Potential sign of bull in APAC Market? — a milestone in China’s capital market

On 1 February, the China Securities Regulatory Commission (CSRC) launched a public consultation on the draft rules of the main system involved in the full implementation of the registration system for the issuance of shares, including the Administrative Measures for the Registration of Initial Public Offering of Shares.

This marks that, after four years of piloting, the registration system for stock issuance will be officially rolled out across the whole market, initialising a capital market reform that will deepen over time. At the same time, this also open up a broader space of development in the Chinese stock market.

How is the registration-based system different from the approval-based system??

Before this reform, mainland Chinese enterprises needed CSRC's?approval?to list on stock exchanges. CSRC receives and reviews IPO applications through this mechanism. Pre-filing evaluations, CSRC document filing, CSRC inspections and audits, and more are involved. This process may take months or years. The CSRC fixed share values and approved corporate listings.

The registration-based system will use the company's application to assess if it fits stock issue criteria and information disclosure obligations under the registration-based system.?Each stock exchange board has varied listing criteria and profit limitations, reflecting the market.?IPOs will be completed faster, while the market will value the firm, not the CSRC.

The CSRC said that compared with the approval system, the reform of the registration system not only involves the change of audit subjects, but more importantly, fully implements the concept of information disclosure as the core, and the whole process of issuing and listing is more standardized, transparent and predictable.

Gains

As Beijing works to restore a COVID-ravaged economy, it will accelerate up listings and corporate funding if it expands the IPO procedure in the way of the United States to all areas of China's stock market. ?The extension of the system will be most significant for huge blue-chip businesses that are qualified to list on the main boards, when before they had to go via the approval-based system. These companies will now be able to take use of the expanded system.

Potential opportunities and risks

The new regulation will also be beneficial to investment banks and private equity firms; nevertheless, some people are concerned that an influx of listings may drain the liquidity of the market.