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Regulator happy with progress of listing norms

By Bi Xiaoning (China Daily)
Updated: 2009-07-22 08:05

Though the regulators are talking about the success of the new listing norms, marketmen are of the view that there are still some grey areas in the mechanism that need to be addressed.

"By reviewing the several new shares issued after the A share market resumed initial public offerings, we believe that we are approaching the initial targets. Several indicators have shown the improvement brought about by the reforms," a senior official with the China Securities Regulatory Committee (CSRC) said in an internal meeting.

The CSRC has set three main targets for the new listing norms viz. giving individual investors more rights to subscribe new shares, freeing up capital for subscription and shrinking the price gap between primary market and secondary market.

So far, three companies have finished new shares issuance. According to China Securities Depository and Clearing Corp, about 98 percent of the new shares for on-line subscription have been allotted to individual investors, three times the ratio before the reforms.

In 2008, for the 71 new shares listed on the small- and medium-sized enterprise (SME) board in Shenzhen, only an average of 29.48 percent of individual subscribers received allotments.

But industry experts feel that some institutional investors are taking advantage of the new allotment system by masquerading as personal investors in their IPO applications.

"Since each account has a limit for subscription, some institutional investors might have used borrowed ID cards to open personal accounts with brokerages.

"Stockbrokers keen on earning commission fees usually turn a blind eye to such irregularities," said Lu Junlong, analyst, China Finance Online.

Special Coverage: Restart of IPO Related readings:  IPOs back after long suspension  IPO norms favor small investors  IPO activity to pick up in second half of the year  IPO rules buoy State companies  China's first two IPOs in 10 months double on debut

The CSRC said the fairness of the new system to individual investors is visible in the increased ratio of allocation to on-line subscription.

The ratio of allocation in the IPOs of Guilin Sanjin Pharmaceutical, Zhejiang Wanma Cable and Hunan-based retailer Your-Mart was about 0.17 percent, 0.13 percent and 0.25 percent, respectively. In contrast, the average ratio of allocation to on-line subscription was about 0.08 percent for the 71 companies listed on the SME board in 2008.

"The ratio of allocation to subscription is just around 0.1 percent, which was similar to the lottery system in the past," said Zhu Hongbin, an investor with over 10-years experience in the market. "Instead of hoping to receive an allotment, which is like winning the lottery, I would rather concentrate on buying the shares on the first day of trading and resell them when they go up in the following days," he said.

Not every investor shares Zhu's strategy.

"Considering the wide price gap between the primary market and secondary market, we are lured to borrow loans to subscribe for new shares. As long as the seven-day repurchase rate stays below 3 to 4 percent, we can make profits," a Shanghai-based fund manger said, who refused to be named.

The investors' feverish penchant for newly listed stocks saw Zhejiang Wanma and Guilin Sanjin soar 125 percent and 80 percent respectively on the first trading day.

"I believe that we are on track to reform the listing mechanism. To be sure, there is still a long way to go and we should continue to make efforts for that," said Li Daxiao, director of research at Yingda Securities.