Shanghai Exchange insists on rational trading of new issues

IPOs have begun again in China this week after a hiatus of 18 months and the Shanghai Stock Exchange has said that it is watching carefully to ensure that trading in those offerings is conducted in an orderly manner.

The Shanghai Stock Exchange (SSE) has said that it requires investment in initial public offerings to be conducted on a “rational” basis.

IPOs have begun again in China this week after a hiatus of 18 months, with the first arrival to market being Neway Valve (Suzhou) Ltd.

SSE research has determined that there was immediate price volatility in those IPOs conducted before the 2012 suspension, and it doesn’t want to see a repeat of those trading patterns.

SSE recently issued a rule titled “notice of toughening regulation on trading at the preliminary stage of new shares listing”. This established a trading suspension mechanism in the event of “abnormal fluctuations in trading” during the early stages of listing.

For Neway Valve, an official of the SSE has said that the SSE will regulate the entire process of pre-market opening, market trading, and post-market closing.

The SSE said it has visited a number securities companies and offered on-site supervision and guidance for their administration of trading behaviours of clients during new share listings.

The SSE has laid out a number of penalties for transgressions. During the first ten trading days of listing, if an account has any abnormal trading behaviour, such as the in-session buy-in amount on a single day exceeding 0.1% of the number of relevant floating shares, the SSE will make in-session trading suspension for the account on that day.

If an account’s in-session trading has been suspended several times, the SSE will impose a disciplinary punishment, limiting purchases of A shares in the Shanghai market for a longer period. Beyond that, penalties become more serious, such as designating account holders as ineligible investors.