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China to tweak IPO system to curb market swings

The advance payment requirement under the current IPO regime heightens stock market volatility

AFP/PTI  |  Shanghai 

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will from tomorrow drop its requirement for initial public offering (IPO) subscriptions to be paid in advance, regulators said today, in a move to curb volatility.

Under the current regime, the Securities Regulatory Commission (CSRC) decides which companies offer stocks and when, as well as setting guidelines for the number of shares and their price - all of which are determined by the market in other countries.

The rules systematically undervalue companies coming to the market, offering near-guaranteed profits to those lucky enough to secure new shares.

As a result, the advance payment requirement heightens volatility as investors sell existing holdings to raise funds for applications, drying up liquidity.

IPOs were suspended in July as part of moves to end a rout that wiped trillions from Chinese market capitalisations, but resumed last month.

The change "manifests a market-oriented reform direction", the said in a statement. "It is a major step towards ... the registration system."

Authorities have pledged to reform the rules to a more market-oriented "registration" scheme, with companies allowed to decide the details of the new share offers themselves instead of the regulator.

China's lawmakers last week authorised the central government to make changes to the system.

First Published: Thu, December 31 2015. 18:42 IST