A New Round Of IPO Special Inspection Storm Hit, Declaration That Is Responsible For Forcing Securities Companies To Strengthen Internal Control

Declaration means responsibility!

Recently, the China Securities Regulatory Commission (CSRC) has issued the guidance on urging securities companies to return to their positions and fulfill their responsibilities in investment banking business under the registration system (hereinafter referred to as the Guidance Opinions), which comprehensively strengthens the three-dimensional accountability from five aspects, such as establishing and improving the working mechanism and improving the system rules, so as to promote the voluntary return and accountability of the sponsor institutions.

At the same time, the CSRC will carry out special inspection on securities companies with high withdrawal rate of investment banking projects, high default rate of corporate bonds, low quality of practice and many problems reflected in the market; Establish the quality evaluation mechanism of internal control department for business personnel, and prohibit the direct link between the salary of business personnel and project income.

According to the statistics of 21st century economic report, CITIC Securities has the largest number of withdrawal materials and the total number of IPOs to be planned or not. Up to now, CITIC Securities has the largest number of withdrawal materials of 15 IPO projects; Secondly, Minsheng securities withdrew 12 enterprise materials.

In terms of the number of withdrawn materials and whether they are accounted for in the total projects, there are 10 securities companies whose withdrawal rate is higher than 10%, and the withdrawal rate of China Securities and Federal Reserve securities is as high as 100%; Secondly, the withdrawal rate of Great Wall Guorui securities is 50%, and that of Huajin securities and Wanhe securities is higher than 20%. The rest are Donghai securities, Hua'an securities, founder securities underwriting and recommendation Co., Ltd. and Bohai Securities.

"The release of the guidance is another upgrade of strict supervision. The withdrawal rate will affect the rating and lead to on-site inspection, which will force the securities companies to strengthen their internal control level again." An investment bank of a securities firm in Shenzhen said: "the visible impact has been in many aspects. For example, in the stage of application and guidance, we should not only look at whether the performance is up to the standard, but also some small-scale non high-quality projects are directly dissuaded by the company."

The phenomenon of batch withdrawal of IPO companies has aroused market attention. Visual China

The problem of withdrawal after investigation is prominent

The phenomenon of batch withdrawal of IPO companies has aroused market attention.

At the beginning of this year, China Securities Regulatory Commission (CSRC) issued the regulations on on on-site inspection of first-episode enterprises, which standardizes the basic requirements, standards, procedures and follow-up work of on-site inspection, and also compacts the responsibilities of issuers and intermediaries.

Subsequently, the China Securities Association organized the 28th drawing ceremony for the quality inspection list of information disclosure of initial companies. Among the 20 enterprises selected, 17 enterprises withdrew their IPO applications, accounting for 85%, including 10 on the gem and 7 on the science and technology innovation board.

According to incomplete statistics, in the first half of this year, 116 enterprises terminated their listing, of which 104 enterprises voluntarily withdrew their listing applications, accounting for nearly 90%.

In this regard, the CSRC said that since the pilot registration system, the level of internal control of securities companies and the quality of investment banking business practice have improved, but many problems have also been exposed.

Some securities companies have not really possessed the concept, organization and ability to match the registration system. They are still "wearing new shoes and taking the old road". Project selection is not careful, the inspection and control is not strict, and the internal control is not perfect. The problems such as "declaration with illness" and "withdrawal after inspection" are more prominent, which affect the quality of listed companies and the image of the industry.

This is due to the weak sense of internal control and imperfect corporate governance, as well as imperfect regulatory mechanism and regulation rules.

In view of the outstanding problems such as the poor practice quality of intermediary institutions under the registration system, the imperfect system of rules and regulations, and the insufficient market restraint mechanism, the guidance issued this time puts forward the key tasks from three dimensions of supervision, institution and market.

In view of the phenomenon of "declaration with disease" and "withdrawal upon inspection", the "Guidance Opinions" clearly states that comprehensive strengthening of three-dimensional accountability and purification of market ecology. We should expand the scope of on-site inspection and supervision, adhere to the principle of "declaration means responsibility". For the items withdrawn after receiving the on-site inspection or supervision notice, we should organize verification according to law, and resolutely put an end to the behavior of breaking through customs with diseases.

At the same time, it is necessary to establish a standing book of illegal investment banking business, focusing on special inspection on securities companies with high project withdrawal rate, high default rate of corporate bonds, low evaluation of practice quality, and more problems reflected in the market.

Group image of high withdrawal rate securities companies

According to wind data, in terms of the total number of withdrawals and whether the IPO is to be planned or not, CITIC Securities has the largest number, with a total of 15 IPO projects withdrawing materials; Secondly, Minsheng securities withdrew 12 enterprise materials; King Cathay arranged the third.

In addition, China Merchants Securities, Huatai united, Anxin securities, Guojin securities, CICC, Haitong Securities and China CITIC construction all had more than 5 IPO projects.

CITIC Securities, as a major IPO cancellation company, has withdrawn 15 projects, 13 of which have been withdrawn this year, including Rouyu technology, which is widely concerned by the market.

On January 31, the China Securities Regulatory Commission (CSRC) announced the spot check on the quality of information disclosure of first-time enterprises. 20 enterprises such as Ruoyu Technology Co., Ltd., which have been listed on the science and technology innovation board and the growth enterprise market, have won lots. The quality of enterprise information disclosure and the practice quality of intermediary institutions will be inspected by the CSRC.

For the reasons for withdrawing the IPO application, Ruoyu technology released the announcement on suspending the listing application of the science and technology innovation board. "In view of the company's development strategy, it has been decided after research that the application for listing on the science and Technology Innovation Board will be suspended," the announcement said. The suspension of the application for listing on the science and Technology Innovation Board will not have a significant impact on the normal production and operation of the company. "

It is worth mentioning that the number of IPO cancellations is basically positively correlated with the underwriting and recommendation business volume of each investment bank. CITIC Securities, Minsheng securities, Huatai united, Guotai Junan, China Merchants Securities, CICC, and CSCI ranked among the top ten in the industry in terms of IPO underwriting income and quantity in the first half of 2021.

In terms of the number of withdrawn materials and whether they were accounted for in the total projects, there were 11 securities companies whose withdrawal rate was higher than 10%, which were CDB securities and Federal Reserve securities respectively, and the withdrawal rate was as high as 100%; Secondly, the withdrawal rate of Great Wall Guorui securities is 50%, the withdrawal rate of Huajin securities and Wanhe securities is higher than 20%, and the rest are Donghai securities, Hua'an securities, founder securities underwriting and recommendation Co., Ltd. and Bohai Securities with the withdrawal rate higher than 10%.

A senior person in the securities industry believes that the problems such as "declaration with a disease" and "withdrawal after investigation" are caused by imperfect regulatory mechanism and regulation rules, and more by weak internal control awareness of institutions and unsound corporate governance, which will be more prominent in some small and medium-sized securities companies.

Strict supervision has been upgraded again

It is reported that the "guiding opinions" mainly include five aspects.

The first is to establish and improve the working mechanism to enhance the regulatory force. China Securities Regulatory Commission (CSRC) will establish a joint meeting mechanism of investment banking business supervision, which will be jointly participated by the organs and departments of the Commission, the securities regulatory bureau and the self regulatory organizations, strengthen the overall coordination of investment banking business supervision, improve the coordination and coordination of institutional supervision and business supervision, administrative supervision and self-discipline supervision, daily supervision and inspection and law enforcement, and enhance the regulatory joint force and regulatory efficiency.

The second is to improve the system and rules, improve the standardization level of supervision and practice. We will strengthen the construction of the standard system of investment banking practice, improve the business norms of information disclosure, due diligence and working papers, adhere to the principle of importance, improve the supervision systems of guidance and acceptance, on-site inspection and on-site supervision of initial enterprises, establish an on-site inspection system for bond audit and registration, and further clarify securities companies, accounting firms, and other regulatory systems The boundary of responsibilities between law firms and other intermediary agencies forms a mechanism of performing their own duties, assuming their own responsibilities and restricting each other.

The third is to comprehensively strengthen the three-dimensional accountability, purify the market ecology, expand the scope of on-site inspection and supervision, and adhere to the principle of "declaration means responsibility". For the items withdrawn after receiving the on-site inspection or supervision notice, it is necessary to organize verification according to law, and resolutely put an end to the behavior of breaking through customs with diseases.

Finally, we should strengthen the "three lines of defense" and improve the incentive and restraint mechanism.

"Three lines of defense" refers to strengthening the internal control of institutions, compacting the management responsibilities of the main responsible persons and senior executives of securities companies, implementing penetrating supervision and full chain accountability of responsible personnel in all links of investment banking business, strengthening the checks and balances of internal control departments on business departments, establishing a quality evaluation mechanism for business personnel by internal control departments, and forbidding the direct link between the salary of business personnel and project income.

We should improve the incentive and restraint mechanism, including promoting the establishment of a securities company's practice quality evaluation mechanism, conducting a comprehensive evaluation on the business development, quality control and corporate governance of securities companies, promoting the establishment of an evaluation system for the practice quality of investment banking business, realizing the whole chain and full cycle electronic archives of business and supervision, and achieving full process tracking, real-time evaluation and regular summary, The evaluation results are open to the public.

In this regard, an investment bank of a securities firm in Shenzhen said that the release of the "Guidance Opinions" is a re upgrading of strict supervision, "securities companies' internal control continues to be strengthened. For example, when applying for guidance, they can't go to counseling with only 10 million achievements, but should understand the project performance and standard situation, and secondly, some small-scale non quality projects are directly dissuaded by the company.".

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