2026.05.28 XIE, Qing (Natasha)、ZHANG, Chi (Austin)、LI, Yongze
Following the revision made to the Rules for the Administration of Offline Investors in Initial Public Offerings of Securities (the “Administration Rules”) in March 2025 by the Securities Association of China (SAC), the enforcement and self-regulation of offline IPO placement related pricing and allocation has been significantly tightened.
According to public announcements by the Shanghai Stock Exchange (SSE) and the SAC, since the issuance of the Administration Rules, eight local private fund managers have been warned or sanctioned for violations in offline IPO placements. Overall, compliance inspections and the self-regulatory supervision of offline IPO placements have been progressively tightened and streamlined by the regulatory authorities.
I. Regulatory Requirements and Consequences of Violations
The Administration Rules stipulate that institutional offline investors participating in the offline IPO placement pricing and allocation shall establish sound internal control policies and operational procedures to conduct comprehensive management over their business operations. The rules set forth highly detailed requirements for all stages, including investment research and pricing, quotation and subscription, as well as compliance and risk control.
The relevant rules also list the various self-regulatory measures that may be taken against investors who violate the requirements. At the exchange level, the Detailed Rules for the Implementation of Issuance and Underwriting Business of Initial Public Offering Securities of the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE) provide that if an investor participating in an offline inquiry fails to determine its quotation in accordance with the pricing decision procedures, the exchange may take supervisory measures and disciplinary sanctions against it, individually or in combination. This could happen if the archived pricing basis does not support the quotation result, there are abnormalities (such as an insufficient justification for a quotation revision), or the quotations are highly consistent with other investors that disrupt the normal inquiry order. If the exchange finds that an offline investor has committed a violation that is set out in the Administration Rules, it may release a public circular and recommend that the SAC takes self-regulatory measures such as including the investor on the restricted list.
Under the Administration Rules, at the level of industry self-regulatory organizations, the SAC may take the following actions against investors or the funds or products under their management and/or their staff:
Working measures: issue a supervision letter, initiate a conversation, request a response, require a declaration or temporarily suspend the account of the investor or fund or product under its management;
Self-regulatory measures: initiate warning conversations, orders to rectify, issue regulatory warnings, require participation in compliance education, order the employing institution to handle the matter, order a compliance inspection, suspend the registration of new fund or product for allocation, prohibit from participating offline IPO placement related business for one to 12 months; include on the restricted list for one to 36 months, not accept registration or recommended registration for one to 36 months; and
Disciplinary sanctions: industry admonition, public condemnation, etc.
The relevant rules do not prescribe the frequency of the SAC’s self-regulatory inspections. Based on an observation of the past enforcement practices, we understand SAC may conduct inspections on a random basis and may take measures on cases forwarded by the stock exchanges from time to time.
Recent enforcement cases indicate that the SSE typically requires the violating institution to complete rectification within one month, while issuing a regulatory warning; while the SAC often adopts a “regulatory warning + mandatory compliance education” approach, requiring relevant personnel to complete compliance training courses within one month. Failure to implement the above requirements as scheduled may lead to further action by the regulatory authorities. It is noteworthy that among the recent cases one private fund manager was included on the SAC’s restricted list for six months, during which time both the firm and the funds or products under its management were prohibited from participating in offline IPO placement related business for any market segment in any stock exchange.
Since the exchanges and SAC generally disclose self-disciplinary regulatory decision letters publicly, the reputation of the non-compliant investors may be affected, which could in turn affect their ability to conduct similar business in the future.
II. Recent Enforcement Cases
Based on recent cases of self-regulatory measures, the typical violation circumstances can be summarized as follows:
1. Investment research and pricing
a) Inadequate research, failure to conduct substantive reviews of research reports for new stocks, factual errors in research reports, and insufficient basis for earnings forecasts, valuation analysis or valuation conclusions.
b) Inadequate research, report drafting and approval mechanisms with only principled provisions stipulated and without detailed implementing rules at the execution level; failure to specify the format requirements of research reports, failure to specify the proper use of the lead underwriters’ investment value research reports, and failure to specify detailed rules for important aspects such as new stock research.
c) Insufficient pricing basis, determining a quotation solely based on the midpoint of the valuation range, or simply marking up by a certain percentage above the upper limit of the valuation range in the investment valuation report or research report, lacking a logical deduction process and failing to support the final quotation result. Pricing decisions based only on qualitative analysis of the day’s market quotation and lottery winning trends and lacking quantitative analysis. Minutes of pricing meetings failing to adequately and robustly support the final quotation result, lacking detailed explanation of valuation parameters, and inconsistencies between the supporting rationale, the recommended prices in research reports and the proposed subscription prices.
d) Incomplete pricing procedures, only verbal discussion of valuation benchmarks, fundamentals and industry conditions, failing to retain executed minutes of pricing meetings, failing to follow collective decision-making procedures, and lacking detailed provisions in pricing decision-making policy.
2. Compliance and risk control
a) Inadequate risk management policy and implementation, failing to incorporate new stock inquiry business into overall risk control management, failing to set up verification modules in risk control systems, failing to monitor, analyze and identify risks that may arise in each procedure, lacking risk control measures for market public sentiment, information leakage and quotation deviation.
b) Inadequate compliance management policy and implementation, failing to conduct compliance checks on affiliated relationships and quotation/subscriptions, failing to conduct retrospective verification of the objectivity and prudence of new stock quotations, failing to establish sound four-eyes verification mechanisms, and failing to archive records of compliance reviews.
c) Inadequate communication device control policy and implementation, failing to strictly control the communication devices of personnel with access to quotation information during the inquiry period, failing to make special arrangements for such personnel who cannot comply with mobile communication device control requirements due to specific circumstances such as business travel or leave to effectively prevent quotation information leakage, incomplete records of communication device control.
d) Deficient working paper policy, business training policy, internal accountability mechanisms, and compensation and performance appraisal mechanisms, and failure to implement and retain relevant records.
e) Inadequate segregation of personnel and information, with pricing team members also serving as members of the pricing team of an affiliated company.
III. Our Observations
Under Article 2 of the Measures for the Implementation of Self-Regulatory Measures of SAC, the application scope of SAC’s self-regulatory administration includes its members, securities industry practitioners, and other institutions and individuals brought under management pursuant to the relevant rules.
Article 4 of the Administration Rules further provides that Qualified Foreign Investors (QFIs) registered as offline investors, along with the funds or products under their management and their staff, are also subject to the self-regulatory administration of the SAC. The SAC has self-regulatory jurisdiction over the conduct of offline investors, covering both domestic and foreign participants, including QFIs.
According to the information published by the SAC, two QFII accounts were included in the IPO placement blacklist in December 2016 for a period of six months. Recent cases against non-compliant private fund managers are also a reminder to investors to attach great importance to the establishment of internal control systems and the daily record keeping for implementation of the internal controls, in order to prevent similar compliance risks.
We recommend that investors strictly benchmark their actions against the Administration Rules, refine their own offline IPO pricing, allocation policies and operational procedures, and ensure full compliance with the regulatory requirements. The following Compliance Self-Inspection Checklist for Offline IPO Placement Business is for investors’ self-assessment.
Attachment:Compliance Self-Inspection Checklist for Offline IPO Placement Business
Stage
Item
Research Mechanism
◽
IPO stock research mechanism and research report drafting and approval mechanism have been established, with detailed provisions on execution, IPO stock research and pricing decisions.
◽
Necessary valuation and pricing models have been established.
◽
Research methodologies and analytical logic is rigorous, and in-depth analysis of the issuer’s investment value has been conducted based upon reasonable data foundations and facts.
◽
Internal policies stipulate and ensure the reasonable, prudent, and confidential use of the investment value research reports provided by the lead underwriter and such internal policies have been implemented in practice.
Research Report Drafting
◽
The research report has been independently drafted and completed internally.
◽
The internal policy specifies the format of the research reports.
◽
The research reports have included the following:
- Research on the issuer’s fundamentals: research on industry development patterns and trends, the issuer’s business model, business prospects, management operations and management capabilities, and an analysis of the issuer’s core competitive advantages;
- Analysis of the issuer’s profitability and financial condition: including but not limited to making prudent and reasonable estimates and calculations of the important financial matters of the issuer for future accounting periods, and elaborate clearly on important assumptions and parameters;
- Reasonable valuation and pricing models: offline investors shall adopt at least one reasonable valuation methodology. For an absolute valuation methodology, include detailed descriptions of the valuation and pricing model, the model assumptions and the key valuation parameter settings using a rigorous and logical deduction process. For a relative valuation methodology, include comparable company selections and the basis for such selections, with a rigorous and logical deduction process;
- Sensitivity analysis for the issuance of IPO stocks with secondary share transfer arrangements (if any); and
- Specific quotation recommendations or recommended price range, etc.
Research Report Approval
◽
The research report approval mechanism has been strictly followed.
◽
A substantive review has been conducted on the research report.
Pricing Basis
◽
Both quantitative and qualitative analyses have been fully performed in the pricing decisions.
◽
The price, or price range of the IPO stocks has been reasonably determined, without simply relying on the midpoint of a valuation range or a markup percentage.
◽
The difference between the highest and lowest price does not exceed 20% of the lowest price, if a price range is recommended in the quotation.
◽
The supporting rationale, recommended price in the research and pricing reports are consistent with the proposed subscription price, with logical deduction.
Pricing Reports / Minutes of Pricing Meetings
◽
The pricing team prepared pricing reports or minutes of the pricing meetings based on the pricing basis and pricing decision-making process for each quotation, and have retained the relevant materials for archiving and future reference (a retention period of no less than 20 years)
◽
The pricing report or the minutes of the pricing meeting adequately and robustly support the final quotation.
◽
The pricing report or the minutes of the pricing meeting contain detailed descriptions of the valuation parameters.
◽
The pricing report or the minutes of the pricing meeting were signed or executed in writing by all members of the pricing team participating in the IPO project.
◽
The system documentation timestamp, retention time or last modification time of the pricing report or the minutes of the pricing meeting were archived before the conclusion of the inquiry period.
Pricing Decisions
◽
An IPO pricing team has been established to make collective research decisions based on the specific quotation recommendations or recommended price ranges given by the pricing basis.
◽
The pricing team includes new stock research personnel and investment decision-making personnel.
◽
No investment decisions were made nor investment instructions directly executed by investment advisers or other institution/individuals.
Quotation and Subscription
◽
Verification procedures have been followed when providing information materials as required by the lead underwriter of the IPO project.
◽
Before submitting the pricing basis, internal approval procedures have been followed.
◽
The quotation has been made based on the recommended price or price range according to the pricing basis.
◽
If the offering price is determined through a book-building inquiry, the subscription quotations and the inquiry quotations are consistent.
◽
In the case of quotation revision, the pricing decision-making procedures have been reperformed, and the basis for the revision and/or the records of the reperformed pricing decision-making procedure has been archived.
◽
When participating in an offline inquiry and subscription for the same project with an affiliated party, effective segregation measures were taken.
Allocation Subscription
◽
Duplicated online subscriptions, by the fund/product that has participated in an offline inquiry and its affiliated accounts, have been prevented.
◽
The proposed subscription price, quantity and amount filled in for the fund/product have satisfied the regulatory indicators.
◽
The proposed subscription quantity has been determined by factors such as the fund/product’s asset scale before the inquiry and the day’s subscription and redemption activities, so that its total assets and cash assets meet the subscription requirements.
◽
Risk control indicators, such as the position and concentration of individuals and all products after allocation, and the proportion of illiquidity-restricted assets, have been calculated to ensure that the proposed subscription quantity and future shareholding of the fund/product comply with the laws, regulations and product contracts.
Compliance Management
◽
A sound compliance management policy has been established.
◽
A compliance review has been conducted on the participation in an IPO offline inquiry and allocation business, particularly, the following items have been subject to compliance review:
- Any affiliated relationship with the issuer or the lead underwriter of the project as defined by the rules
- Compliance of quotation and subscription behavior, and the absence of any violation of internal policies
◽
Regular or irregular compliance inspections have been conducted on matters such as the retrospective verification of objectivity and the prudence of quotations.
◽
An appropriateness self-examination is conducted once every six months, and the registration information of the offline investor and the funds/products under its management is updated in a timely manner.
◽
Information has been reported as required by SAC, including but not limited to affiliated parties, investors, financial conditions and investment operations.
Risk Management
◽
A sound risk management policy has been established, and the new stock inquiry business is integrated into overall risk management control.
◽
Verification modules have been set up in the risk control system.
◽
Risks that may arise in each business procedure are appropriately monitored, analyzed and identified.
◽
Necessary risk control measures are taken promptly and effectively to prevent and mitigate risks.
◽
Complete special business operational procedures have been established, and the operating procedures, job responsibilities and authority divisions are clearly defined.
◽
A four-eyes verification mechanism for important operational steps such as quotations, subscriptions and payments has been established.
◽
Performance risk assessment indicators for IPO stocks have been established to retrospectively verify the objectivity and prudence of quotations.
Subscription Funds
◽
Fund transfer approval procedures for subscription have been established.
◽
Sufficient reserve funds have been arranged according to the subscription plan, to ensure that funds are transferred into the settlement bank account within the prescribed time.
Business Training
◽
Sound business training has been established and improved.
◽
Targeted business training has been organized on a regular or semi-regular basis.
Communication Device Control
◽
A sound communication control policy has been established.
◽
It is prohibited to disclose valuation and pricing methods, parameters, and related quotation information before the conclusion of the inquiry period, or to inquire about, collect or disseminate such information of other offline investors.
◽
A communication device control policy has been implemented, with unified control on the communication devices of personnel with access to quotation information during trading hours on the inquiry day.
◽
Special arrangements have been made to prevent quotation information leakage for personnel with access to quotation information who are unable to comply with communication device control due to business travel, leave or other circumstances.
◽
Complete records of communication device control for personnel with access to quotation information, as well as other relevant materials have been retained for future reference.
Working Paper Archiving
◽
A sound working paper archiving system has been established.
◽
The system has been implemented with the relevant working papers archived for reference.
Personnel Management
◽
Stipulate in the internal policies and employment contracts the deferred payment of performance compensation or clawback for improper quotation behavior by pricing team members.
◽
Stipulate in the internal policies and employment contracts the performance compensation clawback for violations by pricing team members.
◽
Stipulate in the internal policies and employment contracts the internal accountability mechanisms for operational errors by trading personnel.
◽
A segregation mechanism for personnel and information has been established (including but not limited to, new stock pricing team member not concurrently serving as member of the new stock pricing team of an affiliated company).
1. Please refer to the Announcement on the Blacklist of IPO Placement Objects (No. 7 of 2016), https://www.sac.net.cn/wxtzz/tzjgg/zlcsgk/202305/t20230517_59924.html
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