Compared with the existing IPO apparatus, the draft document also makes breakthroughs in the pricing of new stocks. The draft document allows market-oriented adjustments in IPO pricing, individual investors' participation in pricing and strengthens information disclosure during the pricing process. According to the document, the offering price should be fixed by the issuer and its underwriters and the way in which the price was determined should be disclosed in an IPO announcement. Qualified individual investors can participate in pricing and placement.

The draft document allows underwriters to reserve shares for certain investors. Lead underwriters can independently choose to sell stocks to investors who have offered effective quotes.

When advancing the market-oriented reform of the IPOs, the draft document stresses strengthening supervision and law enforcement to prevent illegal activities. For example, if the issuer makes false or misleading statements in its application or legal documents, it will be subject to an investigation by the CSRC; if the allegations hold, the issuer will not be accepted for IPO application within 36 months.

Breakthroughs

He Liping, Director of the Financial Department of Beijing Normal University, said compared with the previous reforms of the IPO structure, this is a real market-oriented reform.

"I still feel disappointed because it doesn't resolve some essential matters. If the CSRC does not make significant revisions, the new round of reforms will be spoiled again," said He.

The draft document stresses to "make the IPO pricing more market-oriented," he said, but seeing from the present stock structure of listed companies, such reform doesn't go far enough. In the stock structure of listed companies, the proportion of tradable shares in the IPO is very small, while the proportion of restricted shares is quite large, including the large amount of shares held by controlling shareholders. "When the proportion of tradable shares in the IPO is small, how can the pricing be market-oriented?" said He.

He said this issue is the foundation to reform the IPO mechanism. If this cannot be solved, all the other reforms will come to nothing.

To solve this problem, he suggested that the CSRC can require that tradable shares of an IPO should not be lower than 50 percent of the total shares (excluding state-controlled companies); all the shares above 30 percent held by the actual controller must be transferred to preferred shares.

The professor added that IPO reforms should also make clear that companies who commit fraud should be immediately delisted from the stock market. In the meantime, the CSRC should also effectively protect the rights and interests of investors.

"The IPO system needs thorough reform, so I hope the CSRC can make major revisions on the draft document," He said.

Email us at: lanxinzhen@bjreview.com

CSRC's New IPO Rules

- The company prospectus will be disclosed upon acceptance, and the issuer and intermediary institutions must be responsible for the "authenticity, accuracy and completeness" of the prospectus hereafter.

- The IPO will be approved after a review of the CSRC's Public Offering Review Committee. The issuer is free to choose the timing of IPO within 12 months of the approval.

- The controlling shareholder and shareholding senior management of the issuer must agree that if they sell their shares within two years after the lock-up period expires, the selling price shall not be lower than the offering price.

- The issuer and underwriters can independently fix the offering price, and if the price-to-earnings ratio is higher than the average level on the secondary market, they must issue a special announcement on investment risks.

- False records, misleading statement or omission of major items will not be accepted for IPO applications within three years.

- The CSRC plans to establish a system to suspend trade on the first day of trading to curb speculation on new stocks.