Shanghai Stock Exchange takes quick action!
After the market closed on June 19, the China Securities Regulatory Commission issued the "Eight Measures on Deepening the Reform of the Science and Technology Innovation Board to Serve Technological Innovation and the Development of New Productivity", which proposed "optimizing the pricing mechanism for new stock issuance, and piloting the adjustment of the high-price exclusion ratio for new stock pricing on the Science and Technology Innovation Board."
Subsequently, the Shanghai Stock Exchange responded quickly and clarified that the Science and Technology Innovation Board will pilot a unified 3% elimination ratio for the highest bid. It is reported that the current business rules and industry recommendations clearly state that the highest bid elimination portion is 1%-3% of the total amount of subscriptions to be made by all offline investors. In practice, the elimination ratio of 1% is generally chosen.
A reporter from China Securities Journal learned from the relevant person in charge of the Shanghai Stock Exchange that this arrangement is aimed at further strengthening the quotation constraints of offline investors and guiding the rational quotation and reasonable pricing of new shares issued on the Science and Technology Innovation Board. The Shanghai Stock Exchange stated that it will pay attention to the implementation of the above arrangements by issuers and lead underwriters in the subsequent filing of new shares issued and underwriting plans on the Science and Technology Innovation Board.
The relevant person in charge of the Shanghai Stock Exchange introduced to the reporter of China Securities Journal that the reform of the registration system is a continuous and gradual process. Since the launch of the Science and Technology Innovation Board, the Shanghai Stock Exchange has continuously summarized the previous practical experience, optimized the pricing mechanism for new stock issuance, and worked hard to promote the formation of an issuance and underwriting system with more balanced interests of all parties. The pilot adjustment of the highest bid exclusion ratio to 3% in the Science and Technology Innovation Board is a system optimization measure made after research and evaluation under the current rules and combined with the market situation, which further played the role of the Science and Technology Innovation Board as a "test field" for capital market reform. In the future, the Shanghai Stock Exchange will continue to track and evaluate the implementation effect and implement the promotion of the registration system for stock issuance to go deeper and more practical.
In this regard, a relevant person from a leading fund company said in an interview with reporters that this measure reflects that the regulatory authorities, while respecting the normal market game, are targeting irrational bidding behavior and strengthening targeted constraints. After the adjustment, it is expected to further eliminate some investors who make strategic bids and have an impact on the overall bidding psychology of buyers, which will help reduce the impulse of offline investors to "free ride" and bid high prices and will promote the reasonable pricing of new shares.
Regarding whether the phenomenon of "group price-cutting" will occur again after the high-price elimination ratio is adjusted to 3%, the above-mentioned person said that after the rule adjustment in 2021, issuers and lead underwriters are allowed to break through the "lower of four numbers" pricing, which enhances the seller's voice in pricing. If the quotation agency maliciously lowers the price, it is likely to not be shortlisted, and the possibility of "group price-cutting" will be greatly reduced.
At the same time, relevant person in charge of the Shanghai Stock Exchange told reporters that it will continue to strengthen supervision and inspection of issuance and underwriting, closely monitor abnormal quotation behavior of off-market investors, and effectively prevent the risk of "group price-cutting".
The highest bid elimination mechanism is an important arrangement in the pricing process of new stock issuance to avoid extremely high bids interfering with the issuance order and to promote rational quotations by offline investors. Since the pilot registration system of the Science and Technology Innovation Board, the issuance and underwriting of new stocks has adopted an inquiry pricing and allocation mechanism with institutional investors as the main body. Among them, in the pricing link, the issuer and the lead underwriter must mainly refer to the average quotation level after eliminating the highest quotation to determine the issuance price. Therefore, the specific setting of the highest bid elimination ratio has become one of the important factors affecting the inquiry pricing.
When the Science and Technology Innovation Board was launched in 2019, the highest bid elimination ratio requirement of no less than 10% under the approval system was adopted. However, as the bargaining power between buyers and sellers gradually became unbalanced, the phenomenon of "group price reduction" appeared. In response to the problems of some offline investors focusing on strategy rather than research, "group quoting" for the sake of being shortlisted, and disrupting the issuance order, in September 2021, the Shanghai Stock Exchange revised the relevant system rules for new stock issuance pricing. The Science and Technology Innovation Board clearly adjusted the highest bid elimination ratio from "no less than 10%" to "no more than 3%."
In addition to the rules, the Shanghai Stock Exchange's Second Science and Technology Innovation Board Stock Public Offering Self-Discipline Committee studied and discussed targeted measures to promote the smooth transition of the revision of the Science and Technology Innovation Board stock issuance and underwriting business rules and put forward industry advocacy suggestions, including that the high-price elimination ratio in the initial stage of rule adjustment should not be less than 1% to avoid the new stock pricing level going to the other extreme. According to the above-mentioned new regulatory rules and industry initiatives, the high-price elimination ratio in the offline inquiry stage should be between 1% and 3%, with a certain degree of institutional flexibility. However, since issuers and lead underwriters generally tend to choose a lower elimination ratio, in practice the highest bid elimination ratio is implemented at 1%.
A person from a leading securities investment bank said that after the adjustment of the rules, the quotation range has been significantly widened, and the situation where the original quotations were concentrated in one or two cents has disappeared, and investors have expressed their willingness to invest more fully. Some private equity professionals also said that according to the 1% highest quotation elimination ratio, extreme quotations and abnormal quotations can be blocked, but the strength to constrain the overall high quotations of offline investors may not be enough. At present, offline investors generally have the mentality of "quoting high prices to get shortlisted", which is easy to push up the inquiry pricing level.
