Chinese lawmakers to consider registration-based stock listing reform

BEIJING - Chinese lawmakers will deliberate on a registration-based stock listing, proposed by the State Council, China's Cabinet, during the legislative session which began Monday in Beijing.

If approved, the State Council will be able to change the listing system on the Shanghai and Shenzhen bourses from approval-based to registration-based any time within the next two years, easing funding difficulties for companies.

"The new system is more market-oriented than the old one," China Securities Regulatory Commission (CSRC) chairman Xiao Gang told lawmakers on Monday.

The new system means the bourses will take over IPO approval, and clear the backlog of companies on the waiting list. Under the current system, new shares are subject to approval by the CSRC, which controls both the timing and price. The new system will emphasize information disclosure while allowing the market to play a bigger role in determining price, timing, and the scale. Stock market regulators will step up measures against fraud and for violations in information disclosure.

Markets have been anticipating the change for some time now. The switch from approval- to registration-based was a highlight of the CSRC annual conference this year and was listed by the State Council as a major task for 2015. The process was delayed due to the summer's events on the capital market, which wiped nearly 5 trillion U.S. dollars off market value between June and August.

On Nov 10, President Xi Jinping stressed the creation of a stock market with sound financing, regulation and investor protection at a meeting of the Central Leading Group for Financial and Economic Affairs.

In the same month, the CSRC introduced significant changes to IPO, allowing investors to subscribe without paying into escrow accounts in advance. The changes prioritize information disclosure rather than pre-IPO approvals and simplify procedures for smaller IPOs.

Shanghai has reportedly hired IPO review and approval staff in anticipation of the change, but implementation of the new system is expected to be gradual, with the securities watchdog still managing the IPO supply in the early stages. The pace and prices of IPOs will not be fully liberalized right away, and there will be no large increase in the number of IPOs.

The CSRC will continue to handle IPO applications until the reforms are implemented, it said.