Top securities watchdog strictly limits reverse mergers

China's top securities watchdog on Friday tightened regulations on reverse mergers to curb rampant speculation by shell companies and illegal fundraising.

Listed companies involved in reverse mergers must hold a news conference and accept public supervision before the resumption the share trading, the regulator said.

The regulator will also carry out on-site inspections on all companies that have disclosed their draft plans for a reverse merger.

Reverse mergers, or back-door listings, allow a private company to acquire a public shell company so that it can bypass the usually lengthy and complex process of going public.

"The regulator will impose strict regulations on reverse mergers with the focus on complete information disclosure by public companies," said Zhang Xiaojun, a spokesman for the China Securities Regulatory Commission.

The regulator's statement came after it revised the rules for major asset restructuring by listed companies last month, to better regulate back-door listings and to curb speculation surrounding shell companies.

The regulator is soliciting public opinion on the revised rules. The rules will ban listed companies from raising funds for asset restructuring and prevent those with a record of law and rule violations within the past three years from selling assets.

On Friday, the regulator also reiterated its regulations for listed companies about environmental issues.

Companies that violated rules and regulations on environmental protection over the past 36 months will be banned from selling shares through initial public offerings, Zhang said.

The regulator also stepped up the requirement for information disclosure of public companies in polluting industries.

In the first half of this year, the regulator levied fines totaling 2.55 billion yuan ($383 million) for market wrongdoings, including insider trading, market manipulation, violation of information disclosure rules and fabrication of information.

On Friday, the benchmark Shanghai Composite Index rose 0.1 percent, taking this week's advance to 2.7 percent and erasing losses sparked by the United Kingdom referendum to leave the European Union.

Chinese stocks managed to cap their biggest weekly gain in a month after official manufacturing data matched forecasts and a gauge of China's services activity perked up.

Bloomberg contributed to this story.