Mainland China lawyers have called for a fundamental overhaul of the country’s primary market pricing mechanisms.
As part of a regulatory push for tighter controls on initial public offering (IPO) prices in China’s primary and secondary markets, the Shanghai and Shenzhen Stock Exchanges last week imposed new supervision rules to prevent speculation on newly-listed stocks.
The move aims to protect smaller investors. It will enable the bourses to impose a 30-minute trading halt on any newly-listed company’s shares that rise or fall over 10% from their opening price on their first day of trading, up from a previous tolerance level of 20%.
FenXun Partners’ Xusheng Yang told
IFLR the new rules would solve part of the problem of IPO price manipulation.
But others said they had been hoping for more far-reaching changes to be introduced.
One Beijing-based in-house counsel at a Chinese bank said the
China Securities Regulatory Commission (CSRC) needed to completely revolutionise primary market pricing mechanisms to successfully correct mistakes and inefficiencies in the process.
“The CSRC needs to give more accountability to underwriters so they will have both responsibilities for carrying out book-building and pricing but also suffer the consequences of any mistakes made during the IPO price discovery process,” he said.
One Shanghai-based law firm partner said China’s securities law did not clearly detail the steps sponsors needed to take during the price discovery process in primary markets. “The CSRC needs to formulate much clearer rules to properly eradicate pricing manipulation,” he said.
A statement on the Shanghai stock exchange’s website said market obsession with speculative trading distorted the pricing mechanism, damaged the fundamental interests of investors, and aided illegal behavior.
It noted that speculative activity involving new stock offers has been on the rise, with eight new issues since mid-February seeing average gains of 63% on their first trading day in the Shenzhen and Shanghai markets. Such speculation has led to steep falls in prices after the initial day of trading.
The Shenzhen stock exchange called for investors to understand the speculation risk on the first trading day of IPO stock, and to make rational investment decisions.
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