SHANGHAI • China's Cabinet will seek approval from the country's top legislature for a new registration-based system for initial public offerings (IPOs), signalling the reform could be implemented without the need for lengthy changes to the nation's securities law.
Brokerage shares jumped.
The State Council said on Wednesday that China's stock exchanges will have as long as two years to adopt the new system for IPOs, after it receives approval from the Standing Committee of the National People's Congress (NPC).
The China Securities Regulatory Commission (CSRC) said in a statement that the reform will be gradual and will not lead to a big increase in the number of IPOs.
Even so, expectations that the registration system could be approved quickly triggered a rally in Chinese brokerage shares yesterday, with Western Securities and Everbright Securities climbing at least 4 per cent on the mainland, sending a gauge of financial shares to its highest level in a week.
The new regime will "thoroughly" change the investment-banking operations of China's brokerages by giving them more power to determine IPO pricing and by boosting their business volumes, Huatai Securities analyst Luo Yi wrote in a note to clients.
The NPC standing committee typically meets once every two months. It last met in October, suggesting that approval for the new IPO regime could come as early as this month.
China currently relies on the CSRC to act as a gatekeeper, with a seven-person committee examining each listing application.
Under a registration system, questions of IPO supply and timing will be left to companies and the market, rather than regulators. The CSRC lifted a five-month freeze on IPO approvals last month, following a US$5 trillion (S$7 trillion) stock market rout this summer.
"Brokers will benefit," said trader Yen Chiu at Shenwan Hongyuan Group in Hong Kong. "In the new system, more firms will have the chance to (launch) IPOs, investors have a wider choice of stocks, and the increased IPOs means more fees for brokerages."
The securities regulator will continue to review IPO applications for now and the queueing order of companies that have already submitted their applications will not be affected when the new IPO system is in place, the CSRC said.
Under a registration-based system, the securities regulator will no longer "endorse" the business prospects and investment outlook of companies that go public, it said.
China initially announced its plan to overhaul the IPO process in late 2013 and CSRC chairman Xiao Gang said in January that moving to a registration-based system was the "most important" matter this year for capital markets reform.