Regulator gets tough over backdoor listings

The China Securities Regulatory Commission (CSRC), the country's securities regulator, announced over the weekend toughened rules for backdoor listings.

Requirements for backdoor listings - in which non-listed companies can gain access to market funding by buying a firm that is listed - will be the same as those for IPO approval, according to a statement posted Saturday on the website of the CSRC after a news conference held during the day.

The higher bar set for backdoor listings will help to curb market speculation, as requirements for backdoor listings are currently lower than for IPOs, making them a hotbed for insider trading activities and deferring development of an effective delisting mechanism, said the CSRC statement.

Some companies whose IPO applications were rejected by the CSRC have tried to bypass the IPO approval process by seeking a backdoor listing, causing uncertainty in the stock market, the regulator noted.

The CSRC had said in August 2011 that candidates seeking a backdoor listing should meet requirements near the level of rules for an IPO. The requirement was part of revised management rules announced by the CSRC for major asset reorganization by listed companies.

Meanwhile, achieving backdoor listings by the acquisition of a listed shell company on ChiNext will be banned, said the regulator. ChiNext is supposed to be an exchange for innovative, high-growth companies, a description that does not apply to most of the companies that have floated on the main board through backdoor listings, the CBRC said.

The NASDAQ-style ChiNext currently includes more than 350 fast-growing companies.

The announcement marks a big move by the CSRC, which is also expected to further tighten the conditions for reorganization of assets by companies, Li Daxiao, director of research with Yingda Securities Co, told the Global Times Sunday.

There is unlikely to be any market turbulence in the wake of the move, as the market has been anticipating the adjustment, Li said.

"Instead, a bull market is likely to be on the horizon, as the regulator's toughened rules will help correct inappropriate deviations of market returns from actual market performance," he noted.