Key issues involved in the IPO reforms

What's the point of pushing forward the registration-based IPO reforms?

Experts say that the new system will help China's equity market become more liberalized, market-driven, and balanced in terms of supply and demand. The existing approval-based IPO system was seen as limiting the supply of new shares, which are often in great demand, causing an imbalance that leads investors to speculate for short-term return and discourages rational, long-term investment. They say registration-based IPO reforms will balance supply and demand for shares, and optimize capital allocation, helping China's equity market to develop more healthily.

What changes will the registration-based system bring to China's stock market?

According to a draft released on Wednesday, no approvals from CSRC will be needed for listings. Exchanges will examine listing applications from enterprises instead. Profit-making requirements will be lifted, further relaxing conditions for enterprises. As a result, expects say financing will be made easier, and investors will be encouraged to make more value investments.

Why can the registration-based IPO system be launched before any amendment to the Securities Law?

Experts say that according to the law, the State Council can propose to the country's top legislature to authorize the implementation of certain decisions before related laws or amendments are made. Similar procedures were followed when the pilot China (Shanghai) Free Trade Zone was launched.

When the top legislature passes the registration-based IPO system draft proposed by State Council, which is expected by the end of 2015, the State Council will be authorized to adjust the existing IPO system. The authorization is effective for two years, and by that time amendments to the Securities Law will have been completed.

What will happen to existing enterprises on the IPO waiting list?

According to a CSRC circular, enterprises will be able to launch their IPOs in the same order they currently appear on the waiting list. The number of new shares on offer at any time will not flood the market, as new IPOs will be launched gradually.