Rule bans gifts during price discovery for IPOs

The Securities Association of China has issued a draft rule to weed out corruption in the price discovery process for shares in initial public offerings, in the latest move to curb frothy IPO prices.

The association, a non-profit body under the China Securities Regulatory Commission (CSRC), said securities industry employees would be barred from taking gifts and cash from underwriters during offline subscription - a bidding system for institutional investors through which prices of new shares are set.

According to the official Securities Times, the association admitted that there were irregularities in the IPO pricing process, with underwriters paying bribes to participants to have their share prices inflated.

The association is a self-disciplinary body whose members include all the country's brokerages. It has no power to punish anyone.

The CSRC has been investigating the IPO pricing process since the beginning of the year, suspecting some fund managers and researchers of taking bribes to help underwriters overprice new shares. In February, several institutions were ordered to file their research documents on IPO share valuations with the CSRC for detailed examination.

From 2010 to last year, inflated IPO prices helped companies raise massive funds from a weak market and left thousands of retail investors high and dry when prices fell sharply after the listings.

CSRC chairman Guo Shuqing is determined to curb artificial overpricing of new shares and has warned that the regulator will punish the firms and people responsible.