Commissioners continue their market reforms

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Last updated at: (Beijing Time) Tuesday, December 30, 2003

Commissioners continue their market reforms

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China's securities watchdog issued a regulation on Sunday to introduce a sponsor system for companies seeking domestic public listings, another major step taken to build up a market-driven system for stock issuance.

The regulation, drafted by the China Securities Regulatory Commission and effective on February 1, says that applicants seeking a public listing must appoint a qualified underwriter to sponsor their listings.

The sponsors then must submit a listing application to the commission and review the truthfulness of the documents, and will shoulder a series of liabilities to ensure standard operation and sufficient information disclosure of the stock issuers during the supervision period.

The regulation also said that securities companies who want to be sponsors should have a comprehensive business licence and be cleared of irregularities over the past two years.

"The adoption of the new system will promote the healthy development of stock markets and see to better quality for the listing companies," a commission spokesman said.

It is also a crucial part of the watchdog's reform on the stock issuance scheme. Last week, the commission just streamlined its listing committee, which reviews and approves the listing applications.

The number of the committee members was reduced from about 80 to 25, but their identification and responsibilities were further clarified, which will increase the transparency of their work and facilitate public supervision.

If the listing committee is to give the final check on the qualifications of the listing applicants, then the sponsor system will help block out the disqualified ones at the very start, said a researcher with the Securities Association of China.

There have been criticisms that some domestic companies had made use of legal and regulatory loopholes and got approvals for stock issues by making up positive corporate results.

"The introduction of the sponsor system will exert more pressure and liabilities on the investment bankers," said Wang Ling, an investment banking manager in Beijing at CITIC Securities Co.

As the sponsor is normally chosen out of the stock underwriters. It will urge the investment banks to pick up the good listing projects at the start, Wang said.

According to the regulation, a sponsor will be suspended from the business for three months if there are major mistakes in the prospectus or if the stock issuer reports losses during the year or fails to give timely information disclosures.

Presently, China still follows the "passage" system for stock issuance and listings, which was initiated in 2001. Under this system,the commission would grant the qualified stock underwriters a number of listing passages, or gateways through which they can help their clients get listed.

The number of passages a securities company can get is based on its size and strength in the investment banking business. The biggest ones can get eight or nine passages, which means they can do so many listing projects at the same time. While smaller ones often get fewer or even no paths to the bourses.

But the distribution of such listing passages is more of an administrative procedure to allocate the resources, experts said.

Compared to the passage system, the sponsor system, which is introduced from mature markets, will put every party in a fair market competitive environment and enhance efficiency.

The commission will come up with more detailed rules soon to facilitate the promotion of the sponsor system, commission sources said.

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