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China cuts red tape for securities listings ahead of IPO reform

[SHANGHAI] China's securities regulator is scrapping approvals for new exchange-product listings, signaling accelerating efforts to cut administrative red tape before planned reforms of initial public offerings.

New securities products can be listed on stock or futures exchanges without the endorsement of the China Securities Regulatory Commission, according to a statement on the website of the State Council, or cabinet. The revision or termination of futures contracts and bond sales on the interbank market will no longer need regulatory endorsement, the cabinet said.

"The State Council is cutting red tape for regulatory approval," said Gavin Parry, managing director of Parry International Trading in Hong Kong. "This should be a good uptick for liquidity in the markets and greater market forces for price discovery is a positive." Even after President Xi Jinping pledged in November 2013 to give markets a "decisive" role in the US$9 trillion economy, the CSRC still pressures companies planning initial public offerings to price them at below-average valuations in an effort to protect small investors. The perception that IPOs are riskless has encouraged some investors to use borrowed money, exposing them to deeper losses once prices stop climbing, according to Shenwan Hongyuan Group.

China will implement IPO registration reform this year, the government said on March 5 during the start of the annual meeting of the legislature in Beijing. The CSRC plans to transfer its authority to approve IPO applications to the Shanghai and Shenzhen stock exchanges in June, Caixin reported in February, citing an internal circular by the regulator.

BLOOMBERG