Shenzhen Stock Exchange's Registration-Based IPO System Is Supporting Innovation and Development

The reform of the ChiNext Board and the pilot project of the registration-based IPO system at the Shenzhen Stock Exchange (SZSE) have been in steady operation for over a year.

At the key stage when the new round of scientific, technological and industrial transformations are accelerating, and at a critical moment coping with the impact of Covid-19 and promoting the economic recovery, firmly advancing the pilot project of the registration-based IPO system has fully reflected the important role of the reform of the ChiNext Board in supporting technological innovation and high-quality development. This project is aimed at supporting small and medium-sized enterprises with innovation-oriented features.

In the last year, 728 IPO applications from over 50 industries were accepted and reviewed, with 186 companies being listed. Nearly 70% of those newly listed companies recorded growth in net profit and the ChiNext Board has effectively supported the development of enterprises from strategic emerging industries, high-tech enterprises and novel SMEs. Its main features include optimising listing conditions to enhance market inclusiveness, adapting to market characteristics and optimising the requirements for information disclosure and reduction, and improving the flexibility of equity incentives and stimulating the vitality of enterprises.

The pilot registration-based IPO system has optimised listing conditions to enhance market inclusiveness. Diverse listing conditions are set while considering expected market value, income, net profit and other indicators, so as to support the listing of different types of innovative start-ups at different growth stages on the ChiNext Board. First, profitability and listing criteria are refined by requiring that “the net profit shall be positive in recent two years and cumulative net profit shall be no less than RMB 50 million (7.8 million USD)” or “expected market value shall be no less than RMB 1 billion (157 million USD) and last year’s net profit shall be positive and operating income shall be no less than RMB 100 million (15.7 million USD)”. Second, the requirement that there shall be no loss being made at the end of the last period is cancelled. Third, support is given to the listing of enterprises with a special equity structure and red chips that have made profits and reached a designated scale. Fourth, the listing criteria for unprofitable enterprises are specified, but are put into practice within one year. After that, they will be assessed.

Another characteristic of the registration-based IPO system is information disclosure. Issuers assume the primary responsibility for information disclosure and to ensure the authenticity, accuracy and completeness of their disclosures. Intermediaries such as a "watchdog" should check the information disclosed by the issuers. While paying attention to issuance and listing conditions, the SZSE has tightened information disclosure regulation, facilitated disclosure through inquiry and promoted the quality improvement of information disclosure to enable market entities to effectively analyse the investment value of issuers.

Additionally, a "Transparent Review" was conducted to meet "Two Expectations." First, the time frame is set for reviewing and responding to IPOs, refinancing and M&A. The time taken from corporate application, review and registration to the listing is set out. A maximum of three months is accepted for issuance and a listing review as well as to reply to an inquiry by issuers and intermediaries. Second, the SZSE fully publishes review rules, information disclosure rules and review Q&As, and releases acceptance, reply to inquiry and review results of the listing committee in detail to ensure reviews are done in a standard manner and that the results are clear.

With all the changes, the formation of an innovation capital centre has been accelerated. With further improvements in inclusiveness and coverage, the ChiNext Board has provided efficient and convenient financing support to various innovation-oriented enterprises. By refining the refinancing and M&A and reorganisation service system, the SZSE has supported listed companies in continuously increasing R&D input and pursuing innovation-driven development and improved the formation efficiency of innovation capital.

The SZSE has effectively motivated social capital such as PE and VC to invest in technology companies and support technological innovation, and guided innovation resources to gather in strategic emerging industries and specialised, sophisticated, featured and novel fields, contributing to the high-level circulation of technology, capital and the real economy and promoting the building of a dynamic ecosystem of innovation capital.