Institutions participating in price-discovery for initial public offerings on the mainland will be required to take more risk when bidding for new shares once Beijing finishes fine-tuning the market's pricing mechanism.
The China Securities Regulatory Commission (CSRC), under the direction of newly appointed chairman Guo Shuqing, is overhauling the so-called 'off-line subscription system', in the belief that new measures could curb high offering prices that bleed the market of liquidity and leave investors with big losses, according to two people with knowledge of the regulator's thinking.
'The central plank of the plan is to force the institutions to take more risk when submitting their off-line bids,' said one source. 'The regulator seems to have discovered what was wrong with the existing system.'
Presently, big institutions may place 'off-line' bids for a tranche of shares that accounts for less than 30 per cent of the IPO volume in a process that effectively sets prices for the remainder of the shares.
The off-line subscription, also known as price consultations, is carried out in two steps.
In the first step, participants are invited to submit the prices they would be willing to offer without stating the number of shares they plan to subscribe for.