The China Securities Regulatory Commission (CSRC) released the Opinions on Establishing a Science and Technology Innovation Board and Pilot Registration System in the Shanghai Stock Exchange (later referred to as the ‘Opinions’) on January 20, bringing a new round of reform to the Chinese capital market.  

The new sci-tech board mainly serves innovative enterprises which are in line with the national strategy and feature key technologies and market recognition. The board is intended to support high-tech industries and strategic emerging industries, including information technology, high-end equipment, new materials, new energy, energy conservation, environmental protection, and biopharmaceuticals.

The board will push forward the in-depth integration of internet, big data, cloud computing, artificial intelligence and manufacturing, pave the way for middle and high-end consumption, and lead to increases in quality, efficiency and momentum.

Enterprises which conform to the orientation of the board, have not yet become profitable, have accumulated uncompensated losses, or have a special equity structure that meets the relevant requirements are eligible to list on the board.

To carry out the pilot registration system and set up a market-based issuance and underwriting mechanism, the board will further strengthen supervision of information disclosure and set up a market-oriented trading mechanism based on the characteristics of listed companies and the needs of investors. It will set up a more effective mergers and acquisitions system and implement a delisting system.

The Opinions stressed that the pilot registration system should strengthen supervision on listed companies and protection of the legal rights and interests of investors. The CSRC will strengthen involvement of the administrative law enforcement and the administration of justice, establish a judgment mechanism for securities supporting litigation, and improve the legal system for securities civil litigation adapted to the registration system.

In its mission to achieve a higher standard for stock exchange, the Opinions clearly lays out the conditions for delisting. Unlike before, where the only condition for delisting was a single index of continuous losses, an additional index of shortcomings in information disclosure and operation will now also be taken into consideration.

The Opinions simplifies the delisting procedure and has entirely eliminated the previous systems of suspending listing and resuming listing. It has also terminated the practice listing enterprises that should be delisted from the market directly. Enterprises that have been delisted should reapply and be reviewed for re-listing. If the delisting is compulsory due to unlawful behavior, the company shall be permanently withdrawn from the market.

The board’s delisting system stipulates that if a listed company’s revenue does not come from its main business, signifying a lack of sustainability, then the company will be delisted according to the relevant conditions and procedures.  

The board will set up a mechanism for investors to take part in inquiry, pricing and rationing, adopting a market-oriented inquiry pricing method that limits the initial public offering inquiry to seven types of professional institutions such as securities companies and fund companies.

The Opinions also takes the novelty and uncertainty of tech enterprises into consideration. Unlike current stock markets, the price range limits for stocks listed on the board has been extended by 20 percent. To allow companies to settle on a reasonable price for their shares, there is no limit to price adjustments during the first 5 trading days after listing.

At the same time, the board also provides post-offer fixed-price trading to meet the demands of investors at deterministic prices outside of the bidding matchmaking period.

To improve market liquidity, the board no longer limits declarations to multiples of 100 shares. Instead, the minimum number of shares in a single declaration has been increased to 200 and can be increased by units of 1.

Due to the new business modes, unpredictable business performance and high risk faced by science and technology innovation enterprises, the board has placed higher requirements on investors in terms of capital strength, risk bearing capacity and value judgment ability.

Therefore, the board requires that personal investors involved in the trading of the board stocks should have no less than 500,000 yuan ($74,477.84) in his/her securities and fund accounts and should participate in securities trading for at least 24 months. Investors who do not meet these conditions can participate in the board by buying public funds.

The performance of a science and technology innovation enterprise depends on its initiators and core technical teams. So it is essential to maintain the relative stability of the equity structure.

The controlling shareholders of the board company shall maintain the stability and clarity of the control immediately after the sale restriction is lifted and the shares are reduced. Core technicians are not allowed to reduce their shares for 36 months after listing.

For a company that is not yet profitable at the time of listing, the controlling shareholders and core technicians shall not reduce their pre-IPO shares until the company becomes profitable. Companies that have been listed for a period of at least five years are no longer subject to this restriction.