How to understand "scientifically and reasonably maintaining the normalization of new share issuance"?

Pihai Chau

2024-05-05 06:30Published in Hubei Finance and Economics Creator

On the evening of April 19, the China Securities Regulatory Commission issued the "Sixteen Measures for the High-level Development of Capital Market Services Technology Enterprises". In the third measure, "Deepening the Transformation of Issuance Supervision", the term "scientifically and reasonably maintaining the normalization of new share issuance" is once again mentioned.

This is a term that investors are very familiar with, and it is also a term that makes investors feel uneasy. After all, in recent years, under the slogan of "normalization of new share issuance", new share issuance has been interpreted into real high-speed issuance, and the normalization of new share issuance has become synonymous with high-speed issuance of new shares. The issuance of 400 or even 500 shares every year has become a "norm" in the market.

In the context of the normalization of the high-speed issuance of new shares, the stock market attaches great importance to the play of financing functions, and the market situation is interpreted as a stagflation market or a falling market, and the vast majority of stocks are showing a downward trend, and many stocks have repeatedly hit new lows or historical lows in recent years, investors have suffered heavy losses, and market confidence has been seriously hit. Even on July 24, 2023, the high-level meeting proposed to "activate the capital market and boost investor confidence", and the stock market still fell endlessly. Therefore, this time the re-mention of "scientifically and reasonably maintaining the normalization of new stock issuance" will inevitably cause investors to be afraid.

In fact, for the mention of "scientifically and reasonably maintaining the normalization of new stock issuance", investors can maintain a normal mind. In fact, the normalization of new share issuance is not synonymous with high-speed issuance, and the high-speed issuance of new shares is actually a distortion of the normalization of new stock issuance. After all, the high-speed issuance of new shares is not a normal phenomenon in itself, so how can it become a "normal state"? Just like a car, if you always deal with the high-speed Mercedes-Benz state, it will be a very dangerous thing. Therefore, the normalization of new stock issuance into high-speed issuance is itself putting the stock market in a dangerous state, an unhealthy state, and a manifestation of the extreme financing function of the stock market.

So, how should we understand "scientifically and rationally maintaining the normalization of the issuance of new shares"? This formulation can be understood from two aspects. The first is the understanding of "normalization of new share issuance". The so-called "normalization of new share issuance" refers to the normalization of new share issuance. "Normalization" is also "normalization". This kind of normalization is a situation in which it is necessary to maintain the normal operation of new share issuance. That is, the issuance of new shares cannot be interrupted, and if it is interrupted, it is not a normal state of operation. In this way, it is normal to issue one or two new shares a week, and it is also a normal state to issue three or four new shares, but it is obviously not a normal state to issue more than ten new shares a week.

The second is the understanding of "scientifically and reasonably maintaining the normalization of new share issuance". In addition to the understanding of "maintaining the normalization of new share issuance", the understanding of this formulation focuses on the four words "scientific and reasonable". As mentioned above, it is normal to issue one or two new shares a week, and it is also normal to issue three or four new shares a week. However, under what circumstances, one or two new shares are issued a week, and under what circumstances three or four new shares are issued a week, which needs to reflect the importance of "scientific and reasonable".

The "scientific and reasonable" here should not only take into account the bearing capacity of the market, but also take into account the changes in the primary and secondary markets. If the secondary market continues to fall and investors suffer heavy losses, the primary market also arranges a large number of new shares to be issued, completely ignoring the decline of the secondary market and the losses of investors, which is obviously not a "scientific and reasonable" arrangement. To "scientifically and reasonably maintain the normalization of new share issuance", it is necessary to take into account the changes in the secondary market and the losses of investors. However, just because the secondary market and investors have strong "resilience", we should not ignore the changes in the secondary market and the losses of investors.

Not only that, since it is "scientifically and reasonably maintaining the normalization of new stock issuance", this does not rule out a phased suspension of new stock issuance in the case of abnormal stock market conditions. The normal state of new stock issuance is based on the normal state of the stock market, and once the stock market enters an abnormal state, then the new stock issuance will naturally not be able to maintain a normal state, and the pace of new stock issuance should be slowed down, and the suspension should be suspended, which is also in line with the requirements of "scientific and reasonable". On the contrary, when the stock market has entered an abnormal state, the issuance of new shares still insists on high-speed issuance, which obviously does not meet the requirements of "scientific and reasonable".

Therefore, for the CSRC's re-mention of "scientifically and reasonably maintaining the normalization of new stock issuance", investors do not need to talk about tiger color change. In fact, there is nothing wrong with the phrase "scientifically and reasonably maintaining the normalization of new share issuance", and the results depend on whether the regulator is investor-oriented or fund-raiser-oriented. Different starting points naturally lead to different results. Nowadays, the management emphasizes the investor-oriented, saying that the IPO will be strictly reviewed, and even the State Council meeting has emphasized the need to "strictly control the issuance and listing access", in this case, the China Securities Regulatory Commission has reiterated the "scientific and reasonable maintenance of new share issuance normalization", and the market may wish to make an optimistic interpretation.

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