The China Securities Regulatory Commission has drafted the “Guidance Opinions (Draft for Comment) on Further Reforming and Improving New Shares Issuance System” after conducting in-depth investigations and studies on issues concerning the reform of shares issuance system to further strengthening market restraint mechanism and improve the price inquiry system. It hereby solicits public opinions from the society, with the time limit from May 22 to June 5, 2009.

Please email relevant opinions to fxb275@csrc.gov.cn or fax to 010－88061252.

China Securities Regulatory Commission
May 22, 2009

Attachment: Guidance Opinions (Draft for Comment) on Further Reforming and Improving New Shares Issuance System

Guidance Opinions (Draft for Comment) on Further Reforming and Improving New Shares Issuance System

In recent years, under the wise leadership of the CPC Central Committee and the State Council, China’s capital market has conducted a series of significant fundamental and system reforms, with remarkable achievements such as the expanded market scale and size, the optimized market mechanism and structure, the active participation of investors, the enthusiasm of enterprises in mechanism improvement and financing through the capital market, and the more prominent status of the capital market. In order to further improve the mechanism and efficiency, it is necessary to reform and improve the new shares issuance system for the greater development of the market. After wide investigation and research on relevant problems in the reform of the shares issuance system, the China Securities Regulatory (CSRC) puts forward the following guidance opinions of further reforming and improving the new shares issuance system:

I. Principle, basic contents and target of the reform

1. Reform principle: we should stick to the market orientation, enhance the further marketization of new shares’ pricing, foster the market restraint mechanism, promote such major market objects as the issuers, investors and underwriters to perform their duties, and pay attention to the participation intents of small and medium investors.

2. Basic contents: for new shares’ pricing, the quotation restraint mechanism for price inquiry and subscription should be perfected with less emphasis on administrative guidance, so as to form a more market-oriented price forming mechanism. For issuance and underwriting, the underwriting and allotment should be more flexible by streamlining the underwriting mechanism and strengthening the buyers’ binding force towards the sellers and the underwriters’ responsibilities in the issuance, so as to gradually change the method of shares allotment only based on the capital amount. Besides, the online issuance mechanism should be optimized, and shares distribution should favor the small and medium investors with subscription intents, so as to relieve the situation of new shares subscription by enormous funds. Meanwhile, more emphasis will be laid on risk alerts of new shares issuance to clarify the risks in the issuance market.

3. Target: firstly, the price discovery function of the market should be optimized and the internal balance mechanism of the buyers and the sellers should be strengthen as well; secondly, the effectiveness of the shares allotment mechanism should be improved and the situation of new shares subscription by enormous funds should be relieved, so as to enhance the issuance quality and efficiency; thirdly, on the premise of clarified risks, attention should be paid to the participation intents of small and medium investors to favor such investors intending to subscribe for new shares; fourthly, risk alerts should be intensified to enhance the risk awareness of the primary market.

II. Reform measures in recent period

Due to the wide coverage and significant influence of the new shares issuance system, various reform measures should be implemented by stages and improved gradually to ensure the smooth progress in the reform. The following four measures will be launched at this stage:

1. The quotation restraint mechanism for price inquiry and subscription should be perfected to form a more market-oriented price forming mechanism. Inquirees should quote true prices, with logic consistency between the inquiry and the subscription quotations. The lead underwriters should take measures to curb quotation at high price without buying and low quotation with high buying price. Every issuer and its lead underwriter should reasonably set the minimum quantity of each subscription according to the issuance scale and the market condition. If the raised fund exceeds the amount needed for the project capital as the final price exceeds the expected price, the issuer should disclose the usage in the prospectus in advance.

2. The online issuance mechanism should be optimized to separate the online and offline subscription participants. For the issuance of each stock, one allotee can choose either online or offline subscription, and allotees who have participated in the offline quotation, subscription and allotment of this stock should not participate in the online subscription.

3. An upper limit is set for the single online subscription account. Any issuer and its lead underwriter should set a reasonable upper limit for the subscription by one single online subscription account, which should not be more than one thousandth of the shares issued online this time.

4. More emphasis will be laid on risk alerts of new shares subscription to remind all participants of being aware of the risks in the market. Any issuer and its lead underwriter should publish the special announcements on new share’s investment risk to fully disclose the risks of the primary market and remind investors of rational judgment on the feasibility of investment in the said company. The securities operational institutions should take measures to remind the investors of the risks in new shares issuance.

Other reform measures will be launched at a proper time by taking into consideration the market development speed and the extent of the reform and the market acceptance.

III. Implementation of various reform measures

The new shares issuance system reform calls for the close cooperation of various parties, who should deepen the understanding, formulate relevant schemes, make careful planning and implement various reform requirements.

Issuers should foster the right idea of issuance and listing, actively fulfill the information disclosure obligations, strengthen the raised capital management, enhance the listed companies’ management level and safeguard the lawful rights and interests of shareholders.

Underwriters (sponsors) and other securities companies should perform their duties diligently, honestly and faithfully as well as safeguard the long-term and fundamental interests of the buyers and the sellers. They should make improvement and adaptation of their work in organization, personnel, system and technology to continuously upgrade the professional services.

Inquirees should bring into play the functions of professional institutions and guide the market rationally by obtaining the materials in an earnest, prudential and professional way, making analysis and judgment as well as fixing the prices rationally.

Investors should pay full attention to the risk factors involved the marketization of the pricing, be aware of the fact that the prices of some stock might be lower than the issuance prices after the listing, raise the risk consciousness, emphasize the idea of value investing and avoid speculation.

Relevant self-regulation organizations should actively take measures to implement the self-regulation on and services for participants of new shares issuance including underwriters, inquirees, shares allotees and securities companies.

China Securities Regulatory Commission
May 22, 2009