Gradual move toward registration-based system announced
Shares in China's major brokerages saw solid gains on Thursday, following news of a new IPO system that could boost their earning prospects.
Shares in Dongxing Securities closed up 5.07 percent, Everbright Securities rose by 1.89 percent, and CITIC Securities, the country's largest brokerage by assets, saw its shares edge up 0.17 percent on Thursday.
In comparison, the benchmark Shanghai Composite Index closed down 0.49 percent on Thursday.
"A new registration-based IPO system would increase the number of IPOs, which would mean more income for brokerages," Xu Guangfu, a senior analyst at Shanghai Yinji Asset Management Co, told the Global Times Thursday.
The State Council announced late Wednesday that it will seek approval from China's top legislature for a registration-based system for IPOs, and the two main bourses in Shanghai and Shenzhen will have up to two years to adopt the new system.
Under the current approval-based IPO system, companies need to go through several rounds of reviews before their IPO can be approved by the China Securities Regulatory Commission (CSRC), a process that often takes a very long time.
A registration-based IPO system would be much more efficient as firms would only need to be qualified to register with the authorities before their listing. Under this more streamlined process, compliance with information disclosure is crucial, experts said, which will be good news for investors.
Media reports on Thursday said that the plan may be approved by the top legislature as early as later this month.
"The new IPO system may be adopted much earlier than the planned schedule of two years," Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology, told the Global Times Thursday.
'A gradual process'
In a statement on Wednesday, the CSRC said that the registration-based system will be more "market-oriented."
Under the new system, the securities regulator will no longer "endorse" the business prospects of companies that are seeking IPOs. Instead it will focus more on supervision of companies' information disclosure.
The number of new IPOs is relatively small under the current system, as the CSRC controls the pace and schedule of the offerings.
New shares are always over-subscribed at present and they often surge by the 44 percent limit for their first day of trading.
This situation will change when there are more IPOs, analysts said.
However, the CSRC noted in the statement that reform of the current IPO system will be a "gradual process," and will not lead to a drastic increase in IPOs.
"It is important to strike a balance between supply and demand under the new IPO system," Li Daxiao, chief economist at Yingda Securities, told the Global Times on Thursday.
Li noted that the IPO reform will not cause major fluctuations in the mainland capital market.
Under the new IPO system, investors will have more responsibility in judging the investment outlook of companies as the CSRC will no longer "endorse" their IPOs. This has prompted some analysts to predict that the current high proportion of retail investors in the market may be reduced under the new IPO system.
"Retail investors may choose to invest in the stock market by buying into funds or wealth-management products from institutional investors in the future, instead of investing directly," Dong said.
Retail investors in China make up around 85 percent of the market, while in developed markets like the US, institutional investors account for over 90 percent of the market, according to media reports.
But Xu from Shanghai Yinji said it will still take a long time before China's capital market becomes dominated by institutional investors.