China Securities Journal | With the Comprehensive Registration System Implemented for Half a Year, the A-Share Ecosystem Keeps Improving

Increased Financing Convenience, Enhanced Institutional Strength, and Strengthened Law Enforcement Deterrence

Translated from China Securities Journal

On April 10, 2023, the first batch of 10 new stocks of the main board under the registration system was listed for trading, marking the official implementation of the comprehensive registration system. Today, the comprehensive registration system ushers in its half-year milestone.

In the past six months, 188 new companies have been listed on the A-share market, with a fundraising amount totaling RMB 248.312 billion yuan in their IPOs, indicating increased convenience in financing. The degree of institutionalization of the A-share market has deepened, with the market value of shareholdings of securities institutions, pension funds, and insurance institutions all achieving a quarter-on-quarter positive growth in the second quarter. Additionally, 67 companies have been put under investigation, constantly enhancing the "zero tolerance" law enforcement deterrence.

Looking forward, experts believe that under the expectation of "promoting deep and solid registration system reforms", relevant supporting systems of the registration system will be continuously optimized and improved in practice. Financing channels will become more smooth, and the intensity of in-process and post-event supervision will continue to increase. Reforms on the investment sides and other areas may experience "acceleration", focusing on creating a market environment where market entities "are willing to come and stay".

Increased Inclusiveness for New Stock Issuance

According to Wind data, as of October 9, since the first batch of companies listed under the comprehensive registration reform, 188 new companies have been listed on the A-share market, raising a total of RMB 248.312 billion yuan in their IPOs. Among them, 50 companies on the STAR Market raised RMB 120.74 billion yuan, and 80 companies on the ChiNext raised RMB 83.5 billion yuan, with these two major sectors accounting for over 80% of the total funds raised. In terms of industry sectors, the IPO financing amount of the high-tech sector is on the rise. Information technology, materials, and healthcare industries are leading in terms of funds raised.

"Since the implementation of the comprehensive registration system, the inclusiveness of main board listing has improved, the marketization level of the A-share market and the efficiency of IPO review and issuance have increased, and the multi-tiered capital market system has become clearer," said Thomas Leung, PwC China Markets managing partner.

Benefiting from the increased inclusiveness of new stock issuance under the registration system, nearly 10 unprofitable companies have been newly listed on the STAR Market this year. These companies generally have a good development momentum, and several companies that were unprofitable when they were listed, such as Beijing Deep Glint Technology Co., Ltd., have turned profitable for the first time this year.

The implementation of the registration system does not mean relaxing requirements. Recently, the number and amount of funds raised in IPOs and refinancing have both slowed down compared to last year, and under strict supervision, the number of companies withdrawing IPO applications has increased. Wind data shows that since April 10, a total of 107 prospective IPO companies have withdrawn their applications, higher than the same period last year.

"On the one hand, the China Securities Regulatory Commission (CSRC) adheres to the principle of 'application means responsibility', severely punishes 'rushing through with flaws', and strengthens the supervision and assessment of the exchange's review, constantly urging the exchange to improve the quality of review, and issuers and intermediaries to fulfill their responsibilities. On the other hand, the recent decrease in the number of IPOs is also due to the temporary tightening of the IPO pace," said an investment banker to China Securities Journal.

Deepened Market Institutionalization

With the progressive implementation of comprehensive registration system reform measures, the strength of professional institutional investors, including mutual funds, private equity funds, asset management of securities firms, wealth management of banks, and insurance funds, has been continuously expanding. This has deepened the institutionalization of the A-share market and optimized the investor structure under the registration system.

According to statistics from Huaxi Securities, as of the end of the second quarter, the market value of stocks held by securities institutions, pension funds, and insurance institutions all achieved positive growth compared to the previous quarter. Among professional institutional investors, mutual funds held the highest proportion of tradable stock market value, at 7.82% in the second quarter. In addition, as China's capital market undergoes high-standard institutional opening up, a growing number of foreign institutions are actively purchasing A-share assets.

"Since the implementation of the comprehensive registration system, changes in listing conditions and trading systems, as well as an increase in the number of listed companies and the normalization of delisting, have put higher demands on investors. The wealth management concept of individual investors is gradually changing, promoting a gradual shift in investor structure towards institutionalization and professionalism. With the improvement in institutionalization, market pricing capabilities are expected to further enhance, increasing the attractiveness of A-share assets," said Zhao Xijun, co-director of China Capital Market Research Institute at Renmin University of China.

As the reform of the investment side of the capital market unfolds, the introduction of policies on the "investment side" and the "trading side" is expected to accelerate the entry of long-term funds into the market, further promoting the institutionalization of the A-share market.

According to the China Securities Journal, the CSRC is currently focusing on high-quality development and the construction of a modern capital market system with Chinese characteristics, and has initially formed a policy framework of "1+N+X". The "N" here refers to the formulation and implementation of the "Action Plan for Investment-side Reform of the Capital Market", with a focus on the development of equity funds, improving professional capabilities, promoting industry fee rate reforms, further enhancing the satisfaction of investors, and continuously guiding various long-term funds such as pension funds and insurance funds to increase their market participation. At the same time, comprehensive optimization of the investment ecosystem of the capital market will be carried out to create a market environment where all types of funds "are willing to come and stay", and to introduce more sources of vitality for the capital market to serve the real economy.

Maintaining a "Zero Tolerance" High-pressure Situation

To ensure the market order and ecology building after the implementation of comprehensive registration system reform, the CSRC continues to strengthen its in-process and post-event regulatory efforts, with more effective measures to crack down on various illegal activities in the securities and futures markets.

In the middle end, the CSRC constantly promotes listed companies to improve their quality, implements a new three-year action plan to improve the quality of listed companies, initiates reforms in the independent director system of listed companies, improves the normalized dividend distribution mechanism of listed companies, improves the system for reducing shareholdings by listed companies, and promotes the reform of the delisting system. Through a series of reform measures, the CSRC supervises and guides listed companies to standardize governance, operate with integrity, and increase their quality and strength.

In the back end, the CSRC focuses on its regulatory responsibilities and maintains a "zero tolerance" high-pressure enforcement situation to severely crack down on illegal activities such as fraudulent issuance and financial fraud. It implements a three-dimensional approach of administrative, civil, and criminal accountability, and imposes severe punishments on illegal activities.

Wind data shows that since April 10, 67 companies have been investigated, far exceeding the same period of the last year. Among them, nearly 10 listed companies, such as ST Huatie, Orient Landscape, and *ST Sunsea, received filing notices on July 12 due to suspected violations of information disclosure regulations, sending a strong signal of strengthened law enforcement deterrence.

Market expectations are that combining regulation with delegation is an inherent requirement of the registration system reform and an important guarantee for promoting deep and solid reforms and achieving stable and long-term development. In the future, strict regulation will only be strengthened, not relaxed.