The China Securities Regulatory Commission (CSRC) has announced significant amendments to the Securities Issuance and Underwriting Management Regulations, aiming to address the specific needs of unprofitable companies seeking to go public. This outreach for public opinion, initiated on January 3, 2025, reflects the CSRC's commitment to enhancing the framework governing securities issuance and underwriting.
The driving force behind these reforms stems from initiatives announced previously on June 19, 2024, which introduced eight measures focused on deepening reforms within the STAR Market (the Sci-Tech Innovation Board). These measures included proposals to raise the lock-up ratio and extend lock-up periods for institutional investors of unprofitable companies, effectively tightening the parameters under which these entities can operate when considering public offerings.
The CSRC's new proposal not only seeks to empower securities exchanges to establish specific requirements for classified allotment but also proposes necessary revisions to related laws, such as company law and interim guidelines for shareholder reductions. This approach aims to streamline the issuance process for companies classified under different tiers of profitability.
According to the CSRC, enhancing the underwriting mechanism also involves guiding the Shanghai Stock Exchange (SSE) to refine its relevant business rules and supervisory systems. This guidance is framed as part of the bigger picture, underpinning the CSRC’s strategic intentions to safeguard market stability and improve accessibility for all public offerings.
One of the focal points of the amendments is the allowance for unprofitable companies to utilize agreed-upon lock-up measures for their securities. This could involve segmenting investors based on varying levels of lock-up ratios or periods and setting minimum thresholds for overall lock-up requirements. By creating tiered limits corresponding to different scales of offerings, the CSRC aims to facilitate smoother entry periods for these businesses.
Another pivotal component of this reform package is the endorsement of diversified funding sources. Public funds, social security funds, pension funds, and approved overseas investors will now be permitted to subscribe to securities across different lock-up tiers. On the other hand, other investors will only have the option to invest based on the minimum lock-up threshold, thereby sharpening the focus on qualified institutional participation.
The CSRC also highlights the necessity for issuers and lead underwriters to disclose detailed arrangements around lock-up periods for various investor categories. By mandatorily reporting the median and weighted averages of remaining quotes from institutional investors, the CSRC endeavors to increase transparency and fairness within the allocation process.
The reforms are timely, aligning with recent legislative changes affecting shareholder rights and responsibilities. By modifying sections of the existing regulations to adequately reflect adjustments made to the Company Law and the interim measures regulating shareholder reductions, the CSRC ensures avenues for accountability and adaptability for companies adjusting to the new economic landscapes.
During this public consultation phase, the SSE is anticipated to engage actively with market participants. A variety of methods will be employed to gather feedback, helping inform decisions on the revisions. The collection and assessment of these opinions will play a pivotal role as the SSE continues refining its rules and ensuring compliance with the overarching goals set forth by the CSRC.
Conclusively, the proposed amendments represent not just regulatory refinement but also a strategic push to bolster the position of unprofitable companies within the securities market. By fostering conditions for innovation and scaling potential for growth, the CSRC hopes this comprehensive regulatory framework will stimulate interest from investors and contribute positively to the broader economy.