China will switch to a "registration system" for initial public offerings (IPO), ending the current approval process, the official China Securities Journal reported, a day after parliament began reviewing draft changes to the Securities Law.
A registration system - used in mature markets such as the United States, where the market decides who gets to list, when, and for how much - will obviate the China Securities Regulatory Commission's (CSRC) role as the approval agency, industry sources say, and leave companies to register with stock exchanges to float shares.
"The promulgation of the share issue registration system will focus on information disclosure and thus enable market participants themselves to judge the issuers' quality of assets and investment value," the newspaper quoted Wu Xiaoling, a lawmaker at the National People's Congress (NPC), China's parliament, as saying.
"It will move toward allowing the market to play a decisive role in asset allocation."
Investors hope the changes will address multiple problems, notably the possibilities for corruption in a system that requires official sign-off, share price spikes on launch days, and companies queuing for years to list.
Chinese regulators have historically closely managed the pace of IPO issuances, given their tendency to drag down the market if they come too close together, draining net liquidity.
As a result, the CSRC has often seen fit to freeze IPOs during market slides; in late 2012 it froze IPOs for over a year. Now that markets are rallying strongly, however, there is more liquidity available in the market than new issuers and secondary issuers can tap.
FOREIGN FIRMS
The draft also stipulated requirements for share issuance by foreign companies in China, the newspaper said, without going into details. The move would be a step toward creating an "international board," which China has said it would launch eventually.
Other proposed changes included allowing professionals in the securities industry to trade stocks themselves for the first time, the report said.
Requirements for companies to show profit and earnings sustainability would be dropped, but corporate executives would need clean criminal records for the previous three years, and companies' financial reports should not have been rejected by qualified accounting firms during that time, the newspaper said.
The amendments will also add provisions enforcing compulsory corporate cash dividend distribution as part of official efforts to protect the interest of ordinary investors, it said.
