SFC drops proposal to ban analyst reports on share sales

The Securities and Futures Commission (SFC) has dropped its controversial plan to ban analysts' research reports on an initial public offering before the deal is launched.

The regulator will instead tighten rules, requiring pre-deal research reports to be written based only on information available in a listing candidate's draft prospectus, or red herring.

The regulator will also require a listing candidate to make its draft prospectus public once its application received provisional approval by the stock exchange, claiming that such move will make the sale fair to all investors.

At present, a draft prospectus is usually available to institutional investors one to two weeks before a formal prospectus is released to the public.

Analysts who fail to comply with the proposed rules could be fined, reprimanded or have their licence revoked, the SFC said.

Industry players generally said the new proposals are a step in the right direction to improve the local market, although some criticised that they do not go far enough to ease concern about the independence of pre-deal research reports.

Pre-deal research reports usually are prepared by analysts who work for sponsors of the initial public offerings. The sponsors would use the reports as marketing materials.