Q1: Since the official acceptance of the companies’ applications for listing on the Sci-tech Innovation Board, the review for issuance and listing has been advanced steadily and rapidly. Recently, a number of companies have successively disclosed their replies to the first round of inquiries for the issuance and listing review. The market is highly concerned about the number and the fineness degree of the questions raised by SSE. Can you brief us on the relevant situations?
A: At present, the first round of inquiries have been sent to 86 companies and the companies submitting the applications earlier have mostly accepted the inquiries,.We have noticed that after the first round of inquiry letters were disclosed, the market was much concerned about the number and the fineness degree of the questions raised by the SSE. According to statistics, there were an average of 40-plus questions in the first round of inquiries, the contents of the inquiries were comprehensive, in-depth and specific, and the texts of replies to the above inquiries were long. With regard to the causes, the situation was highly related to the facts that the quality of the disclosed prospectuses was unsatisfactory, the “comprehensive physical examination” should be implemented in the first round of inquiries for listing, and the direct relevance to the regulatory arrangements such as increasing the transparency of the SSE’s efforts in review as required by the pilot Registration-based IPO System and tightening the responsibility of the intermediaries for inspection.
Specifically, the number and the fineness degree of the questions raised by the SSE in the inquiries were directly related to the transparency of our work in inquiry for review. Among the questions raised in the first round of inquiries, quite a few touched upon the matters that the issuers were required to “explain”, involving the issuer's historical evolution, share transfer, share ownership changes and other aspects. In the original review practice, these special explanations were only available to the reviewers for review. In the pilot Registration-based IPO System, the issuance and listing review of the SSE is more open and transparent, including further disclosure of the process and contents of the review. The “to be explained” matters submitted by the issuer as required are just an important part of the process and contents of the review. In fact, through the disclosure in the manner of inquiry for review, our review work is more transparent to inform the market subject to market supervision, and as a result, the investors can also keep track of the issuer's relevant situations with the SSE simultaneously.
Regarding the fact that the texts of the issuers’ replies to the inquiries were long, in addition to the requirement to contain the above-mentioned matters to be explained, it was also directly related to the tightened responsibility of the sponsors and other intermediaries for inspection. The sponsors and other intermediaries were required to simultaneously verify the matters that the issuer should explain and the matters that should be added to the prospectus in the process of inquiry for review. They were also required to account for the process, contents and conclusions of the verification in the replies to the questions. In the inquiry reply letter, a relatively independent document, the disclosure of the requirements and implementation of the intermediaries’ verification was a specific measure for tightening the responsibility of the intermediaries in the process of review. In this way, the duty performance and the responsibility of the intermediaries were presented to the market and the public, which could help the market participants to supervise their diligence and duty performance in the process, and conduce to the regulatory agencies’ efforts in investigating and seeking accountability afterwards.
According to the institutional arrangements, in the replies to the inquiries, except the matters that should be further disclosed as clearly required, most of the above-mentioned matters that the issuer should explain to the public and the verification of the intermediaries were not necessarily included in the prospectus. The purpose was to ensure that the prospectus information disclosure should be concise and readable. According to preliminary statistics, in the first round of inquiries, the matters to be “explained” accounted for 10%, matters to be “verified” accounted for 50% and matters to be “disclosed” accounted for 40%. It should be noted that the non-inclusion of the prospectus does not affect the legal binding nature of the issuers’ statements and intermediaries’ verifications as disclosed in the replies to the inquiries. According to the review rules of the SSE, once the contents are made public, the issuers and the intermediaries shall immediately assume the legal responsibility for the authenticity, accuracy and completeness.
Q2: Can you give us an overview of the replies to the first round of inquiries, and brief us on the noteworthy issues?
A: Recently, the review for issuance and listing on the Sci-tech Innovation Board has entered the stage of intensive replies to the first round of inquiries. By May 14, more than 71 companies disclosed their replies to the first round of inquiries. In general, most issuers and intermediaries have attached importance to the questions raised in the inquiries for review, earnestly made preparations and responded in a targeted manner. The intermediaries were able to elaborate on the process and methods of the verification, release the verification conclusions and submit special opinions on matters that needed to be verified. On the other hand, in the process of replying to the inquiries, there were also some noteworthy problems, mainly in the following five aspects.
Firstly, some replies only touched upon the minor issues instead of the important ones. They provided irrelevant answers, or failed to respond to the key points of the questions raised, and even missed some questions. Secondly, some replies deliberately avoided shortcomings and exaggerated the facts. The basis and reasons for the replies were insufficient, and there are questions about objectivity and accuracy. Thirdly, some of the replies were lengthy and sloppy. Some key contents were submerged instead of being highlighted. Fourthly, the revised prospectuses were mostly characterized by addition instead of subtraction without making necessary deletions or simplifications. Some replies to the inquiries which only require the issuer to explain or the intermediaries to verify were even added to the prospectus indiscriminately. Fifthly, some of the replies failed to meet the requirements, since the added contents to the prospectus were not highlighted. Some sponsors arbitrarily modified the important financial data in the disclosed prospectus, and even a small number of sponsors even violated the practice standards to change the questions raised by us.
Regarding the above-mentioned problems, it is hoped that the issuance applicants and intermediaries can attach great importance to these problems, take concrete measures to avoid violations, and work with the regulators to lay a solid foundation for the implementation of the review of the Registration-based IPO System focusing on information disclosure. The SSE will also continue to pay close attention to how to rectify and deal with the problems in the follow-up review. For a small number of improper acts such as arbitrarily modifying the questions in the inquiry, we have requested explanation and correction through face-to-face discussions, second-time inquiries and other means. Subsequently, based on the further verification of the circumstances, the SSE will take strict self-regulatory measures accordingly.
Q3: After completion of the replies to the first round of inquiries, the second round of inquiries and replies have been launched. Can you brief us on the characteristics of the second round of inquiries?
A: The replies to the first round of inquiries are being disclosed intensively, which will soon enter the peak period. The SSE’s listing review center for the Sci-tech Innovation Board will continue to overcome the difficulties of pressing time and heavy tasks, always put the review quality first, and vigorously and steadily push forward the second round of inquiries in accordance with relevant rules and procedures. The relevant departments of the China Securities Regulatory Commission (CSRC) are also dynamically keeping track of and paying attention to the replies to the first round of inquiries in the review, and guiding our listing review center for the Sci-tech Innovation Board in making effective efforts in review. At present, the second round of inquiries have been sent to a total of 29 companies, one of which has made replies, and the questions and replies in the second round of inquiries have been publicly disclosed on the official website of the SSE.
The open inquiry-based review is an important mechanism for the issuance and listing review for the Sci-tech Innovation Board, and the purpose is to “uncover a real company with inquiries” and facilitate the market participants’ investment judgments on the quality and value of a company based on the full disclosure of information. The first, second and even more rounds of inquiries are interconnected and advanced step by step, and provide an important basis for the follow-up examinations and judgments made by the review bodies and the listing committee. The multiple rounds of inquiries are a process in which on the basis of the comprehensive inquiries, the key and focus issues are constantly highlighted, the issuers and the intermediaries are continuously urged to ensure authenticity, accuracy and completeness of information disclosure, the fraudulent issuance is deterred, and the regulation is implemented to facilitate the investors’ decision-making for investment based on sufficient information.
According to the “Rules for Review of Stock Issuance and Listing on the Scientific and Technology Innovation Board” issued by the Shanghai Stock Exchange (SSE), after the first round of inquiries for review, if there are new matters requiring inquiry, or the replies of the issuers and their sponsors and securities service agencies fail to answer the questions raised by the SSE’s issuance and listing review body in a targeted manner, or the information disclosure of the issuer still fails to meet the rules and requirements of the CSRC and the SSE, the SSE may, within 10 working days after receiving the replies to the first round of inquiries from the issuer, continue to send a second round of inquiries for review. The current situation shows that after the first round of inquiries, the applying companies and relevant intermediaries will generally accept the second round of inquiries.
On the basis of the first round of inquiries and replies, the second round of inquiries will give more attention to the major issues, focus more on the key matters, and attach more importance to revealing risks. With the difference in the question-raising methods from the first round of inquiries, the second round of inquiries will be more streamlined, to the point and integrated. The second round of inquiries that have been disclosed include 14 questions, significantly fewer than those in the first round of inquiries. The contents of the second round of inquiries are mainly about the questions in the first round of replies such as the issuer’s nature of sci-tech innovation and technical advancement, whether the issuer meets the requirements for issuance and listing, whether the issuer has clearly explained the major issues such as the legal compliance and the financial authenticity in information disclosure, and the special risks in the growth and development of a sci-tech innovation company, and whether the relevant information disclosure meets the requirements for adequacy, consistency and comprehensibility. If the replies are still unsatisfactory, further questions will be raised to get to the root of the matters, the issuer will be required to make further explanations and adequate disclosure, and the intermediaries will be requested to make further verifications.
According to the “Rules for Review of Stock Issuance and Listing on the Sci-tech Innovation Board”, the inquiries for review may be carried out in multiple rounds. After the second round of inquiries, if the SSE considers it necessary to continue the inquiries, more rounds of inquiries will be conducted within the prescribed time limit; if it is not necessary to continue to inquire, according to the rules and procedures, the follow-up processes will be implemented, such as holding the review meeting to form the preliminary review opinions, deliberations of the listing committee and the registration with the CSRC. In addition, the first round of inquiries for other companies with the applications accepted is progressing in a normal and orderly manner according to the prescribed time and procedures.