4 intermediary agencies were filed for investigation and triggered IPO "stop wave"——
The registration system forces intermediaries to be diligent and responsible
Our reporter Ma Chunyang
From August 18th to 20th, the Shanghai and Shenzhen Stock Exchange pressed the "pause button" on 42 companies' IPO reviews, which aroused the attention of the market.
It is understood that the suspension of IPOs by many companies is due to the same reason, that is, the intermediary agency of the issuer has been investigated by the China Securities Regulatory Commission. According to the relevant review rules, the exchange suspended its issuance and listing review.
According to industry insiders, the central suspension of the IPO reflects that the quality of practice of my country's intermediary agencies still needs to be improved.
Responsibility of intermediary agencies is the foundation of the high-quality development of the capital market and the key to the reform of the market-wide registration system. Intermediary agencies should continuously improve the quality of practice and effectively play the role of "gatekeeper" in verification and control.
42 IPO audits suspended
According to the Shenzhen Stock Exchange’s official website, on August 18, a total of 34 GEM IPO companies’ review status was changed to “suspended” due to the issuer’s lawyer Beijing Tianyuan Law Firm, or the issuer’s appraisal agency Kaiyuan Asset Appraisal. Either the issuer’s sponsor, Hualong Securities, or the issuer’s reporting accountant Zhongxing Caiguanghua Certified Public Accountants (special general partnership) was filed for investigation by the China Securities Regulatory Commission.
Specifically, due to Kaiyuan Assets Appraisal Co., Ltd. being investigated by the Securities Regulatory Commission, 17 companies were suspended from the IPO; 15 companies were affected by Beijing Tianyuan Law Firm; and Hualong Securities Co., Ltd. and Zhongxing Caiguanghua Accountants Firms (special general partnerships) have 1 company each.
According to Article 64 of the "Examination Rules for the Issuance and Listing of Stocks on the Growth Enterprise Market," the issuer’s sponsor or signature sponsor representative, securities service agency, or relevant signatory is due to the initial public offering and listing, the issuance of securities by listed companies, mergers and acquisitions and restructuring businesses If a case is suspected of violation of laws or regulations, or other business is suspected of violation of laws and regulations and has a significant impact on the market, and is investigated by the China Securities Regulatory Commission, or is investigated by judicial organs, and the case has not been closed, the Shenzhen Stock Exchange suspends its issuance and listing review.
On the Shanghai Stock Exchange, from August 19th to 20th, the review status of 8 proposed IPO companies on the Science and Technology Innovation Board was changed to "suspended". The reason for the suspension was that the relevant securities service agency hired by the issuer was investigated by the Securities Regulatory Commission.
Among them, there were 5, 2 and 1 companies that were suspended due to investigations by Beijing Tianyuan Law Firm, Kaiyuan Assets Appraisal Co., Ltd., and Zhongxing Caiguanghua Certified Public Accountants.
In addition, in addition to the IPO process of the 42 companies mentioned above, the refinancing and major asset restructuring projects of many companies have also been suspended due to the investigation of the aforementioned intermediary agencies by the China Securities Regulatory Commission.
There are opinions in the market that the source of the “stop tide” of the project under review may be related to the lightning explosion of the New Third Board Blue Mountain Technology Project. The intermediary agencies investigated this time have provided intermediary services for Blue Mountain Technology.
In December 2020, the China Securities Regulatory Commission filed an investigation into Blue Mountain Technology's alleged violation of information disclosure.
"In the process of IPOs, it is necessary to ensure high-quality supply of new shares, and relevant intermediaries bear important responsibilities. Whether the sponsor can be diligent and responsible, whether it can strictly screen projects, and whether it can make objective and accurate reports is directly related to the listing of new shares. The quality of quality is related to the vital interests of investors and the level of capital markets serving the real economy." Chen Li, chief economist of Chuancai Securities, said that intermediaries such as securities firms, law firms, and auditing institutions need to clarify the responsibilities of all parties. Once penalties for violations occur, it will have a series of impacts on its license business. The centralized suspension of the IPO is due to the failure of intermediary agencies to be diligent and optimistic about the subsequent impact of the "entry customs".
Regarding the IPO "suspension", how should the company be restarted in the future?
He Nanye, a special researcher of Suning Financial Research Institute, said that the progress of related companies’ IPOs will undoubtedly be affected. It is recommended that related companies replace the penalized intermediaries as soon as possible. The replaced intermediaries will review the work of their predecessors. Re-apply to resume review.
Tighter supervision of intermediary agencies
It is worth noting that, with the exception of IPO projects that have been suspended for passive reasons, more than 100 companies have voluntarily withdrawn their IPO applications in the first half of this year, and nearly 90% of them are from the Growth Enterprise Market and the Science and Technology Innovation Board.
According to industry insiders, the main reason for the high rate of withdrawals this year is that the China Securities Regulatory Commission has initiated on-site inspections of IPO companies in various sectors.
In January 2021, the China Securities Regulatory Commission issued the "Regulations on the On-site Inspection of First-issuing Enterprises."
After the issuance of the new regulations, the Securities Association of China organized an on-site inspection lottery for the quality of IPO companies that applied for IPO. Of the 407 companies that applied for the Science and Technology Innovation Board and the Growth Enterprise Market, 20 were selected, and 16 subsequently announced that they had withdrawn their IPO applications.
In this regard, the chairman of the China Securities Regulatory Commission, Yi Huiman, once said that one of the important reasons for the high percentage of withdrawing application materials is that many sponsors have poor practice quality.
On July 4, the new IPO on-site inspection list was released.
The Securities Association of China selected 19 IPO filing companies to accept on-site inspections on the quality of information disclosure.
Up to now, three of the companies that have been spot-checked in this round have voluntarily withdrawn their applications.
In fact, under the background of steadily advancing the reform of the registration system, it is urgent to consolidate the responsibilities of intermediary agencies. Not only the sponsors, but also the law firm, audit and evaluation and other intermediary agencies should take the initiative to return to their positions and fulfill their responsibilities as soon as possible. Practice philosophy and professional ability.
Since the beginning of this year, many departments have continued to make efforts to improve the practice quality of intermediary agencies.
On July 9, the China Securities Regulatory Commission formulated and issued the "Guiding Opinions on Supervising and Urging Securities Companies to Engage in Investment Banking Business under the Registration System" to strengthen the supervision of investment banking business.
On August 23, the General Office of the State Council issued the "Opinions on Further Regulating the Order of Financial Auditing and Promoting the Healthy Development of the Certified Public Accountant Industry", stating that the supervision of accounting firms engaged in securities business should be strengthened in accordance with the law.
Zhu Yiyi, a lawyer at Guoco Lawyers (Shanghai), said that this year various departments issued a number of opinions to improve the quality of intermediary practice and release the supervisory authority to implement the new securities law, consolidate the responsibilities of intermediary agencies, strengthen the supervision of intermediary agencies, and standardize intermediary agencies. A strong signal of institutional behavior, which is conducive to forcing intermediaries to diligently perform their duties, and also has a positive effect on improving the quality of listed companies, ensuring compliance with the behavior of participants in the capital market, and maintaining market order and investor rights.
In addition, the Criminal Law Amendment (11), which came into effect on March 1 this year, has strengthened the criminal punishment for illegal acts such as false certification documents provided by intermediary agencies, which is conducive to guiding intermediary agencies to be diligent and responsible, and further compacting intermediary agencies’ "see Doorman" duties.
"Sponsor institutions, law firms and other intermediary service agencies are the first line of defense against issuers' verification and professional checks. They must be law-abiding and honest in order to maintain the fairness and order of the market." Chen Li said.
Lay a solid foundation for reform
On August 20, the China Securities Regulatory Commission held the 2021 system mid-year supervision work conference.
The meeting required a solid foundation for the reform of the market-wide registration system.
The registration system reform has entered a critical period of advancement, and we must continue to make solid and meticulous preparations.
Focus on advancing the reform and optimization of the issuance pricing mechanism, improving the quality of prospectus disclosure, further clarifying the responsibilities of intermediaries, and improving the system and mechanism to prevent corruption risks.
Yi Huiman previously stated that from the approval system to the registration system, the role of sponsors, accounting firms and other intermediary agencies has undergone great changes. To ensure the issuer's "investability", the requirements for the "gatekeeper" are actually higher.
"Registration reform is a market-oriented reform. Under a registration system centered on information disclosure, the right to choose is given to the market, and the diligence and responsibility of brokers and other intermediary agencies is the basis and guarantee of market-oriented reform." Chief Economist of AVIC Securities Dong Zhongyun said that at the beginning of the design of the registration system, sponsors and sponsors were required to switch their ideas, return to their positions, and perform objective judgments and comprehensive verifications of the issuer’s operating conditions, risks, application documents and other information, so as to make good use of it. Gatekeeper" duty.
In addition to securities firms, accounting firms, law firms and other institutions need to improve their professional standardization, improve mechanisms, and rationally divide labor with securities firms, and earnestly assume the responsibilities for legal issues and accounting authenticity issues during the company's listing process.
"Responsibility of intermediary agencies is the key to the reform of the market-wide registration system. The relevant parties need to coordinate with each other and exert joint efforts." Tian Lihui, Dean of the Financial Development Research Institute of Nankai University, suggested that the quality of sponsorship should be improved from three aspects.
First, we must improve the practice attitude and achieve sponsorship and dedication.
Sponsors and sponsor institutions are licensed professionals and professional organizations, and it is their necessary obligation to assume the responsibility of checking; second, it is necessary to enhance the practice ability and realize the professionalism of sponsorship.
Sponsors not only need to be familiar with the theory and be able to pass rigorous examinations, but also need to understand the company and be able to clarify the advantages and problems of the company.
Therefore, having a group of dedicated and professional sponsors is the top priority for the development of a sponsor; third, it is necessary to optimize incentives and internal control to achieve sponsorship, and the sponsor must be good at motivating and managing sponsors so that they can truly be diligent and responsible.
Zhu Yiyi also stated that law firms and audit evaluation agencies should strictly fulfill the obligations given to intermediaries in the new Securities Law and various opinions issued by the regulatory authorities, implement and ensure the truthfulness, completeness, accuracy and timeliness of information disclosure, and reduce investors’ Information asymmetry among listed companies. In addition, law firms and audit evaluation agencies should also improve their own practice quality from the perspective of improving the capital market credit system and establishing a sound three-dimensional and organic insurance system.
"Under the background of the reform of the market-wide registration system, the importance of the practice quality of intermediary agencies is further highlighted. Improve the practice quality of intermediary agencies, emphasize substance over form, strengthen the implementation of rules and regulations, improve professional service levels, and conduct information disclosure documents for companies to be listed. Comprehensive verification and verification, and strive to fully and truthfully present the companies to be listed in front of the market and investors, which is conducive to building a benign capital market ecology and promoting high-quality development of the capital market." Dong Zhongyun believes.