IPO Registration System Reform In Labor Pains

Under the background of steadily promoting the reform of registration system, it is particularly abrupt for a group of securities firms to receive supervision penalty tickets, which also makes people think about the direction of future regulatory policies.

On the evening of April 6, 38 regulatory decisions were put up on the website of the CSRC, covering IPO, refinancing, bond issuance, listing on the new third board and so on. In the IPO project alone, 38 recommendation representatives of securities companies have been supervised and "named". If we include two insurance agents of Guoxin Securities and Guojin securities, which have just been punished by the exchange at the end of March, 42 sponsor representatives of securities companies have been subject to regulatory penalties since the beginning of 2021, and the IPO business of investment banks has undoubtedly become a disaster area for regulatory penalties.

"In fact, about half of the punishment cases published in this centralized way have been disclosed in the exchange before. The Securities Regulatory Commission has the habit of publicizing the punishment from time to time, but it is usually in the middle of the year at the end of the year. The announcement at the end of the first quarter may be intended to remind investment bank sponsors not to "wear new shoes and follow the old road." There are senior investment banks in Beijing said.

Prior to this, Yi Huiman, chairman of the China Securities Regulatory Commission (CSRC), clearly pointed out in public that, judging from the current situation, many intermediary agencies have not really possessed the concept, organization and ability to match the registration system, and are still "wearing new shoes and taking the old road".

However, many securities firms and investment banks have also told reporters of the 21st century economic report that in the cases of punishment, there are indeed a large number of insurance agents of investment banks of securities companies who are not diligent and conscientious, but there are also contents that do not match the requirements of the current rules, "I don't know when I will be punished.".

Bank flow check becomes the disaster area of supervision and punishment

According to the incomplete statistics of the 21st century economic report, there have been 19 cases of administrative penalties for IPO projects since the beginning of the year, of which 17 cases occurred in the science and technology innovation board or gem under the registration system. The 19 cases involved 42 sponsor representatives from 14 securities companies. Even CITIC Securities, Haitong Securities and CICC, which are in the top of the industry, have been punished in IPO projects. And Anxin securities, Guoxin Securities, Minsheng securities and Western securities were all punished twice.

By carefully examining the reasons for the punishment of various securities companies, there are as many as 8 cases of punishment for related transactions, funds occupation of related parties, bank account verification and other items related to the issuer's bank statement.

For example, for the Jiusheng electric project sponsored by China Merchants Securities, the issuer corrected the funds borrowed from the controlling shareholder in the prospectus when updating the financial information, and added that the issuer borrowed RMB 6.35 million from the actual controller Zhang Jianhua and his spouse Zheng Yuhua in 2018, and the issuer sold 55617 commodities to the related party Chizhou Xinyuan Real Estate Development Co., Ltd. in 2019 Ten thousand yuan. However, these related transactions have not been verified by the sponsor representative.

"Checking bank flow can be said to be a powerful tool for checking fraud. Even if there is no strict supervision, investment banks should also check it. After all, if it is not clear, it will bear the responsibility in the future." According to the above senior investment bank in Beijing, many IPO projects have been supplementing the bank flow of more than 50000 issuers in response to increasingly stringent IPO on-site inspection.

"50000 is not a standard measure for reviewing bank statements. The amount of money is not dead. It depends on the size of the enterprise and the specific situation. If there is any abnormality, we should follow up." A CPA participating in the IPO project in South China said.

Another head securities firm investment bank personnel also said that the ultimate purpose of capital flow checking is to prevent the issuers from making fraud, prevent the income and profit fraud through self trading; prevent the issuers from paying costs and expenses in vitro, so as to make up profits; and prevent the issuers from encroaching on the company's funds through false transactions and taking them as their own.

On June 10, 2020, China Securities Regulatory Commission (CSRC) specially issued the new "answers to several questions about initial business", requiring issuers and key personnel to provide complete bank account information to intermediaries and cooperate with intermediaries to check capital flow. In some abnormal circumstances, such as the gross profit is significantly different from the same industry companies, the sponsor and the reporting accountant can also expand the scope of capital flow checking.

"In the past, as Party B, intermediary agencies still had to work hard. Now, with the support of rules, the business can be carried out more smoothly. In general, there will be a large amount of cash withdrawal and purchase of various virtual assets by the issuer and related parties, which should be paid attention to. But in reality, there are also issuers who deliberately conceal the current account and account, which is difficult to find out and can only recognize the failure. But generally speaking, investment banks are convinced of the punishment related to bank flow, which is also a problem that investment banks must pay attention to under the registration system reform. " The head of the securities investment bank said.

The debate on the leniency and strictness of the registration system

In addition to bank statements, regulators also put forward substantive requirements for the disclosure of commercial bribery.

According to the incomplete statistics of 21st century economic report, among the 19 IPO project administrative punishment cases from the beginning of the year to now, 4 cases contain commercial bribery, and the actual controller, chairman and subsidiary have all had bribery.

However, there are quite different opinions on the regulatory penalties caused by commercial bribery.

"The answers to some questions about the initial business require the disclosure of major violations of laws and regulations in three years. However, the bribery and even the judgment of the actual controller of Sifang optoelectronics have already occurred before the reporting period, and the court has not convicted them. Therefore, the relevant regulatory penalties are still arbitrary The above senior investment banks in Beijing believe that.

It is worth mentioning that the IPO shareholder penetration problem, which has been highly concerned by the market, has not been punished by the representative of the sponsor institution.

"Not being punished doesn't mean that all investment banks have achieved shareholder penetration, but when they encounter projects that can't be penetrated, investment banks will voluntarily choose to give up temporarily." The head of the securities firm investment bank personnel said that at present, there is a great controversy on the extent of shareholder penetration in the market. "There are some LP (limited partners) that are very difficult to find out. Some enterprises that have been listed on the third board, investors enter through call auction, and it is very trivial and difficult to penetrate all investors."

The investment bank personnel pointed out that according to the rules issued by the CSRC, if the equity structure of the issuer's shareholders is more than two layers and is a company or limited partnership without actual business operation, if the transaction price of the shareholder's equity acquisition is obviously abnormal, the intermediary agency shall penetrate through the shareholder layer by layer to find the ultimate holder. "And in the practical process, all shareholders, regardless of the price of shares, have to penetrate."

Wang Jiyue, a senior investment bank personage, also believes that the penetration disclosure of important shareholders has its significance. Shareholders holding more than 5% of shares or shareholders with a profit of more than 10 million yuan according to the expected market value can go through. After all, there is the possibility of significant interest transmission. However, many of the current investigations are investors who have made a profit of several million or even hundreds of thousands of shares, and they still need to deduct taxes and fees. Due to the time cost of six or seven years from the acquisition of shares to the reduction of holdings, it seems unnecessary to penetrate these scattered individual shareholders. He stressed that "the transfer of interests will not be so laborious."

However, the above certified public accountants believe that the penetration of scattered shareholders still has its significance. "If the shareholders are scattered enough, a person may hold shares separately through different entities, but in summary, his shareholding ratio may exceed 5% or even higher. Shareholder penetration may also find more related information. "

In this regard, Wang Jiyue said that it is unlikely that indirect shareholding of more than 5% will occur after layer by layer equity penetration, let alone actual control without disclosure. "If the number of shareholders below 5% is broken down layer by layer, the indirect shareholding proportion of minority shareholders is extremely low. It is also easy to find out that it does not need to penetrate into all shareholders if they control a certain proportion of shares through layer by layer. In addition, the investment bank, the actual controller of the issuer, is relatively clear. There are very few cases of concealing the actual controller. If there is concealment, most of the intermediaries are intentional. "

Regulators are not ready for the registration system

In view of the large number of fines imposed on the sponsor and the dispute over the audit scale, neither the intermediary agencies nor the regulatory authorities are ready for the full registration system.

Yi Huiman pointed out that, from the approval system to the registration system, the role of intermediary agencies such as recommendation agencies and accounting firms has changed a lot. In the past, the primary goal was to improve the "approvability" of issuers' listing, that is, to obtain approval; now it should be to ensure the "investability" of issuers, that is, to provide investors with more valuable targets In fact, the requirement of "door man" is higher.

"Although the regulation requires investability, only from the perspective of equity penetration, shareholders of sporadic equity penetrate layer by layer, and dozens of pages are disclosed in the prospectus, which also hinders investors' reading and affects the" investability "of issuers. The investment bank's pursuit of the approval still stems from the IPO audit, which is the issuers' approval. " The senior investment bank said.

Wang Jiyue also said that the investment bank sponsor actually only requires to act in accordance with the rules, not exceeding the scope of the rules. What the investment industry expects from the registration system audit is actually openness and transparency, with clear rights and responsibilities. But now the audit window guidance appears again, and it is difficult to clarify the boundary of responsibility.

"The sponsor is not clear about when and how the risk will come, and do not know what will be punished. If we are diligent and conscientious, we can get 60, 80 and 90. We don't know what the full score is, and the business can't be carried out. " Wang Jiyue said.

Liu Xiaodan, the former helmsman of Huatai United Securities and known as the "Queen of mergers and acquisitions", recently also said that it is necessary and helpless to put pressure on intermediaries to strictly check and verify them.

She pointed out that the reason why intermediary agencies "wear new shoes and follow the old road" is closely related to corporate governance. Most of the existing governance structure of sponsor institutions is lack of long-term incentive mechanism. Linear short-term incentive leads to most people only consider immediate interests, pay attention to the current ranking, and earn easy quick money. For intermediaries, only the long-term incentive mechanism and the culture similar to partners can form a real internal restraint mechanism. Otherwise, they can only be deterred by supervision, and the cost of supervision and enterprise compliance is extremely high.

"It is necessary to further strengthen the intermediary's responsibility and urge them to improve their ability to perform their duties. The regulatory authorities also need to further strengthen the construction of basic systems and accelerate the improvement of relevant measures and regulations. " Yi Huiman has actually put forward requirements for supervision.

Some people close to the regulatory authorities said that the regulatory authorities are actively studying and improving the relevant rules and regulations to gradually enhance the standardization and standardization level of the supervision of the recommendation business. We should actively promote the construction of the practice standard system of sponsor institutions, focus on improving the system rules of due diligence, information disclosure, guidance and acceptance, refine the practice standards, and improve the operability. Gradually build a comprehensive coverage, clear responsibility, clear hierarchy of practice rules system, further study to clarify the responsibility boundary between the intermediary agencies. At the same time, we are also considering further research and optimization of relevant systems such as issuance pricing, underwriting and placing.

At present, the pain of registration system reform will continue. However, as Liu Xiaodan said, the reform of the registration system, a basic system, took 20 years to break the ice. We should cherish the hard won start.

"Everything is just beginning. We need more patience and more constructive professional opinions from all parties. We also hope that the reformers will have the courage to move forward in the established direction, even if we further, stop for a while, or even step back, but we can't toss and pull drawers back and forth. It's the right direction. It's just time. " Liu Xiaodan said.