SSE and SZSE Jointly Release Implementation Measures for Evaluation of Practice Quality of Sponsor Institutions Guided by Listed Company Quality (Trial)

21 Jul 2023

Listed companies serve as the cornerstone for the sustainable growth of the capital market. Enhancing the quality of these listed companies constitutes a crucial avenue toward bolstering the appeal and vigor of the capital market, as well as fostering its stable and sound development. In order to adapt to the comprehensive implementation of the registration system, urge sponsor institutions to strengthen their quality awareness, accelerate the transition from focusing on "approvability" to focusing on "investability", and enhance the quality of listed companies from the source, the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE) jointly released the Implementation Measures for Evaluation of Practice Quality of Sponsor Institutions Guided by Listed Company Quality (Trial) (hereinafter referred to as the Evaluation Measures) on July 21, 2023, which took effect from the date of publication.

The Evaluation Measures carry out a multi-angle evaluation of the quality of listed companies based on the perspective of investors, so as to establish an organic connection between the process and outcome of practice of sponsor institutions. Overall, the evaluation exhibits the following characteristics:

I. Highlighting the goal orientation and scientifically setting up the evaluation system. The evaluation system consists of three parts: quality evaluation of listed companies, quality evaluation of the sponsor business, and adjustment of evaluation scores. Among them, the quality evaluation of the listed companies accounts for 70%, focusing on three dimensions that investors are generally concerned about, i.e. operational quality, market performance, and governance quality. The quality evaluation of the sponsor business accounts for 30% and mainly measures the practice of sponsor institutions in initial public offering projects, including project review results, quality of disclosure in prospectus, and due diligence procedures of sponsor institutions. The adjustment of evaluation scores does not involve weightage and adjusts the evaluation results based on project risks. In general, the evaluation system has clear emphasis and objectives, with scientific, objective, and highly practical evaluation indicators.

II. Direct "C" for major offense or violation. Based on the evaluation scores of sponsor institutions, they are classified into three categories: A, B, and C. In order to strengthen the punishment for major offense and violations, if a sponsor institution is filed for major offense such as fraudulent issuance by the issuer or financial fraud within three years of listing, the evaluation result will be C according to the principle of lifelong accountability. In addition, if a sponsor institution or its staff is determined to have engaged in bribery in the field of issuance and listing, the evaluation result will also be C.

III. Adopting differentiated regulatory measures and enhancing the constraints on sponsor institutions. According to the classification results of evaluation, the SSE and SZSE will implement differentiated regulatory measures on sponsor institutions in the examination of their initial public offering projects, by increasing or decreasing the proportion of non-problem-oriented on-site supervision. Sponsor institutions that have been evaluated as C for three consecutive times will generally be subject to on-site supervision for all their initial public offering projects or problem-oriented on-site inspections according to rules.

IV. Establishing a transitional period to allow the market to make adequate preparations. The evaluation of sponsor institutions' practice quality guided by listed company quality is a new regulatory practice. In order to enable all parties to make adequate preparations, the Evaluation Measures provide a one-year transitional period. Within the one-year period from the implementation of the measures, the evaluation results will neither be published to the public nor be used as the basis for differentiated regulatory measures.

During the formulation process of the Evaluation Measures, relevant departments earnestly and extensively sought opinions and suggestions from securities companies and institutional investors through written communication, discussions, and surveys. Market participants fully acknowledged the evaluation work and put forward opinions and suggestions based on their own practical experience. After careful study, adjustments and improvements were made to the content of the Evaluation Measures regarding transition period arrangements, inclusiveness towards pre-profit companies, and indicator settings.

Moving forward, the SSE and the SZSE will earnestly carry out the publicity, interpretation, and implementation of the Evaluation Measures in accordance with the unified arrangement of the China Securities Regulatory Commission. The two Exchanges will timely summarize the implementation effects of the Evaluation Measures, optimize the arrangement of evaluation work in a timely manner, and consistently guide all parties to strengthen their quality awareness, enhance the quality of companies preparing for listing, and improve the sense of gain and protection of interests for investors.