IPO registration system "America version".

In November 15th, the CPC Central Committee issued a "decision of the CPC Central Committee" on deepening reform, decision points out clearly, improve the financial market system, to promote the stock issuing registration system reform, the multi channels to promote equity financing. Industry estimates, advanceStock issuing registration system reform issue, listing Corporation will expand the size, the issue price will be reduced, the future market more market-oriented, also means that the stock market expansion era.

The registration system is considered to be a major positive, direct stimulation of the brokerage plate overall strength. The 18 day, the brokerage stocks opened higher, the entire brokerage plate or more than 6%, CITIC Securities Trading, securities, Haitong Securities, Soochow securities rose over 8%, China Merchants Securities, Huatai Securities rose 6%.

The registration system, mainly refers to the issuer for stock issuance, must according to all kinds of information disclosed completely and accurately to the securities regulatory agency to declare. The securities regulatory agency is responsible for comprehensive, application documents of the accuracy, authenticity and timeliness of formal review, not the issuer's qualification for substantive examination and judgment of value and the distribution firm shares Liangyou left to the market to decide.

The market generally felt that the registration system of securities issuance mechanism only for registered file review the form, not substantive judgment, but this does not seem to accurately understand.

The Law School of Tsinghua University postdoctoral Shen Zhaohui in a paper in 2011 a comprehensive description of the America registration system picture, reveals the "registration system" and "approval system" similarities and differences. It points out that America type registration system in operation, in fact, full of auditing. This followed by domestic American type registration system has great reference significance.

Abstract: USA Mainland Company within IPO America constitutional structure, in the federal system, the general must be in the federal and state (distribution or sale of the state) two level registered at the same time (with the exception of federal or state exemption from registration situation), this is the so-called dual registration system (Dual Registration): the Federal Register System Based on information disclosure, the federal securities regulatory authority is strictly limited, and the states of securities issuing supervision for more than 100 years common substantive audit, control of securities investment risk. This is a complete USA Mainland Company IPO supervision system.

At present our country domestic textbooks to the existence of auditing standards, the securities issue system is divided into registration system and approval system, that America registration system for company IPO not having to undergo substantial examination, so proud of Chinese local IPO regulatory reform direction; in fact, the audit dual registration system of the United States is full substantive audit. China Company listed on the United States, the international board belongs in the USA listed, exemption, registration and examination as to substance, only in the federal register. If only from the external perspective one-way observation USA IPO supervision system, will limit the people know America Mainland Company first listed supervision system.

Keywords: IPO; substantive examination; registration system; approval system

The French scholar Matthew Du Gan in the guidance on how to carry out the comparative study of international wrote: "dichotomy will be simplified everything, so two types has no ability to identify more precisely than seven, nine or twenty types....... (two points) category are representative of their attempts to explain the reality is too typed....... The dichotomy of natural breeds continuum concept, it ignores the classification and other classification link concept shaft. In addition to either this or that, it does not provide any other possibility".

Either this or that "registration system" and "approval system" dichotomy problems. Domestic issuance of securities supervision system "registration system" and "approval system" dichotomy commentary on the registration system, the misunderstanding. In fact, the developed capital market in registration system also has a certain degree of auditing.

There are two important arguments: first, American federal registration system is the essence of audit to state as the basis, the 1933 federal "Securities Law" to establish the registration system to supplement the shortage of state securities regulatory easily by investment banks to avoid the essence, while the State Securities Law and regulation content less attention in domestic research, especially is the federal constitutional structure of federal securities supervision and securities supervision coexist; second, the Hongkong Stock Exchange listed on the main board of the "rules" and the listing application audit more substantive examination.

Look at the specific America. American the issuance of securities listed on the "registration" is divided into: (1) the federal level, in order to disclosure based registration system; (2) the state level, the essence of auditing based registration system.

This is a whole securities supervision. The former is established in 1933 USA "Securities Law", the USA sec supervision and set up by 1934; the latter precedes the existing federal securities regulation already, 1911 first established by Kansas, after America states to follow, has 100 years of history. At the beginning of establishment, the federal registration system is the supplement, substantive regulation. The exact name USA issuance and listing of securities regulatory system should be dual registration system.

A popular misconception: "registration system" and "approval system" textbook

The registration system and approval system is now in the textbook used by the securities issuance and listing system of two element division method. Generally stated as follows:

"National securities issuance examination and approval system can be divided into registration system and approval system two kinds of forms."

The registration system refers to the issuer to issue securities in the preparation of various materials in accordance with the law, must be disclosed completely, accurately, reported to the competent authority and apply for registration of securities....... Formal review, as the issuer the nature of business, offering financial and human resources, quality and development prospects, issuing quantity and price of substantive condition are not as issued audit requirements....... Don't make a value judgment. The declaration documents submitted, after the prescribed period, the competent authorities without objection, application shall go into effect automatically.

"Approval system refers to the issuer in the issuance of stocks, not only to fully open the real situation of enterprises, but also must comply with the provisions of relevant laws and the necessary conditions for securities regulatory organs;...... Also on the issue of whether fulfilled the issuing conditions for substantive examination."

Formal examination (Registration) and substantive examination (examination) distinction lies in whether the audit authority to judge the value of the company, is registered division standard system and the approval system.

Substantive examination has two meanings: one is that the administrative organ for verification and judgment of the authenticity of the disclosure, another is refers to the investment value of administrative organs to the disclosure of the contents of the judge. In the definition of stock issuance of approval system, second kinds of meanings generally take the examination as to substance, namely the judgment of value and risk of investment securities of the company. Because the application materials are true, is mainly composed of market intermediaries (such as lawyers, accountants, auditors) verification and guarantee.

Thus, the binary opposition between the two formed the audit and auditing:

(1) form audit -- China researchers generally typical that it represents is America -- refers to the disclosure of philosophy, "only check the open content is complete, format compliance, regardless of the open content is true and reliable, more regardless of company management condition...... Adhere to the principle of free trade in the market economy, that the government has no right to forbid a security issue, no matter how bad of its quality."

(2) substantive examination, the corresponding English is Merit Regulation, a widely quoted definition is "authorized supervision system, unless the issuance of securities and the specific conditions of related transactions (1) can ensure the promoters have a fair and public investors, and to the public investors to provide a reasonable proportion and bear the risk of earnings, or regulators may not be approved." Professor He Meihuan thinks, this not only protect against fraud, and protect their investment is not bad.

USA Mainland Company IPO regulation: substantive examination registration with the state of the union of the parallel

Look at the two USA Mainland Company within the IPO of real examples, which vividly describes the America IPO dual registration system operation picture.

Cases of 1:DHB company, is a subsidiary of BU, the application for registration submitted to American sec and some state, apply for the issuance of $100000000 of debt securities.

Prospectus disclosed information shows that the company failed to meet quality standards Texas requirements of the securities commission. The issue has not been able to meet the expenses shall not exceed the earnings 15% states require. Ask the company registration requirements in accordance with federal sec disclosure, through the SEC review, but has not passed the Texas audit requirements. Company quality regulations than Texas pipe audit decision notice, give up for registration in Texas.

However, the underwriter is still to the residents of Texas 5.5million bond sales. Texas regulators issued, rebates cancellation request. The underwriter reluctantly agrees, all the residents of Texas have been back. After the event occurs for regulators to Qing Xing: the issuer's parent company, BU company declared bankruptcy, other states of investor money most boondoggle.

Cases of 2:TI company to SEC and some related state to apply for IPO registration. But, according to the prospectus, the company relies heavily on the CEO have the following questions:

(1) had violated the California employment regulation and 1982 state labor law; (2) in 1980, not registered commodity futures traders engaged in business; (3) where he was and a corporate issuers industry chairman postDuring the service, the company went bankrupt, leaving a lot of debt. On these issues, SE C limited to the audit authority, only in accordance with the disclosure requirements, issued by allowing the issuance application decision.

However, Texas Securities Commission in the substantive review, found the problem serious conflicts of interest, there is also a no disclosure, according to CEO's $350000 fraud litigation. Substantive audit also come to another conclusion: distribution costs are too high, liquidity is negative, the issue price is subjective and not fair. At the same time have disclosure and auditing supervision authority Texas Securities Commission issued the veto (DenialOrder), make the issue up in the state of the issue.

The above two examples in twentieth Century 80's.. From the time the federal and state comparison of issuing and listing of the provisions, most registered in SE C IPO, but also for most of the states have overlapping jurisdiction, which is to be registered in the state, accept the substantive examination.

In 1996, in order to reduce the jurisdiction double registration brings overlap, America Federal Parliament passed the capital market improvement act of famous "" (NATIONAL SECURITIES MARKETS IMPROVEMENTACT OF 1996), certain provisions of securities by the federal jurisdiction, the State shall intervene in these securities, known as FederalCovered Securities, is the literal translation of "federally regulated securities", thus partially solved problem with overlapping jurisdictions federal and state.

"Capital market Improvement Act" only to solve part of the problem of federal and state jurisdiction overlap. For example, although some under federal securities laws have been exempted from the Federal Register "transaction" 10 exempt from the state securities registration, however, there are many federal exemption, at the state level is not exempt, which makes the issuer even made the federal exemption, still want to related state register. For example, according to the federal Regulation D Rule 504 sec and Rule505 issue, still need to be interested state registration. For the federal exemption, the war finished only half the IPO registration process "". The company must state securities laws and check the securities offer or sales associate, can be exempted from registration state.

One, the federal USA: sec actively involved in IPO audit

American sec registration task assignment registration audit to the audit team, the audit team is usually composed of lawyers, accountants, analysts and the company's industry expertise. The SEC has many industry professionals, experts such as petroleum, natural gas, mining and other fields, the application report them to review their respective domains in their companies. An audit team has a lead auditor. If the company is an emerging industry, and high-tech industry, or more complex industry, the SEC will tend to the registration book conduct extensive research, accordingly, audit time is long.

In comparison, Chinese SFC starting pre audit, audit staff composed of all legal and financial people, there is no industry. In 2009, the pre start gem still no industry, but in the IEC added five from the Chinese Academy of Sciences, Ministry of science and technology and the University of industry experts.

China and the United States securities regulatory authorities will be for registration book issued preliminary audit opinion: Chinese called "feedback" letter, America called "opinion letter" (Comment Letter). Chinese CSRC feedback letter many questions about whether the company operation "specification", such as capital contribution is true, whether to comply with statutory procedures, the transfer tax is legal, and USA sec opinion letter mentioned the most problems about accounting aspects.

The following is American sec often mentioned in the opinion letter, supervision concerns can be seen from the USA sec first audit:

(1) the company's products, services and other business;

(2) the new product development, production, marketing and customer satisfaction, are these all the information needed to disclose;

(3) management background and work experience are missing or false, if there is failure of work experience;

(4) whether the transaction has not been disclosed;

(5) the financial statements and footnotes, and risk factors, further disclosure of financial statements;

(6) the discussion and analysis of management is not sufficient, especially the discussion on business.

According to the 1933 "Securities Law" eighth (b) Festival, USA SEC have the power to issue a "refusal of registration application" (RefusalOrders), stop the registration effect.

American SEC have more preference on the dependent opinion letter, delay correction of informal practice (less informal practice), especially the written feedback between SEC staff and the issuer of a lawyer (written correspondence) and telephone communication (telephone conversation), until the issuance of all defect correcting the SEC identified (Deficiencies). USA sec don't mind and issuer opinion letter Q & a "consumption" go down, because the SEC does not depend on American approved the issuance of a living. Practitioners warning, "if the commission members, stubborn, on this issue to the SEC naysayers, the company will eventually lose the chance. In other words, the SEC can be extended to any issue what it believes is right."

So, what is SEC in IPO audit concern to the company "defect" (Deficiencies)? These defects may allow the issuer IPO registration request cannot be effective, the effect is equivalent to Chinese under the examination and approval system of pre-trial quantui or IEC veto. According to Professor Hazen, "there are common defects":

(1) if the issuer has a history of over sales or income unfavorable trends, the issuer shall fully explain. The SEC position is attributed to the decline in income, the cost increase is not sufficient. SEC requirements, full disclosure (fulldisclosure) means the exact disclosure which costs rose and rose. Further, the issuer shall explain the rise in the cost of reasonable expectations will continue; if it is, then the performance of the past or to a reasonable guide future.

(2) failed to put the following information disclosure: the proportion of contribution to the issuer of different products, different lines, different business lines, branch, subsidiary of the issuer, the sales income. The SEC according to the requirements of departments and business line, to identify the source of income or loss.

(3) failed to adequately, fairness and detailed disclosure of the use of funds.

(4) the issuer and the management layer, the major shareholder (principal shareholders) transactions. This relates to the internal transaction (insider transactions) and conflicts of interest, must be disclosed.

(5) for the general investing public, whether to read the prospectus (readable) and easy to understand, such as the use of plain English (plain English), tables, graphics etc..

(6) the introduction statement or inadequate, or lengthy. The introduction part is often the risk factors that. The SEC requirements, the introduction should include all may make the IPO speculative factors, at the same time, the company's the one and only (unique) risk factors, rather than suggesting that some of the industry's common risk factors. SEC thinks, lengthy disclosure is fuzzy, which violates the spirit of full disclosure.

(8) inappropriate transactions should be disclosed and political entities, such as political donations.

Full disclosure of regulatory standards is related to all the substantive information securities investment value and the investment decision must be disclosed, and determine what is "real" (materiality) information, in the author's opinion, is America federal "Securities Law" is the most important, the most complex problems, become the important work USA sec the IPO audit and USA of judicial review of the court, resulting in a lot of rules and cases.

However, there are still some cases that the SEC to resort to "Securities Law" section eighth "Refusal" or "halt" (Stop Order), especially when the SEC believes the issuer did not make a good faith effort, in order to comply with the "Securities Law" requirements.

In order to decide whether or not to issue a stop order, SEC has the right to check. During the inspection, SE C has the right to take testimony and the inspection of documents, investigation of the issuer, underwriters, any other person. SEC may ask them to provide balance sheet and other financial statements. The issuer in cooperation with SE C in the negative or resist behavior may lead to SEC issued registration halt.

From the examination period on the federal level, American registration system is not the people thought it better within twenty days -- submitted IPO application to SEC, IPO is automatically registered. Because once the SEC comments, the issuer shall submit the amendment, and from every amendment or supplement the date of submission, the period of twenty days beginning again.

In practice, SEC is actively questioning: "a project experience, America CSRC first round only put forward 80 questions, second wheel is reduced to 30 to one, but in subsequent rounds, American CSRC on the listing of the company and employees of private equity option accounting treatment and disclosure in hot pursuit, each round have raised 20 questions, did not give up or reduce the signs of problems." This reflects the USA sec IPO audit strictly.

In contrast, China SFC IPO preliminary first round generally puts forward thirty problems, compared America sec first puts forward seventy or eighty problems, Chinese SFC IPO examination questions to little more than half.

Two, the state: the substantive examination USA states of IPO

1 quality regulation: the investors "fairness, justice and equality" issue

In general, America states on auditing the issuance of securities is the principle of the issuance of securities to investors must "fairness, justice and equality" ("fair, just, and equitable").

In some strict (tough) securities supervision of the substance state, when the internal or promoters with respect to the issuer investment proportion of public investors very little, or internal people get equity with obvious price, the state securities regulatory authorities refused to register or additional conditions (such as insider trading gains by third party hosting for a period of time, or until some condition is satisfied). Even, if the issuer proposed issuance price by the state securities regulatory authorities considered too high (for example, the issuer's earnings history does not support it proposed the issue price), or issued to the public vote inequality, or underwriting fee unreasonably high, all these can lead to the issuance of securities was rejected state securities regulatory authorities.

Specifically: first, real control of underwriting fees and issuing expenses.

Why supervision fees?

(1) limit the underwriting fees and the cost of issuing, avoid excessive dilution of the investing public capital, helps to ensure a reasonable proportion of the funds can fall into the issuer;

(2) the concept is, investment banking industry in the process of natural selection, underwriting fees and issuing expenses higher, suggesting that the securities investment quality it any worse (poorer investment quality). Underwriting fees and issuing expenses directly into a target of investment risk level, and reduce the risk of investment is the theoretical goal of blue sky law.

Second, the conflict of interest of audit.

Third, cheap stock (cheapstock). Many cheap stocks, are regulators think to public investors unreasonable, unfair, and thus the listing application was rejected. Its justified reasons, to prevent excessive dilution of public investment, preventing internal does not hold a reasonable proportion of the issuer company, but in fact the issuer's capital is provided by the public.

Fourth, options and warrants (optionsand warrants) of the reasonable proportion.

Fifth, the issue price is reasonable.

Sixth, shareholder voting is complete.

Seventh, how to issue interest and dividend history.

Eighth, the promoters of equity investment: some states require the sponsor must on the issue of investment and a certain proportion of the shares, the promoters including founding shareholders, including venture capitalists into the company's shareholders before IPO.

Ninth, other registered standard.

Three registration modes and 2 State Auditing

When American Mainland Company within the IP O does not meet the 1996 "capital market Improvement Act" federal priority jurisdiction, and does not meet the registration exemption, relevant state, so, the issuance of securities must be registered to the state securities regulatory authorities. If the issuance of securities of interstate, also trigger federal securities.

Generally speaking, the State Securities Law provides three different registration: registration, notification (Notification) coordination (Coordination) registration and qualification (Qualification) registration.

Complete the state securities laws require registration in the form of a notice, is only required to submit a short form registration. This convenient registration method is only applicable to the issuer and the predecessor to have at least five years of operating history of the mature (e.g. no default, the company's average net income).

Registered coordination of federal and state, suitable for those who have been in the "Securities Law" on 1933 registered securities. These release people only need to submit three copies of the Federal Register prospectus to the securities regulatory authorities, plus additional information requested by the state.

Qualification registration requires not only the essence of disclosure completely, and the authorization state regulatory authority for securities issuance auditing. In essence, under the guidance of the state audit, the securities regulatory authorities have the right to not reach "fairness, justice and equality" as the reason, to prevent the unqualified issued in the state or to residents of the state.

What types of the issuance of securities may be subject to qualification registration? An example from Kentucky, mostly in the state distribution (intrastate), these distribution belongs to the federal law, private, but by far the most time-consuming, the most requested the state level qualification registration.

Different securities regulatory concerns 3 US

We further compare American state substantive audit focus and China SFC Fashen Wei substantive audit focus, can get an interesting finding: between the two supervision or auditing focus almost no overlap.

Introduced in front of nine standards in the issuance of securities to quantify "fairness, justice and equality" aspects of the America States, these nine standards focus on different time into equal transaction between the shareholders of the company, focuses on the fairness between different investors, especially public investors into the direct protection in IPO.

And China SFC Fashen Wei substantive audit concerns mainly the issuer itself, also is a quasi listing Corporation as the main body, the quasi listing Corporation audit plans, affiliated transactions between the listing Corporation and large shareholders, audit plans to listing Corporation profit ability, etc.. In short, Chinese 发审委 Commission audit is the quasi listing Corporation as the main center.

IPO supervision coordination 4 America federal and state: FederalCovered Securities

According to the 1996 federal Congress "capital market Improvement Act", the total sum, most federally registered public offering of securities, state regulatory notice register or register only coordination; some federal exemption securities or trading, but also from state regulation; the federal exemption, the 1996 legislation not involved, mostly state the issue (intrastateoffering) and regulation A, regulation D rule 504505; fourth (2) non - public offering of festival exemption, unless you abide by the SEC rules, not Legislative Coordination in 1996. Federal regulatory priority logic is, those trading in federal waivers, only when the issue of buyers to immature (unsophisticated purchasers) are only at the same time, state registration jurisdiction.

The specific point of view: first, according to the 1996 "capital market improvement act of 1933" revised "Securities Law", listed in the following Exchange listed or authorized securities, exemption from state registration obligations: the New York stock exchange, USA Stock Exchange (American Stock Exchange), or the NASDAQ national market system (National Market System of the Nasdaq Stock Market) the SFC believes, and American listing standards to the exchange standards of other national securities exchange.

In addition, in the state security law level, 1956 America "Securities Law" unity, after the 36 states that the New York stock exchange, stock exchange, American, Midwest Stock Exchange (MidwestStock Exchanges), or state that other exchange appropriate, in these Exchange listed securities, issued or sales, exemption from state registration obligation. Later, the NASDAQ Global Select Market (NasdaqGlobal Select Market), the Pacific exchange, the first plate (Tier I of the pacific exchange), the first board, the Philadelphia Stock Exchange (Tier 1 of the Philadelphia stock exchange), the Chicago Board Options Exchange (the Chicago board ofoptions exchange) has also been some states have incorporated into the scope of exemption from registration.

This is the blue sky law tradition before the introduction of federal securities laws, is the 1996 "capital market to improve the law" before the introduction of already existing state exemption from registration. "Investment bankers association" (IBA, InvestmentBankers Association, on behalf of the New York Stock Exchange listed issuers) led by the organization of a lot of lobbying, "these activities make a lot of blue sky law makers are deluded, thus provides a lot of exemption clauses".

America how many stock market? In addition to the former three largest stock exchange -- the NYSE, AMEX and Nasdaq national market, and the market, the state exemption is registered without radiation to the exchange, the exchange or to the Stock Exchange listed securities, investment banks to sell these securities, need to check whether the need to offer or sales of related state registration, Acceptance Review: National Stock Exchange (National Stock Exchange); BATS (BATSGlobal Markets); the global market in the Chicago stock exchange; direct pioneer (DirectEdge); ISE Stock Exchange (The ISE Stock Exchange); Nasdaq's only national market (National MarketSystem) listed shares enjoy the state registration exemption, and its there are other securities trading market, for example, the NASDAQ capital market (NASDAQ Capital Market, former body is the NASDAQ small market (NASDAQ Small Cap Market); NASDAQ OMX PHLX (formerly known as the Philadelphia Stock Exchange); NASDAQ OMXBX (formerly known as the Boston stock exchange). In addition, the OTC market America also flourish. Prepared listing stock trading in these markets, is likely to face the dual registration system regulatory issue.

Second, the issuer and the immunity specific issue. For example, if the securities are issued by a registered investment companies, or according to the 1940 "investment company law" submit registration, by the federal SEC exclusive jurisdiction.

The most important is, despite the 1996 "capital market Improvement Act" made many efforts makes it a landmark legislation, the USA after entering the "capital market Improvement Act" regulatory era, however, most of the federal exemption securities trading still need to accept the registration requirements, or to obtain additional exemption according to the Securities Law, the.

In 1933 three, historical and political implications: supplemental federal securities law as the state securities laws

1929 economic crisis, the federal enactment of the 1933 "Securities Law" is not to replace the previously existing state securities laws, nearly 20 years, on the contrary, the federal securities law is to supplement the state securities laws.

Is generally believed that, as early as 1911, one does not usually considered innovative state -- Kansas first formulated the state securities laws.

Why is Kansas? At the end of eighteenth Century and early nineteenth Century, Kansas populism (populism) prosperity, people's participation in the activities of the government, the political disputes triggered fierce, national struggle, private interests people can participate in public decision-making related to their daily life. At the same time, Kansas often become the target of fraudulent securities. This is a predominantly agricultural state, in exchange for the assets of the economy is not complicated. Some securities business special view obituary, see people died, then door-to-door selling securities investment: the dead leave in life insurance is not sufficient to maintain the living. In this way, widow or widower, the living dead leave insurance invest all of those securities, finally lost.

Dolly (JosephDolley) is an important figure in the legislation at the time. He is banking supervision committee (bank commissioner), many Kansas people regarded him as a financial genius, suggested to his investment consulting, which securities can be bought, what securities can not buy. In 1910, Victoria will substantial regulatory benefits in the legislative hearing. In March 10, 1911, Congress passed legislation Kansas.

From the government and bank interest, Kansas formulation of blue sky law aims to prevent the eastern region "blood", by extracting the issuance of securities, funds (keepcredit from being taken out of Kansas), and the money was stored in bank Kansas.

Then, its own securities laws formulated states. They have a unified name -- "blue sky", "blue sky metaphor the unscrupulous securities sold to investors. In an attempt to".

However, states to fight the enemy separately, blue sky law is very easy to avoid. Reportedly, the securities firm to circumvent the blue sky law way is through the mail in the States to sell securities. In twentieth Century 20 time, Ponzi scam alert the world.

This prompted the federal level USA enacted in 1933, "Securities Law", in order to make up for the state securities laws to support each other, mutual segmentation dilemma.

Why not take the path of federal securities laws, the blue sky laws? In twentieth Century 30, American in a crisis and reform period, more stringent blue sky laws on commercial practice in violation of business ethics, can have a better deterrent. However, the federal government had no choice American making such harsh laws, there are two main reasons:

(1) the bankers and other businessmen worry about tough blue sky law mode at the federal level will weaken the position of New York financial center, especially the history of the New York stock exchange from 1792 "Buttonwood Agreement", was formally established in 1817 has 140 years, become an important force American congressional legislation;

(2) the reformers worry that New York's government bureaucracy is not so assured and honest, if take the blue sky law legislation mode, the sale of securities license system will open a door for money.

The Hongkong SFC final judgment to the listing Corporation's investment risk

Because of the geographic, language, political and other reasons, Hongkong's capital market legal effect than USA legal system for the mainland Chinese deeper.

A dual filing: Hongkong, CSRC and stock exchange IPO audit

The Hongkong listed company supervision system called "dual filing system" (DualFiling). This name is misleading. We see it in the actual operation.

The Hongkong securities and Futures Commission without company approval rights, but has the power of veto, because of the existence and development of the history of the Hongkong stock exchange prosperity before regulators.

In 2000, the Hongkong stock exchange by the membership to the company, and listing Corporation. The Hongkong securities and Exchange Commission signed a memorandum, poetic couplet exchange procedure supervision. The original "Regulations" provisions of the securities and Futures Commission review by the Hongkong listing, but Hongkong's securities and Futures Commission signed documents, will be listed review right rotary authorized to exchange. According to the 2000 signed a memorandum, company IPO frontline regulators still sehk. Enterprises in the application of IPO, application materials submitted to the exchange, and the exchange with a copy to the Hongkong securities and futures commission. Two groups of auditors also review.

The Hongkong securities and Futures Commission and stock exchange company IPO review for the review of legal basis, the Hongkong securities and Futures Commission in accordance with the securities and Futures Ordinance "review", the Hongkong stock exchange in accordance with the "Listing Rules" review. The Hongkong securities and Futures Commission if you agree to a company's application for listing is issued, no action letter (No comment Letter); if you do not agree, then rejected the company's IPO application.

In the Hongkong stock exchange, the review of the IPO file of a total of more than 20 people, the field gathering information is not possible, file with the listing committee but on intermediary checks.

Two, motherboard "Listing Rules" is full of quality regulation of securities tube

Professor He Meihuan Hongkong listing rules is divided into "the issue of disclosure" and "quality specification".

Specifically, disclosed in the specification is the registration requirements; and the quality specification includes two categories, excluding the qualified participants and the unqualified securities, is presented in the previous paper USA state securities law essence supervision or blue sky law.

Professor He Meihuan think, "in Hongkong, the most important and effective quality specification is the" Listing Rules "." The professor He Meihuan argued at the time when the old "Listing Rules". The following controls stock exchange listed on the main board of the new "rules", update what beauty in the book Huan professor provisions.

"The main board listing rules" the eighth chapter provides the conditions for listing, the issuer and its business must belong to the exchange that for listing, basic conditions include:

(1) for the first time, the applicant must have roughly the same management team to leave enough trade record, which last year can be attributed to the shareholders' profits of not less than HK $20000000, the accumulated profits before two years of not less than HK $30000000. The stock exchange is emphasize the requirements, so in the market before and after the usually don't allow companies to change accounting year, because it is easy to distort and related financial results of fuzzy.

(2) the total market capital expected to reach the minimum amount specified proportion of shares, must always be held by the public.

(3) the issuer must have a management team stationed in Hongkong, the director and the Secretary of the character, experience, integrity shall comply with the requirements of the stock exchange.

......

(5) the stock exchange listing application may be refused, if the underwriter does not have the ability to perform underwriting commitment; in addition, in accordance with the provisions of the listing rules does not necessarily mean that the company is listed, the SEHK retention decisions to approve or reject the application for listing of discretion.

These Provisions to ensure that only those who reach a certain level of quality of the company to be listed.

In addition, the following provisions to ensure that only reach a certain level of quality of the stock to be listed....... Second, the quality required by the securities exchange verification: (1) the stock exchange must be sure there will be enough public to listing Corporation's business and stock interest.......

Provision is not vivid, see examples below.

Hongkong Securities Commission, "Ms. Deng Yingxia in 2010 held in Peking University, Hongkong listed company supervision", describes a specific audit case, better explains the Hongkong Securities Regulatory Commission and the Hongkong stock exchange to work, the company's investment risk in IPO audit:

The first Russian company listed in Hongkong was the Russian aluminium. In the audit of the company's listed the application, pay attention to the existence of a large amount of debt coming due. The Russian aluminium listed all funds, not enough to repay the debt. Once approved by the market, if the debt explosion, the Russian aluminium Dunning bankrupt, the stock market financial funds will be used to repay, the Hongkong market investors will all play ducks and drakes, the risk is very big.

But, as a for-profit and listing Corporation SEHK also very much hope that the Russian aluminium listed on the stock exchange, which can drive a large number of Russian companies to the stock exchange listing, thus to the stock exchange to bring a new round of the climax of IPO.

To agree on the issue of the Russian aluminium listed, as agreed with the stock exchange listing Russian aluminum, while the Hongkong SFC objection. The final decision is the Hongkong SFC's board of directors, the board of directors of the Hongkong SFC discussion, made conditionally agreed to the Russian aluminium are listed on the Hongkong stock exchange decision.

Conclusion: the reduction of foreign legal system

The America IPO supervision system simple to understand -- "disclosure compliance", is only half the.

First, American federal sec in the implementation of full disclosure, in which information is essential information, what information is not essential information judgment, in carrying out substantive examination;

Second, and more importantly, the state level securities supervision of the substance, of Federal Securities Disclosure Based regulatory philosophy of existence.

Look from the history, American 1933 "Securities Law" is used as a complement to the securities law of the States, based on the substantive examination, the federal securities law, established the disclosure supervision philosophy. This dual registration system, behind the supervision philosophy is "the only way to protection of small investors is to control the stock market" (judge Douglas, 1934).

After the 2008 financial crisis USA USA, China began to appear non mainstream voices, the American federal securities legislation "in 1933 did not walk the road" -- the blue sky laws, proposed to increase the substantive examination of federal securities laws.

Back to the China. Since at least 2001, to the nearest five year plan, China SFC market appeal to China's domestic IPO regulatory reform goal as USA type registration system. We need to understand the whole American registration system. Registration system is the Registration literal translation, in fact, American type registration system in operation is also full of substantive examination, as the.

In the author's opinion, the registration system reform direction in the market demands, in China financial repression, and a performance of small and medium-sized enterprises financing China, private enterprises, small and medium-sized private enterprises hope to more easily through the capital markets for financing channels, the sponsors hope to more easily successful sponsorship money.

If the basic problem of financing difficulty of small and medium-sized private enterprises through other channels to resolve, then the requirements China SFC to give up substantive examination, registration system reform to the pressure will be smaller, can more easily choose the high quality of listed companies.

(this is the Shen Zhaohui in 2011 published in the "securities market Herald" on the old man)