The mainland securities regulator plans to restrict share issuers and major holders from selling their stocks at below the initial public offering price as part of new rules aimed at cracking down on fraud and protecting investors.
The restrictions will be in place for two years after lock-ups end, according to draft rules the China Securities Regulatory Commission posted on its website yesterday.
Issuers must also prepare and disclose plans to stabilise share prices that fall below net asset values within five years of their debuts.
The watchdog is seeking public feedback on the proposals by June 21.
New CSRC chairman Xiao Gang is extending predecessor Guo Shuqing's campaign to combat fraud. Since Xiao took over in March, the regulator has dished out penalties including a three-month suspension of Ping An Securities' underwriting licence for the firm's role in the share sale of a fraudulent company in 2011.
Under the draft rules, when a firm reports a net loss or a drop of more than 50 per cent in profit in the same year of its listing, the CSRC will stop reviewing any applications submitted by the investment bank that advised it.
The CSRC punished three brokerages and banned bankers from Ping An, Nanjing Securities and Minsheng Securities from the securities industry for life in the past month for failed due diligence in initial public offerings.
The CSRC also plans to change the pricing system by letting individual investors who meet criteria set by underwriters participate in the placement process, previously limited to institutional investors.
To make the listing process more market-driven, the CSRC will allow issuers 12 months to decide when to start trading after they receive regulatory approval for their initial sales.
Companies will also be able to apply to issue bonds while their listing applications are pending regulatory approval, as it encourages companies to explore fundraising options.
The securities watchdog's issuance review commission has the sole discretion to decide whether a company is fit for a listing. Investment banks and their bankers must determine and guarantee the truthfulness of clients' offering documents, financial performance and proper corporate governance for as long as three years.
Bankers for listing companies may receive penalties including suspension of their licences if the issuers' financial performance does not meet certain standards, or for various forms of misconduct on the part of the issuers.