SSE Answers Reporter’s Questions on the Release and Implementation of Supporting Business Rules for Further Deepening Reform of the STAR Market

To implement the Opinions on Adding a Science and Technology Innovation Growth Tier to the SSE STAR Market to Enhance Institutional Inclusiveness and Adaptability (hereinafter referred to as the STAR Market Opinions), and to further deepen the reform of the STAR Market, the Shanghai Stock Exchange (hereinafter referred to as SSE) officially released the Guidelines No. 5 of SSE STAR Market for Self-Regulation of Listed Companies - Science and Technology Innovation Growth Tier and other supporting business rules today. Relevant person in charge of the SSE answered reporters’ questions on the development and revision of these business rules.

I.Please introduce the overall situation of the business rules released this time.

Answer: This time, the SSE released a total of three newly formulated business guidelines: the Guidelines No. 5 of SSE STAR Market for Self-Regulation of Listed Companies - Science and Technology Innovation Growth Tier (hereinafter referred to as the Sci-Tech Growth Tier Guidelines), Guidelines No. 7 on the Application of Issuance and Listing Review Rules - Pre-review (hereinafter referred to as the Pre-Review Guidelines), and Guidelines No. 8 on the Application of Issuance and Listing Review Rules - Senior Professional Institutional Investors (hereinafter referred to as the Senior Professional Institutional Investors Guidelines). In addition, the SSE also amended two business guides, namely No. 2 Business Guide of Shanghai Stock Exchange to Member Management - Essential Clauses for Risk Disclosure Statements and No. 6 Business Guide of Shanghai Stock Exchange to Securities Trading- Special Securities Marking.

II. The SSE previously solicited public opinions on the Sci-Tech Growth Tier Guidelines and Pre-Review Guidelines. Please introduce the relevant information.

Answer: From June 18 to June 25, the SSE solicited opinions and suggestions from market participants on these two sets of rules through various channels, including the official website system, email, and roundtable meetings. In addition, the SSE responded to investor inquiries regarding the content of the rules via the SSE hotline.

Overall, market participants gave a positive evaluation of the CSRC’s issuance of the STAR Market Opinions and the SSE’s formulation of supporting business rules. They believed that this further deepening of the STAR Market reform has a clear problem-solving orientation, focusing on addressing the pain points and difficulties faced by technology-based companies in the issuance and listing process. It proactively meets the needs of China’s technological innovation and the growth demands of technology-based enterprises. This effort has further enhanced the STAR Market system’s inclusivity and adaptability in supporting the development of technological innovation and new quality productive forces, helping the capital market to better play its role as a hub and promote the integrated development of technological and industrial innovation. The reform measures are practical and steady, with a focus on promoting a balance between investment and financing. The introduction of a “clear distinction between the old and the new” in certain new systems and mechanisms reflects a steady yet progressive work approach.

During the public opinions soliciting period, the SSE received over 40 suggestions and comments from various market participants. The SSE carefully reviewed each of the suggestions and adopted reasonable ones, including further clarifying the applicable scenarios for the pre-review mechanism and specifying the calculation methods for certain indicators in the criteria for transferring companies out of the Sci-Tech Growth Tier. Regarding feedback on rule interpretations fed back by such market participants, the SSE will intensify its publicity efforts through various channels and provide detailed explanations; for suggestions related to other systems or rules, the SSE will carefully study and consider them when revising relevant rules in the future.

III. Market participants are highly concerned about the establishment of the Sci-Tech Growth Tier on the STAR Market. How will the SSE proceed with this reform in a steady and orderly manner?

Answer: The STAR Market Opinions have outlined the basic requirements for the establishment of the Sci-Tech Growth Tier. The Sci-Tech Growth Tier Guidelines further elaborate on these requirements from the perspective of business rules. After the rules are released and implemented, the SSE will focus on the following four areas to ensure the reform is effectively and promptly realized.

The first is to maintain the positioning of the Sci-Tech Growth Tier. The focus will be on the positioning of the Sci-Tech Growth Tier as clearly defined in the STAR Market Opinions, emphasizing support for high-quality, unprofitable technology-based companies. This reform will focus on properly managing the entry requirements. No additional listing threshold will be set for unprofitable companies entering the Sci-Tech Growth Tier. The 32 existing unprofitable companies will enter the tier from the date of the guidelines’ release. Newly registered unprofitable companies will enter from the date of their listing.

The second is to implement standards of a “clear distinction between the old and the new” for removal from the Sci-Tech Growth Tier. The conditions for removing existing companies from the Sci-Tech Growth Tier remain unchanged, requiring them to achieve profitability for the first time after listing, which helps stabilize expectations for existing companies and investors. In addition, for newly registered unprofitable companies, the removal conditions will be more stringent, encouraging these new companies to accelerate technological research and market expansion. After companies in the Sci-Tech Growth Tier issue a public announcement confirming their removal conditions have been met, the SSE will generally remove them within two trading days. The SSE will intensify its regulatory oversight before and after removal, strengthening daily supervision of listed companies and coordinating abnormal trading monitoring to severely punish illegal activities such as insider trading and market manipulation.

The third is to strengthen risk-oriented information disclosure. The Sci-Tech Growth Tier Guidelines require companies in this tier to fully disclose risks, including risks of unprofitability and technological development risks, in their annual reports and temporary announcements, and also require ongoing supervisory institutions fulfill their duties effectively. The SSE will strictly enforce these rules, urging Sci-Tech Growth Tier companies and their ongoing supervisory institutions to fulfill their duties with integrity and to fulfill their information disclosure obligations in accordance with investors’ value judgments and investment decision-making needs.

The fourth is to enhance investor suitability management. This reform does not introduce new investment thresholds for individual investors to trade stocks in in the Sci-Tech Growth Tier, maintaining the existing requirements of “RMB 500,000 in assets + 2 years of investment experience”. Additionally, in accordance with the STAR Market Opinions, investors must sign a dedicated risk disclosure agreement before investing in newly registered unprofitable technology-based companies in the Sci-Tech Growth Tier.

IV. The pre-review mechanism is an important reform and innovation. How will the SSE strengthen the integration of this mechanism with the current stock issuance and listing review mechanism?

Answer: The pilot pre-review mechanism for high-quality technology-based companies’ IPOs is an important innovation that fully draws on the experience of foreign markets, aimed at further enhancing the SSE’s pre-communication services, as well as the overall quality and efficiency of the stock issuance and listing review process. To ensure the successful implementation of this reform, the SSE has carefully considered market feedback and opinions and will focus on the following four key areas to strengthen the integration of the pre-review mechanism with the current stock issuance and listing review mechanism.

The first is to accurately understand applicable scenarios. The STAR Market Opinions and Pre-Review Guidelines outline the requirements for technology-based companies to apply for pre-review, emphasizing that it is applicable to companies engaged in “key core technology development or other specific circumstances” and where “premature disclosure of business and technical information, or listing plans, may cause significant adverse impacts on their production and operations” and where “it is necessary”. When applying for pre-review, the issuer must fully explain the necessity of the application. The SSE will strictly review the issuer’s application according to the prescribed rules. It should be noted that even after the pre-review mechanism is established, the existing consultation and communication mechanisms for stock issuance and listing reviews will continue to be effective. Issuers who are unsure about whether they are eligible for the pre-review can consult with the SSE before submitting their pre-review application.

The second is to promote the improvement of application document quality. The pre-review process is a service provided by the SSE, where the issuer’s application documents for issuance and listing are reviewed prior to submission, based on the review requirements. To work together and improve the quality of the pre-review process, issuers should, by reference to the Guidelines No. 58 for Public Issuance Securities Information Disclosure Content and Format - Initial Public Offering of Stocks and Listing Application Documents and the Guidelines No. 1 of Shanghai Stock Exchange on Issuance and Listing Review Rules Application - Application Document Acceptance, prepare and submit their pre-review application documents of high quality, ensuring they are truthful, accurate, and complete. It is important to note that before submitting the pre-review application, issuers and sponsors must also follow internal processes as required in the IPO official declaration, including sponsor quality control and internal review meetings, and obtain supervision and acceptance documents from the CSRC’s agency. The financial data provided should be within the validity period specified.

The third is to standardize the pre-review process. The SSE will strictly follow the formal review procedures when conducting the pre-review, providing review feedback to the issuer and sponsor. However, the SSE’s review feedback does not constitute a pre-confirmation of whether the issuer meets the board positioning, issuance, listing conditions, or information disclosure requirements. For technology-based companies that pass the pre-review and formally submit their IPO applications, the SSE will expedite the review process in accordance with the requirements of the STAR Market Opinions.

The fourth is to strengthen information disclosure management. During the pre-review process, related application documents, the pre-review process, and results will not be made public. Upon formal acceptance of the IPO application, the issuer must disclose the inquiry and response documents from the pre-review stage on the SSE website and voluntarily accept market supervision. These documents should be consistent with the prospectus and should be updated to reflect the latest financial reporting base date. If the inquiry and response documents from the pre-review stage involve state secrets, commercial secrets, or other confidential information, the issuer may apply for an exemption from disclosure in accordance with relevant regulations.

V. The STAR Market Opinions require the pilot introduction of the senior professional institutional investors system for companies applying under the fifth set of listing standards for the STAR Market. What specific arrangements has the SSE made in this regard?

Answer: In order to further improve the market-based mechanism for the precise identification of high-quality technology-based companies, the SSE, after strengthening research and fully considering market opinions, has formulated the Senior Professional Institutional Investors Guidelines. After the release of these guidelines, companies applying under the fifth set of STAR Market listing standards will be able to apply them.

The first is to clarify applicable scenarios. For issuers applying for issuance and listing under the fifth set of STAR Market listing standards, the SSE encourages them to autonomously identify and voluntarily disclose information about senior professional institutional investors in accordance with corresponding rules. Intermediary institutions are required to conduct careful verification of the issuer’s identification and disclosure.

The second is to refine the identification standards. In terms of issuer eligibility, this includes private equity funds, government-established funds, chain leader enterprises, and investment institutions established by these enterprises, all of which must have sound governance structures, large asset management scales, and a good record of integrity. In terms of investment experience, relevant investment institutions must have invested in technology-based companies, with at least 5 companies listed on the STAR Market or over 10 companies listed on major domestic and international exchanges in the past 5 years. In terms of shareholding proportion and holding period, relevant investment institutions must have continuously held at least 3% of the issuer’s shares or invested over RMB 500 million for a period of no less than 24 months prior to the IPO application and up to the application date, without sudden stock acquisitions. Furthermore, the guidelines also set requirements regarding the compliance and independence of senior professional institutional investors.

The third is to use as a reference for review. Issuers’ self-identification and disclosure of senior professional institutional investors under the guidelines will only serve as a reference for the SSE’s review to judge whether the issuer meets market recognition and growth potential requirements. It does not imply that the issuer meets the STAR Market’s attributes or listing requirements, nor does it lower review standards or affect the speed of the review process. If an issuer does not identify senior professional institutional investors, it will not affect their eligibility to apply for the fifth set of listing standards on the STAR Market.

The fourth is to consolidate all parties' responsibility. Issuers, senior professional institutional investors, intermediary institutions, and other market participants are prohibited from engaging in activities that harm investors’ rights, such as false statements, shareholding proxy arrangements, improper stock acquisitions, profit transfer, and commercial corruption. The SSE will strengthen regulatory oversight in accordance with laws and regulations, and will strictly combat any illegal or irregular activities during the implementation of this system.

VI. The STAR Market Opinions require investors to sign a dedicated risk disclosure agreement when investing in newly registered unprofitable technology-based companies. How will the SSE ensure the smooth implementation of this requirement?

Answer: To help investors better understand the investment risks associated with the stocks of unprofitable companies, the SSE has revised No. 2 Business Guide of Shanghai Stock Exchange to Member Management - Essential Clauses for Risk Disclosure Statements, adding the Essential Clauses for Risk Disclosure Statements for Stocks of Sci-Tech Growth Tier Companies. This addition outlines, item by item, the specific risks associated with Sci-Tech Growth Tier companies, including unprofitability risk, technology development risk, and corresponding risks related to stock investment, price fluctuations, and more. Securities companies conducting STAR Market brokerage business are required to prepare the Stock Investment Risk Disclosure Statement of Sci-Tech Growth Tier Companies (hereinafter referred to as the Sci-Tech Growth Tier Risk Disclosure Statement) based on these guidelines and ensure that ordinary investors sign it.

When ordinary investors first apply for STAR Market trading permissions, they are required to sign the Sci-Tech Board Stock Investor Risk Disclosure Statement. If they wish to participate in the subscription or trading of newly registered Sci-Tech Growth Tier stocks, they must also sign the Sci-Tech Growth Tier Risk Disclosure Statement. For existing ordinary investors who already have STAR Market trading permissions, they will only be able to participate in the subscription or trading of newly registered Sci-Tech Growth Tier stocks after signing the Sci-Tech Growth Tier Risk Disclosure Statement.

The SSE will actively coordinate with all member units to expedite the preparation of the necessary technical systems and organize the signing of the Sci-Tech Growth Tier Risk Disclosure Statement in an orderly manner.

VII. The Sci-Tech Growth Tier includes both existing and newly registered unprofitable companies. How can investors distinguish between the two types of companies during trading?

Answer: In accordance with the STAR Market Opinions, Sci-Tech Growth Tier stocks will have a special identifier “U” added after their stock abbreviations. To help investors clearly differentiate between existing and newly registered Sci-Tech Growth Tier stocks, the SSE has organized improvements in market terminals and trading terminals. Newly registered Sci-Tech Growth Tier stocks will be tagged with “Cheng” (indicating “newly registered Sci-Tech Growth Tier stocks”), while existing Sci-Tech Growth Tier stocks will be tagged with “Cheng1” (indicating “existing Sci-Tech Growth Tier stocks”).

VIII. What are the next steps for the SSE?

Answer: The SSE will firmly implement the CSRC’s deployment, take principal responsibility for implementing the reforms, and be committed to promoting the effective implementation of the STAR Market Opinions and its supporting business rules. The SSE’s next steps include: First, the SSE will focus on the implementation of newly formulated and revised business rules, strengthening coordination between the rules and other elements of market, business, and technical reforms. It will work to quickly implement landmark cases of significant importance, expanding the demonstration and leading effect of these policies. Second, the SSE will continue to promote and interpret the STAR Market Opinions and the supporting business rules, explaining the reform objectives, the content of the rules, and regulatory requirements. This will help market participants better understand and apply the rules, thus fostering broader market consensus. Third, the SSE will focus on practically improving the quality and efficiency of frontline supervision, strengthening investor protection, and taking effective measures to ensure the smooth operation of the market, prevent and mitigate market risks, and create a favorable market environment for the smooth implementation of the reform.