China cuts IPO red tape as new securities law takes effect

BEIJING (AFP) – China’s new securities law which simplifies regulations for stock exchange listings and tightens sanctions on insider trading came into force yesterday. The revised legislation, which was adopted at the end of last year, was “a milestone in the country’s capital market reform”, the official Xinhua news agency said.

It cuts red tape for initial public offerings (IPO), which no longer need prior approval from the China Securities Regulatory Commission (CSRC).

Companies are also no longer required to be profitable before listing but must provide precise financial information.

Chinese authorities have recently begun initiatives to attract listings by large tech firms.

In July 2019, the Shanghai Stock Exchange launched its Nasdaq-style STAR board for technology stocks.

The platform is responsible for registering IPO requests. The amended securities law also offers better protection for minority investors and requires companies to establish dispute resolution mechanisms to address shareholder grievances and improve transparency.

Companies found guilty of making false or misleading statements or withholding important information from shareholders are liable to face penalties ranging from one to CNY10 million (USD143,000 to USD1.4 million).

The law also includes tougher punishments for securities fraud and insider trading.

Individuals found guilty of insider trading will be fined two to 10 times the value of their ill-gotten gains.

Financial sector employees, including regulators and those who work for brokerages or stock exchanges, are also barred from securities trading for their own account.