Chinese Regulatory Authorities Unveil New IPO Rules

June 7
12:48 PM 2013

Last Friday, the Chinese government had published new draft rules designed to improve the transparency and pricing structure of initial public offers in its domestic stock markets. With the unveiling of the new rules, the expectation that the market would resume its growth pattern with new listings and approvals after a seven month lull.

Chinese regulatory authorities decided to suspend all new IPOs in its domestic market in order to crackdown on fraud allegations and actions found in the recent IPOs conducted. This caused a 15% decline in the number of applications as well as having 140 companies deciding not to push through with their IPO plans due to poor accounting practices or a decline in actual and projected profits.

The new rules are now being opened for public comment, requires issuers to have valid quotes from at least fifty institutional and fifty individual investors in order to set the price for its IPOs that have a volume of more than 400 million shares. The rules are stated in the website of the China Securities Regulatory Commission.

This new rule would give lead underwriters the power to reserve a certain volume of new shares in order to choose investors. This would benefit brokerages with solid institutional client lists. 

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