New IPO review process aims to curb corruption, but timing issue still uncertain

By Wang Wei Source:Global Times Published: 2015-11-30 23:48:02

This weekend, the Internet was flooded with news about the time period for new IPOs from the vetting process to the issuance, which was widely reported to be 75 days. However, this is misleading.

The China Securities Regulatory Commission (CSRC) announced guidelines Friday for regulation of the vetting and issuing of IPOs in an effort to curb the risk of corruption. It specified three time periods: a 45-day time limit between the CSRC taking an IPO application and the feedback meeting; a 20-day limit between the IPO sponsor responding to the authorities' feedback and the preliminary IPO review meeting; and a 10-day limit between the IPO launching company being notified of a meeting of the IPO review committee and the meeting actually happening.

Some media reports jumped to conclusions by adding these three time periods together. But a report by Shenwan Hongyuan Securities cleared up the misunderstanding. First, the 20-day limit only refers to the waiting period after an IPO issuer finishes responding to feedback from the CSRC and hands in their feedback materials. There might be more rounds in the feedback process between the IPO issuer and the CSRC, and the whole feedback process normally takes three and a half months.

Second, apart from the time periods mentioned by the CSRC, other regulatory periods are not specified, such as the period from the preliminary IPO review meeting to the issuance of the notification of a meeting of the IPO review committee.

Even though the vetting and issuing process for IPOs is not as swift as had been widely anticipated, the guidelines demonstrate that the regulatory authorities are trying to put an end to corruption and to the use of public power for private benefits.

It follows the investigation into the CSRC's former vice chairman Yao Gang, who was responsible for the CSRC's issuance department for over 10 years and is the most senior financial regulatory official to be involved in a corruption probe.

As China's capital market is accelerating the pace of its opening up to the outside world, the relevant regulatory mechanisms including IPO approvals must become more market-oriented.

The CSRC should let the market play a greater role in deciding which companies should get listed and how much their shares are worth, rather than leaving the final say in such matters to the issuance authority, which could potentially use insider information to seek profits.

To develop a more sophisticated capital market, the CSRC's issuance department should protect investors' interests by supervising IPOs and requiring listed companies to fully disclose relevant information to investors, as this is vital for making accurate investment decisions.

The guidelines set a good example for the CSRC to reform itself from the inside in order to reduce administrative procedures and avoid rent seeking and corruption. It's an important step, but more needs to be done to build a mature capital market, such as pushing for a registration-based system for IPOs.

The author is a reporter with the Global Times.

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