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| Draft IPO Rules May Reduce Volatility |
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The China Securities Regulatory Commission (CSRC) published the draft of a new regulation on securities issuing and underwriting on its website late on Monday, for public consultation until Friday. The rules set new standards for IPO price inquiries and share placements to consolidate the regulatory framework on new share issues and better discipline relevant intermediaries including underwriters and institutions that take part in IPO price inquiries a CSRC spokesman said. The introduction of the greenshoe or over-allotment option permits the major underwriter of an IPO to sell more shares than originally planned if demand is particularly strong. The underwriter may choose to sell more shares if the IPO scale exceeds 400 million shares, the draft regulation said. Generally the over-allotment would not exceed 15 percent of the original IPO scale. Greenshoe options can reduce the volatility of listings and help stabilize share prices while allowing more investment funds to flow into the market. "That will be positive news to investment banks," said an investment banking executive at CITIC Securities, who preferred to remain anonymous. "Underwriters will have more initiative to seek more strategic investors and that will ultimately boost the shares of the issuers," he said. To protect the interests of small- and medium-sized investors, the draft regulation allows large-caps to place as much as half of their stock with retail subscribers in IPOs, while for small and medium-sized offerings they can place 80 percent of their shares with retailers. The proposed ratios are much higher than those offered in overseas capital markets, experts said. The new rules also allow for simultaneous online and offline subscription of stocks by individual and institutional investors, which is expected to shorten the subscription period by two days. That will pave the way for simultaneous listings in both the A-share and H-share markets by Chinese companies, including the expected dual listing of the Industrial and Commercial Bank of China (ICBC) in October in But the current IPO price inquiry system introduced in 2004 remains controversial amid concerns of fraud in the pricing process. The new stock issue regulation was drafted to revise the IPO price inquiry scheme according to actual market conditions and to ensure transparency and fairness during IPO pricing, the CSRC spokesman said. The new rules will allow private funds, including trust projects initiated by trust firms and similar investment funds, to take part in off-line bidding for IPOs. And qualified foreign institutional investors (QFII) will also be able to take part in share placement using various securities investment accounts. (
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