ChiNext switches to new IPO rules as reforms gather speed

China took a further step to deepen capital market reforms on Monday by starting the registration-based initial public offering mechanism on the ChiNext board of the Shenzhen Stock Exchange.

As part of the reforms, the Shenzhen bourse will start accepting IPO, refinancing and restructuring applications from Monday itself after the China Securities Regulatory Commission decided to implement the registration-based IPO mechanism on ChiNext and announced a set of supporting regulations on Friday night.

Under the new mechanism, the Shenzhen Stock Exchange will be in charge of the IPO revision, which will take no more than two months. The registration period with the CSRC will be a maximum 15 working days.

Meanwhile, the daily price fluctuation limit of the ChiNext listed companies has been fixed at 20 percent, while the limit is 10 percent on the main board of the A-share market. Technology companies currently reporting losses are eligible to be listed on ChiNext. A negative list for the traditional industries has been introduced, under which companies from the listed traditional industries cannot go public on ChiNext unless they are exploring new technologies or business models, according to the CSRC.

The ChiNext index gained 0.58 percent to close at 2219.55 points on Monday, while the benchmark Shanghai Composite Index shed 1.02 percent to close at 2890.03 points. The ChiNext Index has spiked more than 21.5 percent since the beginning of this year.

The registration-based IPO system was first tried on the Shanghai bourse's STAR Market nine months ago. During the 13th meeting of the Central Commission for Comprehensively Deepening Reform held on April 27, which was presided by Xi Jinping, general secretary of the Communist Party of China Central Committee, a plan was passed to advance reforms on the ChiNext market.

The registration-based public offering system and the ongoing reform of ChiNext are crucial arrangements for deepening capital market reforms, optimizing the capital market's basic system, and improving capital market functions, said the plan.

It took only 48 days for the registration-based IPO mechanism to be implemented on ChiNext since the decision was announced.

According to Yang Delong, executive general manager of Shenzhen-based First Seafront Fund, the registration-based IPO system has been introduced at a time when the economy is still facing the effects of the COVID-19 epidemic. Small to mid-cap companies will thus be traded more actively. Securities companies and venture capital firms will benefit from the move, he said.

"We can expect more quality technology companies to make their debut in the capital market. In this sense, the capital market can better serve the real economy. In the long run, the new policies introduced at ChiNext will help facilitate the country's economic restructuring," he said.

Tu Guangshao, former president of China Investment Corp, said in an interview on Friday that the registration-based IPO system, which is promoted on ChiNext, is likely to be adopted on the A-share market's main board in the future. But the promotion should be carried out positively and prudently, he said.

"Capital market functions will be impaired without the registration-based IPO mechanism and hence would not be able to serve technology startups with high efficiency. Therefore, efforts should be made to push forward this very basic mechanism of the capital market. But at the same time, progress should be made with no haste, allowing the capital market to mature and accept the wider adoption of the mechanism as well as the completion of related policies," he said.