China Official Wants to Scrap First-Day Trading Cap for IPOs

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A top official at China’s securities regulator recommended removing a limit on how much a stock can gain on its trading debut, days after authorities pledged to further open up the financial sector.

“We should review the first day trading cap for initial public offerings, I personally think it should be removed,” the official China Securities Journal quoted Fang Xinghai, vice chairman of the China Securities Regulatory Commission, as saying during a forum in Beijing on Saturday.

Newly listed companies are capped at a 44 percent advance on their first day of trading, a rule put in place in 2015 to limit speculation. Restrictions could lead to thin volumes that do not accurately reflect the price of the shares, said Fang.

Read: China to Study More Financial-Opening Measures This Year

China is looking to revive sentiment and volumes in a stock market that lost more than $2 trillion in 2018. One possible route is by attracting technology IPOs through the creation of a new trading venue, a key project announced by President Xi Jinping, though policy makers will also be wary about the nation’s large retail investor base losing much money in case of swings.

The new high-technology stocks board is an important task assigned by Xi and the CSRC is working with the Shanghai Stock Exchange to implement it as soon as possible, Fang said. Here are some other comments he made during the forum, according to the China Securities Journal:

• An increase in equity financing is necessary to stabilize macroeconomic leverage
• Capital market reform will play a critical role in pushing financial sector reform
• Foreign capital inflows into the Chinese stock market may increase to 600 billion yuan ($89 billion) in 2019, Fang said
• Some U.S., Japanese, and European investment banks are in the process of obtaining 51 percent ownership in securities companies
• Some overseas investment banks have expressed interest in increasing stakes to 100 percent in two years, a move the CSRC will “greatly support”

To contact Bloomberg News staff for this story: Lucille Liu in Beijing at xliu621@bloomberg.net

To contact the editors responsible for this story: Sam Mamudi at smamudi@bloomberg.net, Jeanette Rodrigues, Colin Keatinge

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With assistance from Bloomberg