Shanghai Stock Exchange calls out suspected IPO tampering ahead of Ant Group debut

September 21, 2020.

China’s Shanghai Stock Exchange told investors to “strictly abide” by rules for initial public offerings over concerns that buyers, sellers and underwriters may have colluded to suppress prices on its technology board.

The exchange said Monday that some players are suspected of engaging in unfair “negotiated” offers in their subscriptions to shares of new listings and that some underwriters failed to write independent, objective research reports. The warning comes as Chinese regulators opening the country’s capital markets seek compliance with a new IPO regime.

Internal regulators at the exchange’s -style STAR Market met with company leaders and the Securities Association of China to jointly promote “seriousness, objectivity and professionalism” on the year-old technology board, where analysts have reportedly noticed suspiciously low offering prices. The exchange will take steps to ensure regulatory compliance going forward and guard the “hard-won” reforms of China’s securities market, it said.

The STAR Market is anticipating a big boost in October, when fintech reportedly plans to launch an IPO seeking a record $30 billion through the Shanghai and Hong Kong exchanges. The Shanghai exchange approved the company’s proposed listing on the STAR Market last week.

The high-profile debut could cast a spotlight on China’s wide-ranging financial market reforms, which the country has taken to boost its competitiveness with other major markets in the developed world.

In August, China’s highest court said the judicial system will crack down on securities fraud under new rules for IPOs. The Supreme People’s Court issued new guidance on the role of courts in implementing a registration system for public stock issuance, which the central government said would boost monetary penalties for violations and standardize enforcement criteria. 

The new IPO rules themselves were rolled out in March following a testing period in the Shanghai Stock Exchange. Under the new law, companies gearing up for public offerings can apply directly to authorized exchanges rather than to the government itself. 

The law also prescribed heavy penalties for companies that violate disclosure requirements or other issuance conditions. A fraudulent listing could cost a company CNY 20 million ($2.85 million) or the entire proceeds of the IPO, according to the central government.