SSE Answers Reporters' Questions on the Release of Supporting Business Rules for Further Deepening Reform of the SSE STAR Market (Draft for Comments)
Today, China Securities Regulatory Commission (hereinafter referred to as CSRC) released the Opinions on Adding a Science and Technology Innovation Growth Tier to the SSE STAR Market to Enhance Institutional Inclusiveness and Adaptability (non-official translation, hereinafter referred to as the "SSE STAR Market Opinions"). As a follow-up, Shanghai Stock Exchange (hereinafter referred to as SSE) released two draft sets of supporting business rules for collecting public feedback. The relevant person in charge of SSE answered reporters' questions on the formulation of business rules.
1. Please introduce the background of formulating the business rules.
Answer: Since the establishment of the SSE STAR Market in 2018, the SSE has implemented the decisions and plans of the CPC Central Committee and the State Council with keen attention. Under the leadership of the CSRC, the SSE has upheld the positioning of the SSE STAR Market and deepened the reform and innovation of various systems and mechanisms. The SSE strives to play a supporting role in improving scientific and technological innovation capabilities and the competitiveness of the real economy, making the "hard technology" feature of the STAR Market more prominent. In 2024, the CSRC issued the Eight Measures on Deepening the STAR Market Reform and Serving Scientific and Technological Innovation and the Development of New Quality Productive Forces, which requests reforms in various aspects covering issuance and underwriting, M&A, equity incentives, and transactions. It has enhanced the comprehensive ability of the SSE STAR Market to serve technological innovation and the development of new quality productive forces. The SSE STAR Market Opinions issued by the CSRC today is an important measure to actively adapt to changes in internal and external environments and the needs of scientific and technological innovation and development, and to further deepen the reform of the SSE STAR Market. The reform measures it introduces, such as "adding a science and technology innovation growth tier to the SSE STAR Market", will effectively enhance the adaptability and inclusiveness of the SSE STAR Market to technological innovation. The SSE has carefully studied the principles of the reform and stepped up the formulation of supporting business rules in accordance with the clear requirements set forth in the SSE STAR Market Opinions.
This time, two newly formulated business rules are released for public comments, namely the Guidelines No. 5 of SSE STAR Market for Self-Regulation of Listed Companies—Science and Technology Innovation Growth Tier and the Guide No. 7 on the Application of Issuance and Listing Review Rules—Pre-review. In addition, the SSE is revising other relevant business rules which will be released to the market later.
2. Adding a science and technology innovation growth tier to the SSE STAR Market is the key task of this reform. What arrangements have been made in relevant business rules?
Answer: Paying more attention to the technological innovation capabilities of enterprises, and allowing enterprises that align with the positioning of the SSE STAR Market, have not yet made a profit or have accumulated unrecovered losses to be listed on the SSE STAR Market, are one of the landmark reforms when founding the SSE STAR Market and piloting the registration-based IPO system. In the past six years, 54 unprofitable companies have been successfully listed on the SSE STAR Market and have leveraged the reform to continuously make technology breakthroughs, expand production capacity, and accumulate development momentum. In 2024, these 54 enterprises achieved a total operating revenue of 174.479 billion yuan, with 26 exceeding 1 billion yuan. It is noteworthy that 22 of the 54 companies have achieved profitability during the six years of being listed. They have successfully removed the "unprofitable" mark from their code. Over the past six years, these 54 companies have invested a total of 163.925 billion yuan in research and development based on funds raised from the capital market. 19 of the 20 biopharmaceutical companies listed according to the fifth set of listing standards have delivered core products to the market.
On the other hand, the scientific and technological innovation activities of enterprises are characterized by long R&D cycles, large continuous investments, and strong uncertainties. The risk of investing in stocks of technology-based enterprises, especially those unprofitable ones, is higher than that of general enterprises. In order to further promote the balanced development of investment and financing, the SSE moved to implement the requirements of the SSE STAR Market Opinions by adding a science and technology innovation growth tier to the SSE STAR Market and establishing a supporting mechanism for continuous supervision. While meeting the reasonable needs of science and technology enterprises for issuance and listing, the reform will impose stricter and targeted risk warnings and strengthen protection of investors' legitimate rights and interests.
The science and technology innovation growth tier mainly serves technology-based enterprises that have made major breakthroughs in key service technologies, with broad business prospects, large continuous R&D investment yet still unprofitable. The existing and newly listed unprofitable enterprises will all be included in the growth tier. The Guidelines No. 5 of SSE STAR Market for Self-Regulation of Listed Companies—Science and Technology Innovation Growth Tier intends to establish supporting mechanisms mainly from three aspects:
The first is to clarify the implementation standards and procedures. The rules stipulate the criteria for companies to be moved into and out of the growth tier, clarify the procedures for tier changes, and apply the criteria for moving out of the new tier to newly listed enterprises only, so as to avoid disruptions to existing listed companies.
The second is to strengthen risk warning. The stocks or depositary receipts of enterprises on the growth tier are subject to special identification management. A "U" mark will be added after their corporate code. Investors trading newly registered growth tier companies will be required to sign a special risk warning statement, but this doesn’t apply to existing unprofitable companies.
The third is to improve the quality of information disclosure. Companies on the growth tier are required to disclose their state of unprofitability and related risks in regular reports and interim reports, and maintain sound verification in case of abnormal stock fluctuations. Intermediaries must fully discharge their duties and fulfill their ongoing oversight responsibilities in accordance with regulations and make comments on matters related to corporate research and development, earnings improvement, and so on.
It should be emphasized that in the process of building the growth tier, the SSE will firmly adhere to the "hard technology" positioning of the SSE STAR Market and the positioning of the growth tier, maintain a dynamic balance between investment and financing, keep scrutiny at entrance to the public market, steadily and orderly promote the listing of unprofitable technology-based enterprises, so as to support the development of these high-quality enterprises in a highly efficient and precise manner.
3. Please introduce the background of setting up a pre-review stage for applications of stock issuance and listing.
Answer: Since the establishment of the SSE STAR Market and the pilot of the registration-based IPO system, the SSE has actively practiced "open-door review" and welcomed business consultation and communication during the review process. Issuers and intermediaries, if not sure about how to interpret or apply relevant rules when facing major, difficult or unprecedented matters and other issues, can consult with the SSE in accordance with procedures before submitting formal application.
At the same time, to address the reasonable concern of technology-based enterprises over the confidentiality of sensitive information during the issuance and listing process, the SSE has set up exemptions from information disclosure. If the information that the issuer is requested to disclose is a state secret or a commercial secret, whose divulgence may violate national laws and regulations on confidentiality or seriously damage the interests of the company after disclosure, such information can be exempted from disclosure in accordance with relevant regulations.
In recent years, many technology-based companies suggested the SSE further improving issuance and listing review, so that enterprises could better manage sensitive information like business technology and listing plans before filing formal application, reducing the time of being “exposed” to the public during the issuance and listing stage, and thus the adverse impact on their production and operation. In accordance with the requirements of the SSE STAR Market Opinions, taking into account market comments and suggestions, the SSE will deepen the "open-door review" and start the market service earlier on by establishing a pre-review stage for stock issuance and listing applications. The newly formulated Guide No. 7 on the Application of Issuance and Listing Review Rules—Pre-review has made arrangements in this regard:
The first is to clarify the scope of application. In case a significant adverse impact may occur on the production and operation of the enterprise due to the premature disclosure of business technical information and listing plans, the issuer can apply to the SSE for a pre-review of its issuance and listing application if necessary.
The second is to determine the review process. In a pre-reivew, the issuer submits application documents as they would do for a formal application, and the SSE reviews the documents and provides review opinions to the issuer and the sponsor in line with formal review procedures. As a service offered by the SSE to help check application documents in accordance with the review requirements before the issuer formally submits an application, pre-review is not a necessary step for all applicants, and does not replace the review after the formal application. The SSE's pre-review opinion does not constitute an advance confirmation of whether the issuer meets the board positioning, issuance and listing conditions and information disclosure requirements.
The third is to clarify the connection between pre-review and formal review procedures. The issuer can take into account the pre-review opinions from the SSE to decide whether to file the formal application. It should be emphasized that whether a pre-review is carried out or not, once the formal application is submitted, the SSE will strictly follow the existing rules, procedures and timeline to do the review, and will not lower the review criteria for issuance and listing.
The fourth is to strengthen information disclosure. During the pre-review stage, relevant application documents, pre-review process and results will not be made public; after formally applying for an IPO, the issuer must fulfill all information disclosure obligations in accordance with laws and regulations, and also disclose all inquiries and responses during the pre-review stage to the public and accept market supervision.
The fifth is to strengthen supervision and management. Issuers and relevant intermediaries shall ensure the authenticity, accuracy and completeness of the documents provided and promise to accept the self-regulatory supervision of the SSE. In case of violation, the SSE may terminate the pre-review process and take disciplinary measures or sanctions.
4. Senior professional institutional investor system is a relatively established system in overseas markets. The system is clearly required in the SSE STAR Market Opinions. How will SSE implement it?
Answer: The market-centered approach is uniquely good at identifying and screening high-quality technology-based enterprises. Senior professional institutional investors are important participants in the capital market. They often have rich investment experience and professional judgment on the scientific and technological innovation attributes and future development potential of enterprises.The SSE is studying and formulating relevant business rules and will publish and implement them in due course in order to implement the requirements put forward in the SSE STAR Market Opinions, establish and improve the institutional mechanism for accurately identifying high-quality technology-based enterprises, help investors better assess the scientific and technological attributes and business prospects of enterprises by referring to the research, professional judgment and hard cash investment of professional institutions on cutting-edge technologies, and guide financial capital to make early-stage, small-scale, long-term, and core technology investments. The basic idea is: First, clarify the applicable requirements. Issuers who apply for issuance and listing in accordance with the fifth set of listing standards of the SSE STAR Market are encouraged to voluntarily identify and disclose information of senior professional institutional investors. Requirements are put forward for senior professional institutional investors in terms of investment experience, compliance operation, independence and other aspects. Second, standardize the use of the system. The information of senior professional institutional investors disclosed by the issuer will be used as a reference factor in the SSE review to determine whether the issuer meets the market recognition and growth requirements, but it is not a must-have for issuance and listing. The issuer can still apply for listing on the SSE STAR Market in accordance with the fifth set of listing standards without identifying any senior professional institutional investors. Third, strengthen self-discipline and supervision. The SSE will take multiple measures to implement the requirements of the SSE STAR Market Opinions on strengthening supervision and establishing a "blacklist" system by clarifying compliance requirements, strengthening information disclosure, consolidating intermediary verification responsibilities, and strengthening violation supervision.
5. What are the next steps for SSE?
Answer: During the period of soliciting public comments, the SSE will actively collect suggestions across the board and from various sources, and further revise relevant rules based on market feedback. In the next step, the SSE will issue and implement relevant business rules as soon as possible in accordance with the unified oversight of the CSRC, promote the implementation of relevant reform measures, and continuously improve the SSE STAR Market's capacity to serve technological innovation.