The China Securities Regulatory Commission (CSRC) announced recently that it is suspending initial public offerings (IPOs) temporarily in order to put in place reforms which will allow the market rather than the authorities to determine the price of new shares.
Currently, companies are obliged to float shares at around 20 times their historical earnings, regardless of future prospects. According to reports, this has led some firms to present misleading information in their IPO prospectuses in order to raise more money.
The Hong Kong Standard reported that the CSRC announcement gave a boost to share prices on the mainland stock exchanges, which have declined at an alarming rate since April, exacerbated by the government's economy-cooling measures and several large share offers.
The CSRC explained that it will be suspending IPOs until further notice whilst canvassing opinion on whether pricing guidelines should be set by brokerages, mutual funds and foreign investors. Observers expect the suspension to be in effect for around one month.
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