Study On Improvement Of China's Secondary Offerings' Legal System In IPO

In April, 2012, China Securities Regulatory Commission(CSRC) released the Guiding Opinions on Further Reforming the Issue System of New Shares which permitted original shareholders of a corporation to transfer pre-IPO shares during the IPO process. Later in December, 2013, the commission further released the Interim Provisions on Public Offering of Shares by Corporate Shareholders in IPO and thus provided the specific basis for implementing the secondary offering system in IPO. The introduction of this system is a major step forward in the development of China's stock issue system. However, with many defects in the current IPO secondary offering system of China, the system has been unable to perform its function as expected. In view of that, based on the actual situation of Chinese security market, this paper attempts to explore existing problems in relevant regulations for the industry and propose corresponding suggestions for improving the IPO secondary offering system after referring to similar researches by scholars and industry professionals and learning from the success in overseas capital markets.The first part is the introduction, in which author will describe the background and the significance of IPO secondary offering system of China, the research status at home and abroad, in order to lay the foundation for further discussion of the article.In the second part, author will analyze the IPO secondary offering system problems in macro-system level design and put forward a sound proposal. Firstly, there is a serious problem in the positioning of IPO secondary offering system. The IPO secondary offerings is not an effective remedy for the three major problems in the stock issue market, namely, the high offering price, the high price-earnings ratio and the huge amount of over-raised funds. Under certain circumstances, the system will have negative impacts on the stock market. However, since the system has an irreplaceable role in other systems, the authorities should properly position the IPO secondary offering system based on an analysis of its merits and demerits. Secondly, under our current legal system, there is a legal impediment to the IPO secondary offering system in China. From the perspective of semantic interpretation, implementation of IPO secondary offering system by CSRC is not in conflict with Article 141 of the Company Law; however, from the perspective of teleological interpretation, this system goes against the original intention of stipulating Paragraph 1, Article 141 of the Company Law. Apparently, the conflict between the current IPO secondary offering system and the Company law shall be resolved by closing regulatory loopholes and by eliminating the negative market effects of the system.In the last part, author will analyze specific aspects of system design problems in IPO secondary offering system of China and put forward a sound proposal. In legal provisions in force, there are some serious problems in the body of the stock issuance system, locking system, offering conditions and disclosure requirements. In order to improve the specific provisions for the system, first we should make improvements to the main system of IPO secondary offering by expanding the scope of purchasers of secondary offerings and properly defining the actual controller of a corporation in secondary offering. Secondly, different requirements for offering should be followed by different shareholders; restrictions should be put on the offering of secondary shares by affiliated shareholders like members of a corporation, and the amount and the proportion of secondary shares to be offered should also be restricted on the whole. Moreover, the lockup regulation for IPO secondary offering should be improved at the mean time by removing the lockup regulation for secondary shares having been sold and improve the price fixing regulation for secondary shares that are in the process of offering. At the end, we should make higher requirements on information disclosure in IPO secondary offering in three aspects: updating the forms of information disclosure, increasing the number of items under compulsory disclosure by relevant parties like the issuers, etc. and clarifying legal liability of shareholders in the case of disclosure of false information.