expectation.
Third, coordinating and harmonizing business rules for all boards. The comprehensive implementation of the registration-based IPO system has further integrated the rules for the review of offering and listing, offering and underwriting, continuous supervision, and trading of the SZSE Main Board and the ChiNext Board to ensure consistence of the supporting policies. These rules are also consistent with the supporting rules under the registration-based IPO system of SSE in terms of structure and contents, which is conducive to creating a more coordinated, terser, and friendly business rule system throughout the market.
Fourth, keeping reasonable differences among boards. We have carefully dealt with the relationships between innovative reform and stable policies and between generality and rationality in a reasonable manner to keep features of different boards in terms of function position and trading mechanisms. For instance, we adhered to the requirement for developing a multi-tiered capital market and differentiated IPO conditions to maintain the coordinated development of the Main Board and the ChiNext Board. We have kept the requirements unchanged for the daily price limits (except the first five trading days after the IPO) and suitability of investors of the Main Board to respect usual trading practices while applying partial trading mechanisms of the ChiNext Board after taking consideration of the structure of current investors and listed companies of the Main Board.
II. Please share with us about how you position the Main Board and the ChiNext Board in the market under the registration-based IPO system.
Answer: Based on the requirements for developing a multi-tiered capital market and serving high-quality development, SZSE has optimized the position of the Main Board and upheld the features of the ChiNext Board to promote a market pattern with coordinated development and complementary functions so as to focus on improving the capacity of serving the real economy for the capital market.
First, we have further specified the position of the Main Board. Since the establishment of the SZSE Main Board, we have adhered to the fundamental purposes, which are to serve the real economy and support the listed companies to utilize the capital market and grow better and stronger. As a result, a host of blue-chip companies with great influence, excellent innovation abilities, and strong competitiveness and leaders of segment industries have sprung up. With the comprehensive implementation of the registration-based IPO system, the Main Board will further pinpoint the features of the blue-chip market by prioritizing support for representative quality enterprises with well-developed business modes, stable operating results, and large scale. Based on this, we will design diverse and inclusive listing conditions and keep distinct features from the ChiNext Board.
Second, we have upheld the position of the ChiNext Board. The pilot project of the registration-based IPO system has increasingly highlighted the features of the ChiNext Board in serving the growing innovative venture enterprises and its functions in promoting high-level circulation of science and technology, capital and the real economy. With the comprehensive implementation of the registration-based IPO system, SZSE will unswervingly check against the criteria of the position of the ChiNext Board to further focus on the state innovation-driven development strategy and prioritize supporting the IPO of excellent innovative venture enterprises. Meanwhile, we will support the eligible yet not yet profitable enterprises to list on the ChiNext Board and have cancelled the requirement of a positive net profit for the latest year for red-chip enterprises and enterprises with a special ownership structure to be listed on the ChiNext Board.
III. Please tell us about the amendments and improvements made to the review policy for IPO.
Answer: Over the two-year stable operation of the ChiNext Board reform and the pilot project of the registration-based IPO system, the review for the registration-based IPO system has been orderly advanced. The principal IPO review policies have been proven by the market. Based on the sufficient experiences of the review practice of the ChiNext Board, we have optimized and adjusted current rules in the reform accordingly.
First, we have unified the review policies to further optimize the registration mechanism. In order to accommodate the needs of the reform of the comprehensive implementation of the registration-based IPO system, The Main Board and the ChiNext Board are consistent on the whole in terms of the review philosophy, content, means, procedures, and self-regulation of the IPO. In terms of the IPO review, the mechanism for connecting the review of the exchange and the registration process of the CSRC has been improved, specifying that the review of the exchange is under the supervision and inspection of the CSRC; when the exchange is accepting the application for IPO by an enterprise, we shall review and determine whether the enterprise meets the offering conditions, listing conditions, and information disclosure requirements and immediately report any material sensitive matter, material unprecedented circumstance, major public opinion, and clue of a major violation of law identified from the review to the CSRC for instructions. In terms of refinancing, we have specified that the preferred shares are included in the review scope of the registration-based IPO system and the classification review mechanism applicable to the listed companies on the Main Board is applied to the listed companies on the ChiNext Board. Meanwhile, the application scope of the simplified procedure has been expanded from the ChiNext Board to the Main Board to unify the refinancing review mechanism of different boards. In terms of restructuring review, we have made differentiated arrangements for industry access criteria, listing conditions via restructuring, information disclosure requirements, and fast review mechanisms of small-value assets for the underlying assets of the companies listed on the Main Board and the ChiNext Board with major asset restructuring, and integrated and optimized the review rule system of restructuring.
Second, we have improved the information disclosure requirements and consulting and communication services to make the review more transparent. We have further specified that the issuer shall ensure authentic, accurate, and complete information disclosure, enhance operational risk disclosure, and fully unveil the direct and indirect risks that may have significant adverse impacts on the issuer. We will step up efforts for open-door review, specifying that the issuer and intermediary can consult and communicate with the review institution before project application, the issuance of the first round of inquiries, and the Listing Committee meeting to make the review more open and transparent.
Third, we have laid down clear and stringent provisions regarding the responsibilities of the issuers and intermediaries. Previously, responsibilities arise after the application is accepted. Now, we have adjusted it to that responsibilities should be shouldered upon application. We have specified that since the application date of the IPO application document, the issuer, the controlling shareholder, the de facto controller, directors, supervisors, senior management, as well as relevant sponsors, securities service agencies, and relevant personnel shall assume the corresponding legal liabilities. In addition, we have made clear that the sponsor shall fully learn about the operation status, risks, and development prospects of the issuer to prudently verify the IPO application documents so as to improve the quality of listed companies. We have also specified that the exchange can carry out on-site inspections for the issuer, its sponsor, and the securities service agency or provide on-site supervision and guidance for the sponsor as well as the relevant securities service agency, who should actively cooperate.
Fourth, we have stepped up efforts for the regulation of the critical minority to make the regulation more authoritative. We have made more efforts to regulate the controlling shareholder, de facto controller, directors, supervisors, senior management, and other critical minorities and specified disciplinary punishment and regulatory measures for engaging in relevant violation of laws and regulations of issuers directed by relevant entities and organizations and ineffective cooperation on due diligence. We have established a mutual recognition mechanism for regulatory authorities. If relevant entities are temporarily rejected for documents or recognized as inappropriate candidates due to self-regulatory measures and disciplinary punishment by other stock exchanges and other national stock exchanges approved by the State Council, we will directly recognize their decision.
IV. Please share with us relevant arrangements of the Listing Review Committee and the M&A Review Committee after the comprehensive implementation of the registration-based IPO system.
Answer: Earlier, SZSE issued the Management Measures for the Listing Review Committee and the M&A Review Committee (hereinafter referred to as the “Measures”) in line with the coordinated arrangement of the CSRC, which applies to the Main Board and the ChiNext Board. According to relevant provisions of the Measures, we proactively set up the first Listing Review Committee and the first M&A Review Committee (hereinafter referred to as the “two Committees”) to perform the function of reviewing listing, merger, acquisition and restructuring. The two Committees mainly have the following three reform ideas: First, we shall give play to the functions and roles of the two Committees. The two Committees shall be more professional and contain more full-time experts. They shall be comprised of full-time committee members with experience in securities supervision to play the role of checking and deciding more independently and professionally. Second, we shall optimize the operation and management of the two Committees. We shall further improve the whole-chain mechanism for selecting, appointing, and managing members to make more comprehensive and refined provisions for the working discipline, supervision, and management of committee members to ensure the standard, efficient, and stable operation of the two Committees. Third, we shall enhance the clean administration of the two Committees. The political, public power, and well-behaved, well-disciplined awareness of committee members shall be enhanced to create a committee team that is loyal, professional, and dependable.
V. Please introduce the amendments and improvements made to the provisions regarding the securities offering and underwriting business of IPO.
Answer: We have sufficiently drawn on the reform experience of the pilot project of the registration-based IPO system and set up no limits for the issuing price and scale of the Main Board stocks by adhering to the market orientation, further improved the inquiry, pricing, and placement mechanism with the institutional investors as main participants, enhanced market constraints at the same time, and developed the Implementation Rules for Securities Offering and Underwriting Business in Initial Public Offering suitable for the Main Board and the ChiNext Board.
First, we have improved the pricing mechanism for IPO. We have appropriately expanded the inquiry scope by incorporating the occupational annuity fund into the inquiry objects. We have improved the placement mechanism to better give play to the research and pricing capacity of medium- and long-term investors such as qualified foreign investors. We have allowed three different proposed subscription prices to be filled out by the same offline investor, adjusted the percentage of the high price elimination mechanism and improved the information disclosure requirements for pricing. We have restricted sales for a certain proportion of shares issued offline to instruct investors to quote prudently.
Second, we have optimized and adjusted the placement mechanism. We have maintained the current differentiated offline initial offering percentage and claw-back mechanism arrangements of the Main Board and the ChiNext Board, focusing more on online investors of the Main Board. We have changed the placement method from percentage or lottery placement to percentage placement. We have optimized the specific implementation arrangements for strategic allotment, improved the over-allotment option mechanism and promoted stable share prices after IPO. The Main Board shall not implement the policy for the co-investment of sponsors, while the ChiNext Board shall keep the current policy for the co-investment unchanged.
Furthermore, in relevant rules, we have specified the responsibilities of the Securities Offering Regulation Committee for providing consulting opinions on offering and underwriting to give play to the role of self-regulation.
VI. Please introduce the amendments and improvements made to the continuous regulation rules for listed companies.
Answer: The amended Rules Governing Share Listing accommodate the need for reform of the registration-based IPO system, emphasizing the features of the blue-chip market of the Main Board and further optimizing relevant regulations on share listing and information disclosure.
First, we have improved listing conditions and relevant listing arrangements. We have formulated diversified and differentiated listing conditions by comprehensively considering the estimated market value, revenue, net profit, cash flow and other portfolio indicators. We have optimized listing standards for profitability and canceled the requirements of the inexistence of uncovered losses at the end of the latest reporting period and the restriction on the percentage of the intangible asset in the net assets. We have added two indicator systems, namely, the estimated market value + revenue + cash flow and the estimated market value + revenue, to make the market more inclusive. We have specified the listing standards for the red-chip enterprises listed overseas and those not listed overseas as well as the enterprises with differential voting rights arrangements. In addition, we have simplified the application documents for IPO and the securities offering of listed companies to shorten the decision-making period for the listing applications.
Second, we have refined relevant requirements for information disclosure. We have standardized the disclosure requirements for changes in equity for three types of shareholders like the contractual fund holding more than 5% of shares of the listed companies, trust plans and asset management plans. We have enhanced information disclosure for shares with severely abnormal fluctuation and risk alerts and specified requirements for the companies and relevant information disclosure obligors in terms of verification, announcement disclosure, and trading suspension and resumption. For press releases and rumors that may have significant impacts on the trading prices or investment decision-making of the stocks and derivatives of the companies after the disclosure of the letter of intent or prospectus, we will request them to release the risk alert announcement on the first day of listing for clarification and alert risks.
Third, we have specified the corporate governance requirements for specific enterprises. We have added provisions related to the differentiated arrangements of voting rights, standardized the qualification of entities with special voting rights and change management, and enhanced information disclosure and supervision mechanisms. We have stepped up efforts to protect the rights and interests of domestic investors, emphasizing that the red-chip enterprises shall ensure that the rights and interests actually enjoyed by domestic investors are equivalent to those enjoyed by holders of overseas underlying securities. In addition, we have specified to establish a domestic communication mechanism for red-chip enterprises to standardize requirements for decision-making of material events and changes in depository receipts.
VII. Please share with us the amendments and improvements made to the Implementation Rules for the Pilot Business of Preferred Shares.
Answer: Based on regulatory practices, we have specified review, offering and underwriting arrangements for preference shares and optimized requirements for the trading and information disclosure of preferred shares in the amended Implementation Rules for the Pilot Business of Preferred Shares.
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First, we have clarified arrangements of review, offering and underwriting. We have specified that the implementation of the registration-based offering of preferred shares applies to provisions on stock review, offering, and underwriting. If the listed companies offer preferred shares, they are no longer requested to re-sign relevant agreements and send notice of listing to simplify the business flow. Second, we have optimized requirements related to trading. We have made clear that the preferred shares traded on the market shall generally comply with the provisions on the trading of ordinary shares stipulated in our Trading Rules by reference. Meanwhile, we have specified that provisions related to severely abnormal fluctuation do not apply to preferred shares. Third, we have refined information disclosure requirements. We have specified specific circumstances for companies offering preferred shares to perform their obligation of information disclosure to further improve the content of risk disclosure.
VIII. Please tell us about the amendments and improvements made to the Trading Rules.
Answer: We have observed the basic ideas of improving pricing efficiency, enhancing market stability, and facilitating investors to take part in trading. With that in mind, we have amended the Trading Rules on the whole, to integrate and optimize the trading rules and systems and improve trading policy for the Main Board and the ChiNext Board.
First, we have optimized the layout of the rules. We have integrated relevant rules of securities such as stocks, depositary receipts, and funds traded on the Main Board and ChiNext Board. Meanwhile, trading rules for bonds, which were separately formulated and released earlier, have been deleted from the Trading Rules.
Second, we have applied some trading mechanisms of the ChiNext Board to the Main Board. We have applied the initial trading mechanism of new shares, specifying that no price limits shall be set for the first five trading days after the IPO and adjusting the requirements for the intra-day temporary suspension mechanism by suspending trading for 10 minutes in case the initial intra-day trading price rise or fall reaches or exceeds 30% or 60% than the opening price of the day. Furthermore, we have applied the “price cage” mechanism where a 2% limit is applied to price subscription in consecutive auctions as well as the information disclosure mechanism for trading with severely abnormal fluctuation and set differentiated thresholds based on the characteristics of the stocks on the Main Board.
Third, we have optimized the trading rules for the Main Board and ChiNext Board at the same time. We have optimized the maintenance and rejection mechanisms by directly rejecting order that exceeds the applied price range rather than temporarily saving it in the host of trading. We have also improved the “price cage” mechanism for the limit price declaration in consecutive auctions by adding ten minimum movement units of the subscription price based on the 2% effective subscription price. When the scope of the 2% effective subscription price corresponds to less than ten minimum movement units of the subscription price (namely RMB0.1), the price range of RMB0.1 shall apply. In addition, we have optimized the intra-day temporary trading suspension mechanism for the first day of re-listing, which is consistent with the temporary trading suspension mechanism for the shares without price rise or fall limits.
Fourth, we have optimized provisions related to the trading and supervision of securities. We have adjusted provisions related to law-breaking and rule-violating behaviors and abnormal trading behaviors, improved types of self-regulatory measures, and specified reporting obligations for procedural trading.
IX. Please tell us about the amendments and improvements made to the Implementation Rules for Margin Trading.
Answer: We have amended the Implementation Rules for Margin Trading by integrating the provisions involving margin trading specified in the Special Trading Rules on the ChiNext Board and making adaptability amendments for some provisions. First, we have specified that the registration-based stocks shall be incorporated in the underlying securities of the margin trading on the first day of listing and the depositary receipts shall observe the provisions related to stocks for execution. Second, we have specified that the stock being transferred out of the underlying securities scope since the day of risk alert implementation, and being transferred into the underlying securities scope since the day of risk alert cancellation. Third, we have made clear that investors and related parties participating in the strategic allotment not sell shares of listed companies via securities lending within the holding period committed by the investors participating in the strategic allotment. Fourth, we have expanded the investment scope of the proceeds an investor receives by securities lending, allowing investment in bond traded open funds (except the securities of tracking index component with convertible corporate bonds), while the corresponding risks shall be controlled by members. Fifth, we have made adaptability adjustments to the subscription quantity for buying through financing and selling through securities lending in line with relevant rules.
X. Please give us a general idea about the amendments and improvements made to the Implementation Rules for Lending Trading of Refinancing Securities.
Answer: We have amended the Implementation Rules for Lending Trading of Refinancing Securities by integrating the provisions involving securities lending specified in the Special Trading Rules for Lending of Refinancing Securities and Securities Refinancing Business on the ChiNext Board and making adaptability amendments to specific rules and provisions. First, we have applied the market-oriented subscription by agreement of securities refinancing to the Main Board. Second, we have optimized relevant arrangements for the subscription quantity of securities refinancing by widening the upper and lower limit for the subscription quantity of a single transaction to better meet the need of market participants. Third, we have improved the handling of the delisting underlying business, added provisions on business handling of compulsory delisting circumstances for transactions, and specified the advanced settlement of securities lending under such circumstances. In addition, we have added cash and other settlement methods for the listing termination.
XI. Please share with us about the enhancement of clean administration development and implementation around the comprehensive registration-based IPO system.
Answer: The reform of the registration-based system necessitates the enhancement of market and legal constraints to safeguard the standard, transparent, and clean operation of public power. Since the pilot of the registration-based system, SZSE has consciously accepted the supervision and inspection carried out by the CSRC on the review of the exchange as well as the close supervision conducted by the discipline inspection group of the CSRC. We have enhanced the prevention of clean administration risks by focusing on a series of targeted policy arrangements and measures to safeguard the reform of the registration-based system with rigorous policy, serious discipline, and strict execution.
First, we have further advanced the open norms for the exercise of power. By adequately assessing the clean administration development and supervision of the reform of the registration-based system of the ChiNext Board, we have enhanced the development of transparency by giving publicity to review standards, procedures, content, progress, and results, to promote standardization by openness and honesty by transparency. We have improved the internal control mechanism with hierarchical checks, collective decision-making, and effective checks and balances and optimized firewall mechanisms of the review departments and market and service departments, giving play to the role of the Listing Committee and the Restructuring Committee in checking and balancing. Furthermore, we have stepped up efforts for the follow-up and supervision of the review departments carried out by the quality control departments and enhanced the decision-making checks and balances of reviewing and judging material and complicated matters in the review.
Second, we have further refined and rigorously implemented policy requirements for clean administration. We have analyzed and researched and determined the new changes and new characteristics of the exercise of the power of review brought by the comprehensive implementation of the registration-based system, deeply investigated risk points for clean administration, and formulated the Work Rules for Clean Administration Construction and Supervision of the Comprehensive Implementation of the Registration-based IPO System to further prevent the whole-chain, whole-process, and all-round clean administration risks. Additionally, we have kept a close watch on key personnels, positions, and processes and amended and improved supporting management policies to restrict power through policies and provide a more powerful policy guarantee for the reform.
Third, we have consciously accepted external supervision. The Party Committee of SZSE has unswervingly assumed the entity responsibilities for seeing Party self-governance exercised fully and with rigor and worked ceaselessly to improve Party conduct and enforce Party discipline to further foster rigorous culture and atmosphere. We have purposefully accepted market and social supervision and further advanced open-door review and regulation so that power can be truly exercised without being compromised. Besides, we have stepped up efforts for the implementation of the issuer’s integrity commitment policy, promoted clean working culture and policy development of intermediaries, and implemented requirements for investigations of taking and offering bribes so that the briber will be restricted even by a single violation.
XII. Please tell us about the work arrangements for the comprehensive implementation of the registration-based IPO system for the next step.
Answer: In line with the unified arrangement of the CSRC, SZSE has established a steering group for the reform of the registration-based system to make meticulous preparation. First, we have heard sufficient opinions from all parties in the market. During the period of soliciting opinions, we heard opinions from all parties by holding symposiums and via pubic solicitation channels to carefully study and absorb reasonable suggestions. Relevant supporting rules have been submitted to the CSRC for approval after being amended and improved and will be released to the market for implementation in time. Second, we have made proper technical and business preparation. We have promptly carried out business training for the rules and coordinated all parties of the market for technical system transformation and upgrade, investor orientation, and market cultivation services to ensure orderly advancement, steady implementation, and actual results of the reform of the registration-based system throughout the market. Third, we have made proper arrangements for the acceptance and review of enterprises. We will accept relevant applications submitted by enterprises under review for IPO, refinancing, and merger and acquisition on the Main Board in line with the overall deployment and progress arrangement of the comprehensive implementation of the registration-based IPO system to ensure the orderly connect and steady transition of the offering and listing review work.
