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China's securities regulator is taking fresh steps to improve the pricing mechanism for initial public offerings. Analysts say it reflects the government's determination to protect the interests of investors.
The China Securities Regulatory Commission launched a broader reform on IPO pricing last June. It reined in the IPO price counseling and bidding mechanism, and also set a bottom price standard for newly listed offerings. Under the new mechanism, online and offline trading are also clearly differentiated.
By the end of June, over 290 listed companies had unveiled their IPOs under the new rules. As the second phase of the reform, the Commission says it will allow more institutions to participate in book-building, and give more incentives to set reasonable prices. It also vows to take measures to make the IPO pricing process more transparent.
Lu Junlong, Analyst of Dongxing Securities said "Through the second round reforms, the public will be entitled to a certain degree of supervision rights, because of the further disclosure of pricing materials. It will also make proper decision-making easier, because it will provide an insightful evaluation on the quality and pricing structure of a newly issued IPO."
As part of the second phase of the reform, the watchdog is also enforcing a restricted net call-back mechanism, in a bid to protect smaller investors.
Lu Junlong said "If the IPO is under subscribed, perhaps it's a sign the value of the company is not good enough to attract investors. So if we still let the callback mechanism run, it actually means investors have to pay for the excessive premiums. That's illogical. But with the new mechanism, this situation will not occur."
The new draft measures are due to be finalized, pending a few changes. The regulator says it's ready to roll out more measures, to make the IPO pricing process more logical and transparent.