On December 13, the Shanghai Stock Exchange (SSE) and China Securities Depository and Clearing Corporation Limited (CSDC) jointly released the “Measures on Online Subscribing for IPO-related Shares according to Market Capitalization on Shanghai Market” (the “Measures” for short). An official of the SSE answered the following questions concerning the “Measures”.
Q1. What are the major differences between the subscription according to market capitalization and the subscription according to capital?
A1. The subscription according to capital mainly considers an investor’s capital amount. Within the maximum subscription limit, an investor can subscribe as long as he/she has sufficient capital amount.
However, the subscription according to market capitalization means that only an investor holding market capitalization of at least RMB10,000 can participate in subscription; the investor’s subscription quantity should not exceed the maximum subscription limit as specified by relevant lead underwriter and the subscription limit corresponding to the market capitalization amount held by the investor (please refer to Q6 for relevant calculating method). Besides, the investor must have sufficient capital in his or her account when subscribing.
Q2. What are the major differences between the subscription according to market capitalization and the previous allotment according to market capitalization?
A2. The subscription according to market capitalization (the “New Method” for short) requires that market capitalization should be counted according to different markets, new shares should be subscribed for according to different accounts, and subscription can be carried out only with sufficient capital; however, the allotment according to market capitalization (the “Old Method” for short) stipulates that market capitalization should be combined for settlement, an account can subscribe on different markets, and capital should be paid after lot-winning. The detailed explanation is as follows:
Difference
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The New Method
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The Old Method
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Whether the market capitalization amounts of the Shanghai and Shenzhen markets are combined
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An investor’s market capitalization amounts on the two markets are not combined, and the market capitalization amount on one market can only be used to calculate the limit of subscribing for new shares on this market.
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The market capitalization amounts on the two markets are combined, and the total can be used to subscribe for new shares on any of the two markets.
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Whether cross-market subscription is allowed
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A securities account of the Shanghai and Shenzhen markets can only subscribe for news shares of their own market.
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Cross-market subscription is allowed.
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Time to deposit capital
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Enough subscription capital is deposited before subscription.
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Subscription capital is paid after successful subscription.
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Q3. What is the market capitalization held by an investor?
A3. The market capitalization held by an investor refers to the market value of A shares without sales limit held by the investor on this market at the end of the T-2 day (T day is the subscription day, the same below), and the market value of the A shares without sales limit resulted from IPO will not be counted if they have no closing price. If A shares without sales limit are under judicial freezing and pledge, or the trading of directors, supervisors, and senior managers of a listed company is restricted, the calculating of market capitalization will not be influenced.
Q4. What is the calculating method for market capitalization?
A4. 1) The market capitalization held by an investor’s securities account is calculated by multiplying the number of A shares without sales limit in the securities account on the T-2 day and the corresponding closing price.
2) The market capitalization amounts of one investor’s several securities accounts is combined as the total market capitalization amount held by the investor.
Q5. Which securities accounts of an investor will be selected for combining all market capitalization amounts as the total market capitalization amount held by the investor?
A5. 1) Unless otherwise specified, if the securities accounts with the same “account holder’s name” and “valid identification document number” in the registration document are held by one investor upon confirmation, the market capitalization amounts of all the securities accounts will be combined as the total market capitalization amount held by the investor.
2) The market capitalization amount on the credit securities account held by a client of margin trading and securities lending will be combined into the market capitalization amount held by the investor.
3) The market capitalization amount on the refinancing-guarantee-related securities account of a securities company will be combined into the market capitalization amount held by the securities company.
4) If the targeted assets management account of a securities company’s client and the enterprise annuity account of the securities company have the same account holder’s name and valid identification document number in the registration document, the market capitalization amount will be counted separately according to different securities accounts to participate in subscription.
5) The market capitalization amounts of unqualified, dormant, and write-off securities accounts should not be counted.
Q6. What is the calculating method of an investor’s online subscription limit?
A6. After the market capitalization held by an investor is counted, those holding the market capitalization of above RMB10,000 (inclusive) can subscribe for new shares. An investors’ subscription limit will be calculated in the principle that every market capitalization of RMB10,000 on the Shanghai market will be matched with one subscription unit (one unit: 1,000 shares), and the market capitalization less than RMB10,000 will not be calculated for the subscription limit.
If several stocks are issued on the same day, the subscription limit above applies to every stock which investors attempt to subscribe for.
Q7. How to understand the subscription limit? Does it mean that the subscription limit is the quantity that an investor can subscribe for as long as he/she has sufficient capital?
A7. The subscription limit not only refers to a quantity but also represents a qualification and possibility. It is the maximum quantity that an investor can subscribe for while meeting other specifications. In the case that the capital is sufficient, the final quantity that an investor can subscribe for is also affected by the upper limit of subscription, the lot-winning rate, and other factors. In this sense, the subscription limit is not equal to the successful subscription quantity; and generally, the former is larger than the latter.
Q8. What factors will affect an investor’s online subscription quantity?
A8. An investor’s online subscription quantity will not exceed the subscription limit calculated according to the market capitalization held by he/she on the T-2 day and not exceed the upper limit of subscription as specified by the lead underwriter (This upper limit cannot exceed 0.1% of the number of the initially issued shares online) with all the capital paid. If the investor’s subscription amount violates the above rule, the SSE and CSDC will regard the exceeded part as invalid.
Q9. How and when can an investor inquire his/her own market capitalization amount and subscription limit?
A9. On the Shanghai market, an investor can inquire his/her market capitalization and his/her subscription limit rounded off by the minimum subscription unit through the designated trading securities company on the T day.
Q10. What are the influences of the subscription according to market capitalization on the time duration of online issuance business processes?
A10. Such business processes as capital freezing, number matching, lot drawing, capital unfreezing, and shares registration after subscription on the Shanghai market will be in line with the “Measures (Draft) on Capital Subscription of Online Shares Issuance on Shanghai Market” released on the Shanghai market in 2009. Therefore, the adoption of the subscription according to market capitalization will exert no influence on the time duration of online issuance business processes.
Q11. Will the market capitalization amounts of the ETFs, closed-end funds, B shares, bonds, and preferred shares to be held by an investor be included in the market capitalization held by him/her for subscribing for new shares on the Shanghai market?
A11. The “Measures” stipulates that the “Market Capitalization” refers to the market capitalization of the A shares without sales limit held by an investor on the Shanghai market. Therefore, the market capitalization amounts of the ETFs, closed-end funds, B shares, bonds, and preferred shares to be held by the investor will not be included in the market capitalization held by him/her for subscribing for new shares on the Shanghai market.
Q12. Can an investor sell on the T-1 day all the market capitalization held by him/her on T-2 day, and then subscribe on T day?
A12. Yes, they can.
Q13. Can a credit account of margin trading and securities lending directly subscribe for new shares?
A13. According to the Article 4 of the “Measures”, the market capitalization amount on the credit securities account held by a client of margin trading and securities lending should be combined into the market capitalization amount held by the investor… But this account cannot be used for subscribing for new shares.