IPO reform draft expected to be finished as soon as this month

The legal procedure for registration-based initial public offerings is expected to be completed as early as the end of this month, a substantial step to wrap up the biggest reform of China's stock market.

An executive meeting of the State Council, presided over by Premier Li Keqiang on Wednesday, discussed a draft amendment to the country's Securities Law that proposed changing the current approval-based IPO mechanism to a registration-based one at the Shanghai Stock Exchange and Shenzhen Stock Exchange. The change would occur within two years of the draft's approval.

At the earliest, the draft could pass the country's top legislature at the end of this month to finish the required legal procedures that are a precondition to any changes being made to the IPO system, experts said.

Following legislative approval, related government organs will work out detailed regulations regarding the implementation of the new IPO system and the supervision required after the listing, according to a statement released after the State Council meeting.

The move, considered one of the most important reforms of China's stock market to ease the funding difficulties of companies, has been pushed ahead in the wake of the summer's capital market turbulence, which wiped out nearly 40 percent of market value.

Under current regulations, approvals from the China Securities Regulatory Commission, the country's top securities watchdog, are requested before any new share sales are made.

The modification of the IPO system is part of a more comprehensive draft of the securities code that was proposed to the top legislature in April. However a second reading of the draft was postponed after April's reading due to the summer market rout.

"The launch of the new IPO mechanism will be a gradual process. It will lead to better integration of the Chinese equities market with the global market and international practices. It will also create substantial business opportunities for both domestic and foreign underwriters," said a banker from a Swiss bank who requested anonymity.

Liu Junhai, a civil and commercial law professor at Renmin University of China, said the draft amendment proposed on Wednesday indicates the eagerness of the government to push ahead the IPO reform to ease the funding difficulties of companies.

"The new share sale mechanism should bear one of the core values of the Securities Law, which is to protect the interest of smaller investors. A more market-driven IPO system means greater responsibility of the brokerages when they carry out due diligence for share issuance," Liu said.

Details of Wednesday's draft have not been released, but in the April draft, the review and approval power will be delegated from the CSRC to bourses, to simplify procedures.

The April draft proposes that once a company has received consent for registration from the bourses, their documents will be transferred to the CSRC for final registration, which will be completed within 10 days.

Li Xiang contributed to this story.