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On April 10, the China Securities Regulatory Commission (CSRC) issued the &#34;Opinions on Deepening the Reform of the ChiNext Board to Better Serve the Development of New Quality Productive Forces&#34; (hereinafter referred to as the &#34;ChiNext Opinions&#34;), and the Shenzhen Stock Exchange simultaneously drafted and revised four supporting business rules for public consultation.
Overall, the &#34;ChiNext Opinions&#34; mainly include eight aspects, involving numerous reform measures. For example, in terms of issuance and listing, a fourth set of listing standards has been added, a pilot program for local governments to promote information on companies intending to go public has been initiated, a pre-review mechanism for initial public offerings has been established, and it has been clearly stated that there will be active support for high-quality unprofitable innovative enterprises and high-quality innovative enterprises in new consumption and modern service industries to list on the ChiNext Board, deepening the reform of the new stock issuance pricing mechanism.
The fourth set of listing standards states that &#34;the expected market value should not be less than 3 billion yuan, the operating income in the most recent year should not be less than 200 million yuan, and the compound annual growth rate of operating income over the past three years should not be less than 30%; or the expected market value should not be less than 4 billion yuan, the operating income in the most recent year should not be less than 200 million yuan, and the cumulative R&amp;D investment over the past three years should not be less than 100 million yuan and should account for no less than 15% of the cumulative operating income.&#34;
&#34;The segmentation of market values of 3 billion and 4 billion yuan serves as a filter based on market pricing,&#34; said Tian Lihui, director of the Financial Development Research Institute at Nankai University, to Yicai. This is a key design to balance market recognition and inclusiveness, preventing &#34;pseudo-innovation&#34; companies from taking advantage of the situation while leaving space for truly high-quality technology companies.
In terms of ongoing supervision, a refinancing shelf issuance system has been introduced, allowing listed companies to authorize the board of directors to implement simplified procedures for refinancing at temporary shareholder meetings, increasing the upper limit for simplified procedures, and supporting the absorption and merger of new companies listed for less than three years.
In terms of trading mechanisms, a market maker system has been introduced, stock agreement bulk trading has been adjusted to real-time transaction confirmation, and a fixed-price trading mechanism for ChiNext-related ETFs after hours has been introduced.
A person in charge of the Shenzhen Stock Exchange stated that the implementation of the above measures involves the formulation and revision of more than ten supporting rules. This time, public consultation has been initiated for the &#34;ChiNext Stock Listing Rules,&#34; &#34;Trading Rules,&#34; and &#34;Implementation Rules for Initial Public Offering Securities Issuance and Underwriting,&#34; as well as the &#34;Guidelines for Stock Issuance and Listing Review Business No. 9 - Pre-review.&#34;
&#34;Other supporting rules are also under research and revision and will be released to the market as soon as possible,&#34; the person in charge of the Shenzhen Stock Exchange said.
New Indicators Highlight Growth and Innovation
The addition of the fourth set of listing standards for the ChiNext Board is one of the core measures of this reform.
The &#34;ChiNext Opinions&#34; propose, &#34;The addition of the fourth set of listing standards for the ChiNext Board provides better financial services for high-quality innovative entrepreneurial enterprises in emerging and future industries.&#34;
To this end, the Shenzhen Stock Exchange has revised the &#34;ChiNext Stock Listing Rules,&#34; clarifying that the fourth set of listing standards is &#34;the expected market value should not be less than 3 billion yuan, the operating income in the most recent year should not be less than 200 million yuan, and the compound annual growth rate of operating income over the past three years should not be less than 30%; or the expected market value should not be less than 4 billion yuan, the operating income in the most recent year should not be less than 200 million yuan, and the cumulative R&amp;D investment over the past three years should not be less than 100 million yuan and should account for no less than 15% of the cumulative operating income.&#34;
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The head of the Shenzhen Stock Exchange stated that the fourth set of listing standards has set a high market capitalization requirement to help filter out companies with high market recognition. The operating income indicator can measure a company's level of commercialization, and the threshold requirement of 200 million yuan ensures that companies have a certain scale, which also aligns with the development patterns of early-stage growth-oriented innovative startups.
The official mentioned that the first category of the fourth set of listing standards adopts a combination of &#34;expected market capitalization + operating income + compound growth rate of operating income,&#34; introducing revenue growth indicators to highlight growth potential, primarily targeting high-quality innovative startups in emerging industries, which can adapt to their fast growth and relatively low market capitalization characteristics. The second category adopts a combination of &#34;expected market capitalization + operating income + R&amp;D investment,&#34; introducing R&amp;D investment indicators that reflect innovation, primarily targeting high-quality innovative startups in future industries, which can adapt to their outstanding innovation capabilities and relatively low starting income.
Tian Lihui analyzed for Yicai that the distinction between the two categories of indicators reflects a precise identification of the differentiated growth patterns of &#34;emerging industries&#34; and &#34;future industries,&#34; with the former needing to validate growth speed and the latter needing to prove innovation depth.
He believes that the first category &#34;market capitalization + operating income + growth rate&#34; combination anchors on companies with validated business models that are in a phase of rapid expansion, with a 30% compound growth rate threshold filtering out targets that are &#34;running on the track and scaling up&#34;; the second category &#34;market capitalization + operating income + R&amp;D investment&#34; combination targets future industry companies on the brink of technological breakthroughs, with income yet to scale but with extremely high innovation density, ensuring &#34;true innovation&#34; rather than &#34;pseudo R&amp;D&#34; with a cumulative investment of 100 million yuan and a 15% intensity requirement. The 200 million yuan revenue ensures that companies possess basic commercialization capabilities, avoiding &#34;laboratory companies&#34; from going public too early.
Summarizing the four sets of listing standards for the ChiNext, Tian Lihui believes they form a progressive spectrum of &#34;profitability - growth - innovation.&#34; The first set serves mature profitable companies; the second set balances profitability and scale; the third set accepts high market capitalization growth companies; and the fourth set fills the vacuum of &#34;high growth but unprofitable, high R&amp;D but low income,&#34; covering the entire lifecycle of innovative companies.
Additionally, the fourth set of listing standards for the ChiNext also forms a misalignment with the previously highly regarded fifth set of listing standards for the Sci-Tech Innovation Board.
Tian Lihui believes that the fifth set of the Sci-Tech Innovation Board completely exempts income requirements, targeting early-stage companies, while the fourth set of the ChiNext retains the 200 million yuan revenue threshold, meaning that companies must possess preliminary commercialization capabilities, indicating a more mature development stage compared to the Sci-Tech Innovation Board. The Sci-Tech Innovation Board focuses on &#34;hard technology&#34; breakthroughs, with stricter R&amp;D intensity requirements; the ChiNext, on the other hand, is based on the early stage of industrialization, accommodating both unprofitable R&amp;D companies and those with rapidly growing business model innovations
&#34;Compared to the Sci-Tech Innovation Board, the fourth set of standards for the ChiNext emphasizes a balance between growth and commercialization. This differentiated positioning marks a historic leap in China's multi-tiered capital market from a 'single profit orientation' to 'diversified value discovery,' providing a precise capital engine for new productive forces,&#34; said Tian Lihui.
Establishing a Pre-Review Mechanism
Additionally, this reform establishes a pre-review mechanism for initial public offerings on the ChiNext. The Shenzhen Stock Exchange has formulated the &#34;Guidelines for Stock Issuance and Listing Review Business No. 9 - Pre-Review&#34; (hereinafter referred to as the &#34;Pre-Review Guidelines&#34;), which clarifies that if the issuer's premature disclosure of business and technical information or listing plans may have a significant adverse impact on the company's production and operation, it is necessary to apply for a pre-review before the formal application.
The pre-review is part of the pre-application consultation and communication service and is not a mandatory procedure for companies applying for issuance and listing. Issuers applying for a pre-review should fully explain the necessity and prepare application documents in accordance with the requirements for formal applications.
In July last year, the Shanghai Stock Exchange was the first to release pre-review guidelines, piloting the IPO pre-review mechanism for high-quality technology companies. This pre-review is now introduced to the ChiNext.
The &#34;Pre-Review Guidelines&#34; consist of thirteen articles, mainly covering the following five aspects: first, clarifying the applicable scenarios for pre-review; second, specifying the application document requirements for pre-review; third, defining the working mechanism for pre-review; fourth, clarifying the connection between pre-review and formal application review; fifth, outlining the responsibilities of relevant parties in the pre-review process.
A responsible person from the Shenzhen Stock Exchange stated that issuers applying for a pre-review should submit application documents in accordance with the requirements for formal applications. The Shenzhen Stock Exchange will conduct pre-reviews and form review opinions based on formal review requirements. The review opinions do not constitute a prior confirmation of whether the issuer meets the sector positioning, issuance and listing conditions, and information disclosure requirements. During the pre-review stage, application documents, review processes, results, etc., are not disclosed to the public. After formal acceptance, issuers need to disclose the inquiries and response documents from the pre-review stage.
In the formal review stage, the Shenzhen Stock Exchange will strictly conduct review work according to existing rules and will not lower review standards. If the issuer's application documents have been updated according to the inquiries and responses from the pre-review and no new matters affecting the issuance and listing conditions or information disclosure requirements have occurred, the Shenzhen Stock Exchange may not raise further review inquiries.
&#34;It should be noted that issuers and intermediary institutions applying for pre-review are also subject to self-regulatory supervision by the Shenzhen Stock Exchange. If regulations are violated, the Shenzhen Stock Exchange may terminate the pre-review process and take self-regulatory measures or impose disciplinary actions according to regulations,&#34; said the responsible person from the Shenzhen Stock Exchange.
Adjustment of Agreement Block Trading to Real-Time Transaction Confirmation
Moreover, market participants are highly concerned about the pricing mechanism for new stock issuances. To implement the relevant deployments of the &#34;ChiNext Opinions,&#34; the Shenzhen Stock Exchange has revised the &#34;Implementation Rules for Initial Public Offering Securities Issuance and Underwriting Business,&#34; further optimizing the offline issuance allocation arrangements and strategic placement mechanisms.
A responsible person from the Shenzhen Stock Exchange stated that, on one hand, a new agreed lock-up method has been added. Issuers and underwriters set different levels of lock-up ratios and periods, allocating more shares to investors with higher lock-up ratios and longer lock-up periods, optimizing the offline issuance mechanism for new stocks, guiding &#34;long money for long-term investment,&#34; and promoting reasonable pricing. On the other hand, the strategic placement ratio for small and medium-sized stocks has been increased
For companies with rapid technological iterations and difficult valuations, better leverage the professional advantages of strategic investors. For small and medium-sized stocks with an initial public offering (IPO) of less than 100 million shares or between 100 million and less than 400 million shares, the upper limit of their strategic placement ratio will be adjusted from no more than 20% and 30% to no more than 30% and 40%, respectively. Issuers and underwriters can make selections within the upper limit based on market conditions and development needs.
In addition, to strengthen market constraints and guide offline investors to make rational bids, the ChiNext will uniformly implement a high-price exclusion ratio of 3% within the current regulatory framework.
Furthermore, to enhance the inherent stability of the market and facilitate investor trading, this reform of the ChiNext further optimizes the trading system, and the Shenzhen Stock Exchange will accordingly revise the &#34;Trading Rules.&#34;
According to a responsible person from the Shenzhen Stock Exchange, first, it is clear that the ChiNext will introduce a market maker system. Practice has shown that the market maker system helps improve pricing efficiency, reduce trading costs, and decrease price volatility. The Shenzhen Stock Exchange will further clarify arrangements for market maker service applications and terminations, market maker rights and obligations, and supervision and management through the release of business details and guidelines to ensure the smooth implementation of reform measures.
Second, the agreement for block trading of ChiNext stocks will be adjusted to real-time transaction confirmation. The previous arrangement of &#34;intra-day declaration and post-trade confirmation&#34; had issues such as insufficient operation time and affecting participation willingness. This time, the transaction confirmation time will be adjusted from 15:00 to 15:30 to 9:30 to 11:30 and 13:00 to 15:30, which will help further enhance the willingness to transact in agreement block trading and facilitate the entry of medium- and long-term funds into the market.
Third, the scope of fixed-price trading after hours will be expanded. In August 2020, the ChiNext introduced a fixed-price trading mechanism after hours, which has been operating smoothly and orderly. This time, the scope of fixed-price trading after hours will be expanded to include all A-shares on the main board and all ETFs, including ChiNext-related ETFs, which is a beneficial supplement to intra-day competitive trading and facilitates investors to trade at closing prices, better meeting the diversified trading needs of investors.
(This article is from Yicai Global)

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On April 10th, the China Securities Regulatory Commission (CSRC) issued the "Opinions on Deepening the Reform of the ChiNext to Better Serve the Development of New Quality Productive Forces," proposing the addition of a fourth set of listing standards to support high-quality, unprofitable innovative enterprises to list on the ChiNext, and deepening the reform of the new stock issuance pricing mechanism. In addition, a refinancing shelf issuance system and a market maker system were introduced, involving the formulation and revision of multiple supporting rules, aimed at enhancing the market's inclusiveness and innovation

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Adding listing standards and optimizing issuance pricing, the ChiNext reform starts again