The great IPO gold rush hits brakes

PUBLISHED : Monday, 30 April, 2012, 12:00am
UPDATED : Monday, 30 April, 2012, 12:00am


China is planning tougher stock market regulations that will make it easier to delist companies and cool speculation in initial public offerings.

Both the Shanghai and Shenzhen stock exchanges said that they planned to widen the criteria for delisting companies to protect investors from companies that are not open about their financial position.

It comes as the China Securities Regulatory Commission (CSRC) published new guidelines for initial public offerings, which aim to force the prices of share issues to 'more reasonable' levels.

Guo Shuqing , the new CSRC chairman, has pledged to fight insider trading and make the market less speculative, and fund managers and analysts say more policy changes should be expected.

'The two new changes both mean good things to the stock market in the long run,' said Hu Yifan, chief economist for Haitong Securities International. 'The new delisting rule can help to clean up the mess in the market and the new IPO rule will make it a fairer place for both institutional and individual investors.'

Companies on the mainland can suspend trading of their shares for years, sometimes without giving a clear reason. In some cases, stocks of loss-making companies have been halted for up to five years to avoid delisting, drawing heavy criticism from investors.

The Shanghai Stock Exchange said it would make a decision by the end of the year on whether to resume trading companies that suspended their share trading before January 1, or delist them.

In a statement, it acknowledged that current rules for delisting did not fully protect investors' interests, and faster and more efficient delisting and relisting rules were needed.

While current delisting rules focus on how long a company had been making losses, the new rules would also look at negative net assets, operating revenue, accounting irregularities and trading volume.

In relation to new share issues, the CSRC said it would ask IPO underwriters to back up companies' high price-to-earnings ratios with clear documentation.

The rule would apply to companies where the price-to-earnings ratio was valued more than 25 per cent higher than its industry peers. But this would be reviewed case by case, added the regulator.

Individual investors, who drive more than 90 per cent of daily trading volume on the mainland, have long complained about high IPO prices.

'The '25 per cent' criteria for IPO prices is like a soft cap and I think this is a good move to curb rising speculation for new stocks,' Haitong's Hu said.

Separately, the CSRC announced on its website that the mainland's four commodity futures exchanges have decided to cut commission fees on futures contracts for a number of materials, including copper and rubber, by between 12.5 per cent and 50 per cent in the hope of boosting trading.

'Relevant government bodies are also studying and approving plans to reduce fees and cut the cost of stock trading,' the CSRC added.

The statement came amid increasing speculation that the CSRC may soon cut or even remove the stock stamp duty, which is currently 0.1 per cent, in an effort to increase trading volume.

Fairer trading

Shanghai and Shenzhen stock exchanges to accelerate delisting procedures for troubled companies

China Securities Regulatory Commission issues new guideline to cool market fever for high IPO prices

Four commodity futures exchanges cut commission fees to boost trading volume

Government bodies are in talks to reduce cost of stock trading