Q&A on SSE Releasing “Interim Provisions on Application and Recommendation of Enterprises for Issuance and Listing on SSE STAR Market”

27 Mar 2020

Today, with the approval of the China Securities Regulatory Commission (CSRC), the Shanghai Stock Exchange (SSE) issued the “Interim Provisions on the Application and Recommendation of Enterprises for Issuance and Listing on the SSE STAR Market” (the “Interim Provisions” for short). An SSE official has answered the questions about the background, contents, implementation and other issues concerning the “Interim Provisions”.

Q1: Can you brief us on the background and purpose of formulating the “Interim Provisions”?  

A: Recently, the CSRC issued the "Guidelines for Evaluating the Attributes of Science and Technology Innovation (for Trial Implementation)" (the "Guidelines" for short), which provides a system of specific indicators for evaluating the attributes of sci-tech innovation, defines the characteristics and scope of the enterprises with the attributes of the sci-tech innovation, and also calls for supporting and encouraging the enterprises that meet the criteria for the attributes of the sci-tech innovation in applying for listing on the SSE STAR Market.

Formulated in accordance with the spirit and requirements of the "Guidelines", the "Interim Provisions" issued by the SSE details the scope of the industries supported by the SSE STAR Market, and fully reflects the inclusiveness of the SSE STAR Market in serving the high-tech industries and strategic emerging industries. The "Interim Provisions"aligns the system of indicators for evaluating the attributes of sci-tech innovation with the positioning of the SSE STAR Market. On that basis, the "Interim Provisions" streamlines and optimizes the procedures and requirements for self-evaluation, verifications and checks, and review inquiry of the SSE STAR Market. The porpose is basically two-fold:

First of all, it is necessary to adhere to and make sense of the positioning of the SSE STAR Market, and continue to improve theMarket. The "Implementation Opinions on Establishing the Science and Technology Innovation Board and Piloting the Registration-based IPO System on the Shanghai Stock Exchange" has put forward basic requirements concerning how to understand the positioning of the SSE STAR Market. The "Guidelines" issued by the CSRC provides a system of indicators for evaluating the attributes of sci-tech innovation that can be followed through in practice, calls for supporting and encouraging the enterprises that meet the criteria to apply for listing on the SSE STAR Market, and further settles the market expectations.

The “Interim Provisions” highlights the importance of meeting the evaluation requirements for the attributes of sci-tech innovation in determining whether an issuer is in line with the positioning of the SSE STAR Market, and further stresses the key points and approaches in understanding the positioning of the SSE STAR Market. With the provisions, the general requirementsare institutionalized and specified, and the system well established to ensure the adherence to the positioning of the SSE STAR Market. The formulation and implementation of the abovementioned provisions will help attract the eligible enterprises and give better play to their role as as exemplars and leaders in promoting the integration of capital and technology.

Secondly, it is necessary to enhance transparency and facilitate the application of eligible enterprises for listing on the SSE STAR Market. According to the current arrangements, the applicants shall conduct self-assessment regarding whether they are in line with the positioning of the SSE STAR Market, and the intermediaries shall carry out verifications and checks and issue opinions; in the review for issuance and listing of SSE STAR Market companies, the exchange shall pay special attention to whether the self-assessment of the issuers and the verifications and checks of the intermediaries are reasonable. In practice, the abovementioned institutional arrangements are proved basically feasible. However, it should be noted that the provisions on the positioning of the SSE STAR Market in relevant rules are general, wheareas in practice, it is complicated to evaluate a company’s attributes of sci-tech innovation and determine its“degree of sci-tech innovation” and the “contents of sci-tech innovation”. There were problems such as the issuer and the sponsoring institution are uncertain about whether the applicant is in line with the positioning of the SSE STAR Market, the inconsistencies in the forms and contents concerning the evaluation and verification, and the unduly strict and detailed inquiries about the information regarding the positioning of the SSE STAR Market in review.

According to the guiding requirements of the CSRC for evaluation of the attributes of sci-tech innovation and based on the practice in issuance and listing review for the SSE STAR Market, the "Interim Provisions" optimizes the requirements concerning how the issuer conducts the self-assessment and how the sponsoring institution carries out verifications and checks, simplifies the contents of evaluation and verification, and formulates the model formats. The assessment of the issuer and the sponsoring institution will focus on the evaluation indicators for the attributes of sci-tech innovation to highlight key points and simplify the operation. In the issuance and listing review for the SSE STAR Market, the exchange will also focus on the inquiry about whether the issuer conforms to the evaluation indicators for the attributes of sci-tech innovation, so as to make sense of the positioning of the SSE STAR Market, further reduce the information disclosure costs for issuance and listing and improve the efficiency.

Q2: Can you give us an overview of understanding the positioning of the SSE STAR Market? What is the relationship between the system of evaluation indicators for the attributes of sci-tech innovation and understanding the positioning of the SSE STAR Market?

A: Under the firm leadership of the CSRC, with the joint efforts of all parties concerned, the major national reform of establishing the sci-tech innovation board and piloting the registration-based IPO system has been successfully implemented. The registration-based IPO system focusing on information disclosure has been operating well, and the role of the SSE STAR Market in guiding the transformation to the innovation-driven economic development has been brought into play preliminarily.

Since the launch of the SSE STAR Market, in the review and registration of the companies applying for issuance and listing, the SSE has continued to build up the practical experience, and adhered to and make sense of the positioning of the SSE STAR Market in accordance with the reform arrangements and relevant requirements. Currently, the listed companies and applicants are mainly in the high-tech industries and strategic emerging industries such as new-generation information technology, biomedicine, high-end equipment and new materials.The SSE STAR Market has attracted a number of companies characterized by sci-tech innovation that are in line with the national strategies, own the key and core technologies and have outstanding capacity for scientific and technological innovation. The listed companies are generally at a high level of sci-tech innovation and boast a good prospect of growth.The information about the issuer's use of core technologies in production and operation has been fully and effectively disclosed. In general, the understanding of the positioning of the SSE STAR Market is in line with China's development stage of sci-tech innovation, the actual conditions of the enterprises characterized by sci-tech innovation in China, and the expectations of all parties concerned on the whole.

On the basis of summing up the experience in developing the SSE STAR Market, the "Guidelines" provides for a system of indicators for evaluating the attributes of sci-tech innovation. The "Interim Provisions" further stipulates that the positioning of the SSE STAR Market will be carried through based on the evaluation system. As a result, there is a relatively direct correspondence between the system of indicators for evaluating the attribute of sci-tech innovation and the implementation of the positioning of the SSE STAR Market. Specifically, among all enterprises within the scope of the industries served by the SSE STAR Market, if a company meets three regular indicators stipulated in the “Guidelines”, or fits with one of the five exceptional circumstances of outstanding capabilities of technological innovation, the SSE STAR Market shall provide targeted support and services, and the company may thus be directly and simply determined as conforming to the positioning of the SSE STAR Market. The move will help settle the expectations of the issuers in applying for listing on the SSE STAR Market, as well as enhance the operability in understanding the positioning of the SSE STAR Market.

The "Interim Provisions" also stipulates that the issuers, who have not yet met the requirements and indicators for the attributes of sci-tech innovation but can meet the standards within a short period of time, may go ahead with the process of submitting the application for issuance and listing on the SSE STAR Market if they consider themselves to be in line with the orientation of the SSE STAR Market after careful and objective assessments, but they will also face more rigorous evaluation, verification and review. During the review, the SSE will carry out the formal consultation with the Advisory Committee of Science and Technology Innovation for the SSE STAR Market regarding the issuer’s attribute of sci-tech innovation, and make the review judgments on the basis of the opinions provided by the experts. The abovementioned arrangements reserve necessary space for the enterprises that rely mainly on the core technologies in production and operation and can meet the evaluation indicators and requirements for the attribute of sci-tech innovation in a short period of time, so that they can timely use the SSE STAR Market to grow bigger and stronger.

Q3: Can you brief us on how to correctly understand the system of indicators for evaluating the attributes of sci-tech innovation in the "Interim Provisions", and please explain the relationship between the "conventional indicators" and "exceptional circumstances" in the system?

A: Based on the data for relevant companies in the industries and sectors of the SSE STAR Market, the system of evaluating attributes of sci-tech innovation is established to meet the financing needs of companies in related industries. According to the provisions of the "Guidelines", the "Interim Provisions" first details the scope of the industries and sectors that the SSE STAR Market focuses on, covering companies in high-tech industries and strategic emerging industries such as new-generation information technology, high-end equipment, new materials, new energy, energy conservation and environmental protection, and biomedicine. Also included in the scope of the SSE STAR Market are other companies in the areas characterized by in-depth application of scientific and technological innovations that are in line with the positioning of the SSE STAR Market, such as fintech and sci-tech services. The SSE STAR Market is both extensive and inclusive in serving companies with sci-tech innovation. Companies in the industry categories of the SSE STAR Market may apply for listing as long as they meet the conventional indicators or one of the exceptional circumstances.

The "conventional indicators" set in the evaluation system include the followingthree indicators: the proportion or absolute amount of R&D investment, the number of patents, and the compound growth rate of operating income or the amount of operating income. The three indicators constitute an organic body, respectively representing three aspects: R&D investment, R&D results, and the actual impact of R&D on the operation of the company. Those factors are highly logical and can comprehensively measure the R&D input and output and technology development of the company. The "exceptional circumstances" require that the company should have the core technology recognized by relevant authorities as having an internationally leading position or major significance for national strategies, obtain the national-level sci-tech awards, undertake the"National Major Sci-tech Special Projects", replace the imported key equipment and products, or own more than 50 patents.

Setting “conventional indicators” and “exceptional circumstances” to evaluate a company's attributes of sci-tech innovation from different perspectives is aimed at more effectively grasping the positioning of the SSE STAR Market. The "conventional indicators" are generally applicable to companies with advanced technology and high-level attributes of sci-tech innovation. The "exceptional circumstances" are particularly suitable for companies with outstanding capacity for scientific and technological innovation, as they materialize the requirement for the SSE STAR Market to “prioritize companies that are in line with the national strategies and have key core technologies and outstanding capabilities of sci-tech innovation in supporting their issuance and listing”, which helps to overcome the incompatibility that may arise from the relative rigidity of the "conventional indicators."

Q4: Can you brief us on what should be noticed in the issuers’ self-assessment and the sponsoring institutions’ verification after the “Interim Provisions” are published?

A: As mentioned above, after the “Guidelines” and the “Interim Provisions” are published, a direct connection has been established between the evaluation system for the attributes of sci-tech innovation and the positioning of the SSE STAR Market. With regard to the positioning of the SSE STAR Market, the "Interim Regulations" makes further improvement in how the issuers should conduct the self-assessment and how the sponsoring institutions should carry out verification and make professional judgments,. The "Interim Regulations"provides that the self-assessment and verification should be based on the system of indicators for evaluating the attributes of sci-tech innovation, and provides unified formats. The issuers and sponsoring institutions should carry out self-assessment for the positioning of the SSE STAR Market in accordance with the requirements of the "Interim Provisions" and the formats provided in the attachment.The self-assessments and special explanations submitted should highlight the key points, present in a clear and direct way, and evaluate whether the company is in the industries and sectors of the SSE STAR Market, and whether the company has the attributes of sci-tech innovation, etc. When sponsoring a company for offering and listing, the sponsoring institution shall check the industry and sector that the issuer belongs to and ensure the rationales for recognizing the attributes of sci-tech innovation are authentic, objective and reasonable. The sponsoring institutions should issue opinions on the issuer in accordance with the formats attached to the “Interim Provisions”, with the focus on the verification method, the verification process and evidence obtained from the verification.

According to Article 9 of the “Interim Provisions”, if an issuer, who mainly relies on the core technology for production and operation, considers itself to be in line with the positioning of the SSE STAR Market after careful and objective evaluation, and its attributes of sci-tech innovation will reach the requirements of the “Guidelines” for within a short period of time, when submitting the application for offering and listing on the SSE STAR Market, the issuer shall have a separate and detailed explanation on the self-assessment concerning the positioning of the SSE STAR Market, and provide sufficient and reasonable rationales. The sponsoring institution shall conduct special verification on the rationales provided by the issuer, and issue opinions.

Q5: What is the relationship between the "Interim Provisions" and the requirements concerning the recommendation for listing and the positioning of the SSE STAR Market, provided in the rules issued earlier by the SSE? How should we grasp the positioning for the companies that applied for listing before the publication of the “Interim Provisions”?

A: Earlier, the SSE issued rules such as the “Rules for the Offering and Listing Review of the Stocks on the SSE STAR Market”, the “Q&As on the Offering and Listing Review of the Stocks on the SSE STAR Market” and the “Guidelines of the Shanghai Stock Exchange for Recommending Companies for Listing on the SSE STAR Market”, which forms a complete system of rules covering recommendation, application, acceptance, review, offering and underwriting, etc. Based on the application and recommendation, the "Interim Provisions" makes special requirements on some key issues, such as how the issuer should conduct the self-assessment regarding the attributes of sci-tech innovation and the positioning of the SSE STAR Market, and how the sponsoring institution should carry out special verifications. At the same time, the "Interim Provisions" specifies the requirements for inquiries concerning the positioning of the SSE STAR Market and disclosure of relevant information in the offering and listing review.

The "Interim Provisions" has been issued and implemented with the approval of the CSRC, and the “Guidelines of Shanghai Securities Exchange for Recommending Companies for Listing on the SSE STAR Market” (Shang Zheng Fa [2019] No. 30 Document) are abolished at the same time. If the contents concerning the positioning in other rules and Q&As on review are inconsistent with the "Interim Provisions", the "Interim Provisions" shall prevail. After the implementation of the "Interim Provisions", the evaluation on the attributes and positioning for companies that newly submit the application for listing shall be carried out based on the “Interim Provisions”. With regard to companies that applied for listing before the publication of the “Interim Provisions”, the evaluation will still be conducted in accordance with the provisions and requirements at the time of their submission.

Q6: Can you brief us on how to effectively implement the requirements under the current institutional arrangement, such as supporting and encouraging the companies in applying for listing on the SSE STAR Market?

A: Establishing the SSE STAR Market and piloting the registration-based IPO system are major strategies decided by the Party Central Committee and the State Council to further implement the innovation-driven development strategy, promote the development of high-tech industries and strategic emerging industries, and improve the basic regimes of the capital market. Improving the pilot program of the registration-based IPO system and the SSE STAR Market is still an important task in the reform of the capital market, also a common responsibility that should be taken by all parties concerned. To support companies with attributes of sci-tech innovation to list on the SSE STAR Market is an intrinsic drive to improve the market, and should become a consensus of all parties. The SSE will effectively implement the evaluation system for the attributes of sci-tech innovation and related requirements, in accordance with the unified arrangement made by the CSRC, and spare no efforts in developing the SSE STAR Market. In the near future, the SSE will focus on the following tasks:

First of all, the SSE will proactively offer market services. With the evaluation system for the attributes of sci-tech innovation established, it will be more convenient for issuers to apply for listing on the SSE STAR Market. The SSE will step up the efforts in market service, and promote the “Guidelines” issued by the CSRC and "Interim Provisions" released by the SSE with a focus on their significance to the SSE STAR Market. The SSE will organize targeted training for the companies with plans for the listing and sponsoring institutions, and provide information about the evaluation for the attributes of sci-tech innovation as well as the positioning of the SSE STAR Market.

Secondly, the SSE will optimize the review for offering and listing on the SSE STAR Market. Issues concerning the attributes of sci-tech innovation and the positioning of the SSE STAR Market are important contents in the offering and listing review. The SSE will, according to relevant provisions of the “Guidelines” and the “Interim Provisions”, optimize the review inquiries related to the issuer's attributes of sci-tech innovation and the positioning, highlight targeted and material information for review inquiry, and improve the quality of review inquiries and information disclosure. The SSE will urge and guide the issuers and sponsoring institutions in disclosing the information concerning the attributes of sci-tech innovation according to the “materiality principle” and further reducing the redundancy of information disclosure in the prospectus and the replies to the inquiries. Meanwhile, the SSE will exempt issuers from disclosing the information that involves commercial secrets, in accordance with law and regulations.

Thirdly, the SSE will intensify supervisionon the sponsoring institutions. It is an important responsibility for the sponsoring institutions to correctly understand and implement the requirements of the “Guidelines” and the “Interim Provisions”, recommend companies that are in line with the positioning for listing on the market, and improve the SSE STAR Market. The SSE will carry out supervision, guidance and dynamic tracking about the sponsoring institutions’ fulfillment of their duties such as recommending the companies applying for listing and report relevant situations to the CSRC in a timely manner.

Fourthly, the SSE will strengthen communication and cooperation with relevant parties. The SSE STAR Market is a major deployment for the capital market to realize the national strategy, which has provided a favorable environment and a solid foundation for all parties to make concerted efforts to better the market. The SSE will, in accordance with requirements of the CSRC, work with parties concerned to implement the “Guidelines” for supporting and encouraging companies with the attributesto apply for listing. The SSE will timely inform the issuers’ local government and other authorities of the guidelines for evaluating the attributes of sci-tech innovation as well as the progress of application, so as to urge all parties concerned to provide support together.