China Revives IPO Rule to Boost Its Stock Market


The China Securities Regulatory Commission issued a Supplemental Circular Concerning the Relevant Issues on Placement of New Shares to Investors in the Secondary Market (the "Supplemental Circular") on 20 May 2002, to reintroduce a share issuing method that gives subscription priority to investors already holding shares. The method set out in the Supplemental Circular was initially introduced in 2000, but then suspended when problems arose from its trial implementation.

According to the Supplemental Circular, if the issuer in an initial public offering (IPO) and its underwriter(s) elect to offer new shares by adopting the method set out in the Supplemental Circular, they are required to set aside 50 per cent to 100 per cent of new shares to be placed to investors who already hold shares in the secondary market. Accordingly, all the existing investors in the secondary market are entitled to subscribe for new shares in the IPO according to the capitalised value of the shares they already hold. Securities investment funds (including open-ended funds) are also allowed to participate in the subscription.

The Supplemental Circular, which aims to cut down on speculation in the IPO process and to boost the secondary stock market, became effective on the date of promulgation.

For further information on this, please contact Luke Filei on +86 21 628 96363 or [email protected].