Tougher Regulation on the Way
Those involved in illegal capital market activities have reasons to be fearful in 2018 as China’s top securities watchdog takes a tougher stance on market irregularities.
The China Securities Regulatory Commission (CSRC) rejected six of seven initial public offering (IPO) applications on January 23, making it the biggest single day of rejections this year.
“The IPO review will become stricter in 2018, and the requirement for the authenticity of corporate finance and business compliance has been raised to unprecedented levels,” the CSRC said in a statement.
Tighter control over public listings was the latest move following toughened market oversight and severe punishment for illegal trading over the past year to prevent risks and protect investor interests.
Last October, the CSRC set up a new committee in charge of reviewing IPO applications in an effort to curb market irregularities. The committee has the ultimate say in deciding whether a company is qualified to go public in China while also regulating fraud.
China’s review-based IPO approval system has long been criticized by investors for granting too much power to reviewers while suppressing the function of the market. In order to put checks on the powers of reviewers, the CSRC has also set up a committee overseeing IPO applications, refinancing and mergers and acquisitions. The supervision committee will uphold the principle of “no forbidden zones, full coverage, zero tolerance [on irregularities] and life- long accountability,” said CSRC Chairman Liu Shiyu.
Since the beginning of the year, the approval rate of the IPO review committee has been only 44.44 percent, significantly lower than the 81 percent recorded in the first three quarters of 2017. Over the past three years, the rate stood above 90 percent, according to Wind Info, a financial information service provider.
Abnormal financial conditions, an inability to generate sustainable profits and application documents of questionable au- thenticity were among the reasons for the rejections.
Aside from tightening control over public listings, the CSRC has also created severe punishments to deter market violations and ensure that the capital market functions properly.
The CSRC imposed a record 224 administrative penalties in 2017, with the combined total of the fines rising 74.74 percent to a historical high of 7.48 billion yuan ($1.14 billion). The fines were handed out for various infractions, including information disclosure breaches, market manipulation and insider trading, the statement said.
These efforts have already paid off. The stock market in 2017 was much steadier compared with the year before. Only three trading days registered changes beyond 2 percent last year, and the fluctuation ratio of the benchmark Shanghai Composite Index recorded a historical low of 13.98 percent, according to the CSRC.
Zhang Shenfeng, Assistant Chairman of the CSRC, said China would continue to strengthen oversight in the securities market in 2018 to keep it fair, open and impartial.
“The regulator will continue to crack down on violations of securities laws and regulations, including insider trading and market manipulation,” Zhang said.
The CSRC will carry out research and set up an investor compensation fund to better protect investor interests, and will give priority to innovation such as better on-site surveillance and the use of big data to improve efficiency.
“China will work to ensure that the capital market better serves the real economy, and the capital market will not alter its direction of reform toward market-oriented and law-governed development,” Zhang said.