China Released Registration-Based IPO Draft Rules for Mainboard Shanghai & Shenzhen after 4 Years Pilot, Stock Exchanges to Vet IPO Instead of Approval from Central Authority & No Daily Price Trading Limit for Initial 5 Days of Trading
4th February 2023 | Hong Kong
China has released the new Registration-Based IPO draft rules (1/2/23) for Mainboard Shanghai & Shenzhen after 4 years of pilot at China STAR Market in 2019 (and later ChiNExt & Beijing Stock Exchange), with China stock exchanges (Mainboard Shanghai & Shenzhen) to vet IPOs instead of requiring approval from China central authority (China Securities Regulatory Commission, CSRC) and there will also be no daily price trading limit for the initial 5 days of trading. The new China Registration-Based IPO draft rules will speed up IPO (public listings), allowing companies to raise funds faster). The traditional China IPO process requires companies to seek approval (clearance) from China Securities Regulatory Commission (CSRC), which means a longer timeline and a daily price trading limit of 10%. In 2022, Shanghai Stock Exchange (SSE) is the world’s 3rd largest stock exchange behind New York Stock Exchange (NYSE) and NASDAQ with around $6.3 trillion total market capitalisation (listed companies). NYSE total market capitalisation is around $23 trillion and Nasdaq is around $16 trillion. IPO ~ Initial Public Offering
“ China Released Registration-Based IPO Draft Rules for Mainboard Shanghai & Shenzhen after 4 Years Pilot, Stock Exchanges to Vet IPO Instead of Approval from Central Authority & No Daily Price Trading Limit for Initial 5 Days of Trading “
Shanghai Stock Exchange to Expand Stock Connect Program to Major Stock Exchanges, Currently Linked with Hong Kong, London, Zurich & Frankfurt
10th November 2022 – Shanghai Stock Exchange (SSE) will expand the Stock Connect Program to more major stock exchanges, with the current Stock Connect Program already linked with Hong Kong, London, Zurich & Frankfurt stock exchanges. Shanghai Stock Exchange (SSE) is the world’s 3rd largest stock exchange behind New York Stock Exchange (NYSE) and NASDAQ with around $6.3 trillion total market capitalisation (listed companies). NYSE total market capitalisation is around $23 trillion and Nasdaq is around $16 trillion. The announcement was made by Chairman of Shanghai Stock Exchange (SSE) Qiu Yong at the Shanghai Stock Exchange Global Investors Conference 2022. With China Stock Connect Program, global investors are able to invest in China listed securities.
On the afternoon of October 26, 2022, the Shanghai Stock Exchange (SSE) held the 7th Session of the 5th Board. In accordance with the State Council’s decision and the China Securities Regulatory Commission’s nomination of Qiu Yong as the candidate for Chairman of the SSE Board (Vice-Ministerial Level), the meeting fulfilled relevant legal procedures and elected Qiu Yong as the Chairman of the SSE Board.
Shanghai Stock Exchange (SSE)
Shanghai is Mainland China’s first city to see the emergence of stocks, stock trading and stock exchanges. Stock trading started in Shanghai as early as the 1860s. In 1891, the Shanghai Share Brokers Association, an early form of stock exchange, was established in Shanghai. Later in the 1920s, with the founding of the Shanghai Securities Goods Exchange and the Shanghai Chinese Securities Exchange, Shanghai emerged as the financial center of the Far East, where both Chinese and foreign investors could trade stocks, bonds, and futures. In 1946, the Shanghai Chinese Security Exchange was renamed the Shanghai Securities Exchange Co., Ltd. Later in 1949, all securities trading venues were closed down.
Since 1980, China’s securities market has grown in tandem with the reform and opening up of the country and the development of the socialist market economy. In 1981, the offering of treasury bonds was resumed. In 1984, stocks and enterprise bonds were issued in Shanghai and other regions. On November 26, 1990, the Shanghai Stock Exchange (the Exchange) was established, and on December 19 of the same year, it started formal operations.
Under the strong leadership of the CPC Central Committee and the State Council and the direct guidance of the CSRC, along with fervent support from all sectors of society, the Exchange makes it its mission to serve the nation’s reform and development initiatives. In line with the principles of rule by law, regulation, self-discipline and compliance, the Exchange has been committed to creating a transparent, open, reliable and efficient marketplace and fulfilling its frontline role in market organization, oversight and development over the past 20 plus years.
After 31 years of rapid development, the Exchange has grown into a comprehensive, open and service-oriented exchange. With a complete market structure, the Exchange provides products of stocks, bonds, funds and derivatives; has world class trading systems and communications infrastructure which can support the efficient and stable operation of the Shanghai securities market; and has an effective self-regulatory system which can ensure the regulated and orderly operation of the Shanghai securities market. With these advantages, the Shanghai securities market has grown rapidly both in its size and the number of investors, making the Exchange one of the most representative emerging capital markets. According to statistics of the World Federation of Exchanges (WFE), as of the end of 2020, the Exchange ranked 3rd, 4th and 2nd respectively in terms of total market capitalization, total turnover, and capital raised, becoming one of the top exchanges in the world.
SSE STAR Market
On November 5, 2018, Chinese President Xi Jinping delivered a keynote speech at the inaugural China International Import Expo (CIIE), announcing that “[China will] launch a science and technology innovation board (‘SSE STAR Market’) and the pilot registration-based IPO system at the Shanghai Stock Exchange, support Shanghai’s bid to become an international financial center and science and innovation hub, and steadily improve the foundations of the domestic capital market.” All of these initiatives help strengthen the country’s multi-level capital market system, make the capital market more effective at supporting the real economy, and promote Shanghai as a center for international finance and innovation. They have also charted a viable course by which the Exchange can improve market functions, institutional frameworks, and market inclusiveness. By design, the SSE STAR Market operates on a disclosure-driven, registration-based IPO system, and is committed to supporting sci-tech and innovative enterprises that align with national strategies, hold core and breakthrough technologies, and enjoy a high degree of market recognition. Under the leadership of the China Securities Regulatory Commission (CSRC) and with the support of the Shanghai Municipal Government, the Exchange was able to develop the main frameworks, procedures, rules, and guidelines for the SSE STAR Market and the pilot registration-based IPO system in a mere four months. Following the publication of these documents and the necessary preparations, on June 13, 2019, at the opening ceremony of the 11th Lujiazui Forum, the SSE STAR Market made its official debut. And on July 22, 2019, the first group of 25 companies became listed for public trading, which marked the successful completion of the one of the major tasks in the reform of China’s capital market. As of the end 2020, 215 companies have been listed on the SSE STAR Market with a total market cap of 3.3 trillion yuan. The total capital raised by the SSE STAR market amounts to 223.7 billion yuan.
Qualified Foreign Institutional Investor (QFII) Scheme
Qualified Foreign Institutional Investor (QFII) Scheme was introduced in 2002, and was one of the first key efforts to internationalize mainland China’s financial markets. It is a transitional arrangement that allows international institutional investors who meet certain qualification to directly invest in a permitted range of financial products in mainland China’s capital market, in the context of incomplete free flow of capital accounts.
RMB Qualified Foreign Institutional Investor (RQFII) was launched in late 2011, which allows qualified foreign investors in certain pilot countries or regions to directly invest in mainland China’s capital market using offshore RMB.
A major revision took place in September 2020, where the previously separate regimes for QFII and RQFII qualifications and rules are integrated; qualification requirements are relaxed; application documents are streamlined; review cycle is cut short; and a simplified reviewing procedure is applied. The restriction on the number of intermediaries servicing a QFII or RQFII is removed; supervision over the reporting and filing of QFIIs and RQFIIs is improved; and requirements for data submission are reduced.
In general, to invest through the QFII/RQFII scheme, an investor has to apply for a QFII/RQFII license at the China Securities Regulatory Commission (CSRC), and then file or apply for investment quota at the State Administration of Foreign Exchange (SAFE) before starting to invest.
Shanghai-Hong Kong Stock Connect
The Shanghai-Hong Kong Stock Connect was officially launched in 2014. The stock connect established a two-way trading link between the Shanghai Stock Exchange (SSE) and the Stock Exchange of Hong Kong Limited (SEHK), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX). The stock connect allows qualified mainland China investors to access eligible Hong Kong shares (Southbound) as well as Hong Kong and overseas investors to trade eligible A shares (Northbound) subject to a certain amount of daily quota.
- In December 2012, the SSE’s proposal for interconnecting the stock markets of Shanghai and Hong Kong received a positive response from the HKEX.
- Afterwards, with the support of the CSRC, the SFC, relevant ministries and Shanghai Municipal Government and other parties, the SSE and the HKEX conducted program design and discussions on various aspects of Shanghai-Hong Kong Stock Connect in a highly confidential way.
- On April 10, 2014, Premier Li Keqiang officially announced the Shanghai-Hong Kong Stock Connect program at the Boao Forum for Asia.
- In the subsequent six months, the SSE, together with the SEHK, the CSDC and the HKSCC, achieved fruitful results in preparing for implementing the program, completing the preparatory work in rules, protocols, business, technology, market, surveillance and risk control, etc.
- Since its official launch on November 17, 2014, Shanghai-Hong Kong Stock Connect has been in smooth operation and has realized the expected results.
- On August 16, 2016, the aggregate quota of the Shanghai-Hong Kong Stock Connect was lifted.
- On May 1, 2018, the Northbound daily quota was increased from RMB 13 billion to RMB 52 billion, and the Southbound daily quota from RMB 10.5 billion to RMB 42 billion, to better meet the investment needs of mainland and Hong Kong investors.
- On September 26, 2018, the Northbound Investor ID Model was officially launched.
- On October 22, front-end controls for Northbound trading based on the Broker-to-Client Assigned Number (BCAN) went online, which can automatically reject ineligible trading requests, thus enhancing the mechanisms of cross-border regulatory cooperation and providing mainland and Hong Kong investors with a better market environment.
- February 1, 2021，STAR Market-listed shares that are constituent stocks of the SSE 180 Index or the SSE 380 Index, or are the A-shares of A + H companies, were included in the Northbound Eligible Stocks.
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