The mainland securities regulator will relinquish its authority to conduct preliminary reviews of refinancing applications from firms traded on the second-board market - a move aimed at streamlining controversial share placement procedures.
The Shenzhen Stock Exchange will instead undertake first-round reviews of share placement applications, replacing the China Securities Regulatory Commission's department overseeing the ChiNext market, according to two Beijing-based people briefed by securities officials about the matter.
The policy shift follows increasing suspicions that the CSRC's oversight of the pace of initial public offerings (IPOs) as well as top-up share placements had caused millions of investors to lose money in the past year.
Analysts said that although this was only a small step taken by the regulator to reform the share offering mechanism, it heralded a drastic move by the CSRC under the newly-appointed chairman Guo Shuqing to make the system on a par with international practices.
'Handing power to the Shenzhen exchange for the preliminary review is just to test the water,' said Huatai Securities analyst Zhou Lin. 'The regulator will definitely deepen the reform in the near future.'
It is widely expected that the CSRC also plans to relinquish its role in IPOs and that reforms will be extended to the main board. Neither the CSRC nor the Shenzhen exchange could be reached for comment on Friday.
The CSRC's refinancing review committee will still, however, have a final say on share placement applications during official hearings.
Share offerings that are approved by the regulator normally receive a warm response from institutional investors, such as mutual funds, who are also under the oversight of the CSRC. In addition, retail investors are encouraged by the official tick of approval.
Aside from ensuring an effective control over the pace of IPOs and additional share offerings, the regulator also has a say in the size of the share sales as a way to stabilise the market.
Last year, 70 per cent of IPO stocks traded below their offering prices, leaving millions of investors with losses. They questioned the ready approval given to many IPOs, saying the approvals misled investors.
In 2011, 280 IPOs soaked up 270 billion yuan (HK$330 billion) from the Shanghai and Shenzhen bourses, helping the mainland to retain its title of the world's largest IPO market. The subsequent lacklustre performance of the shares resulted in growing calls from analysts and investors for changes to the offering system.
In the overseas markets, regulators are only responsible for reviewing the listing applicants' quality, and let the market decide the volume, timing and pricing of the offerings.
The CSRC has been urged to stand on the sidelines of the share offering process and to give up its control on timing and pricing of the fundraising activities entirely.
Sources with knowledge of the regulator's thinking said that under the direction of chairman Guo, who took office in late October, the CSRC was now seriously considering further drastic moves to make the IPO mechanism totally market-driven.