Measures for the Administration of the Offering and Underwriting of Securities (Revised)

Revised on May 18 2012. Latest revision can be found at: www.chinalawandpractice.com/Article/3058896/Measures-for-the-Administration-of-the-Offering-and-Underwriting-of-Securities-2nd-Revision.html

(Promulgated by the China Securities Regulatory Commission on October 11 2010 and effective as of November 1 2010.)

Order of the CSRC No.69

Part One: General provisions

Article 1: These Measures have been formulated pursuant to the PRC Securities Law and the PRC Company Law in order to regulate the offering and underwriting of securities and protect the lawful rights and interests of investors.

Article 2: These Measures shall govern the onshore offering of shares and convertible bonds (Securities) by offerors, the onshore underwriting of Securities by securities companies and the purchase by investors for Securities offered onshore.

When offerors, securities companies and investors participate in Securities offerings, they shall additionally comply with other provisions of the China Securities Regulatory Commission (CSRC) on the offering of Securities and the operational rules of the stock exchange and the securities depository and clearing institution. When underwriting Securities, securities companies shall additionally comply with the relevant provisions on the sponsorship system, risk control system and internal control system of the CSRC.

Article 3: Securities service institutions and their personnel that issue documents in connection with Securities offerings shall strictly perform their statutory duties in accordance with the commonly recognised business and ethical standards of their industry and be liable for the truthfulness, accuracy and completeness of the documents they issue.

Article 4: The CSRC regulates the offering and underwriting of Securities in accordance with the law.

Part Two: Inquiry and pricing

Article 5: Share offer prices in initial public offerings of shares (IPOs) shall be determined through inquiries made to specific institutional investors (Inquiry Recipients).

The term “Inquiry Recipients” means securities investment fund management companies, securities companies, trust and investment corporations, finance companies, insurance institutional investors, qualified foreign institutional investors and institutional investors that have relatively high pricing capabilities and a long-term investment orientation recommended by lead underwriters at their own discretion, which satisfy the conditions set forth herein, as well as other institutional investors approved by the CSRC.

If the lead underwriter recommends institutional investors at its own initiative, it shall formulate clear recommendation criteria, establish a transparent recommendation decision-making mechanism and submit the same to the Securities Association of China for registration.

Article 6: Inquiry Recipients and the securities investment products that they manage (Share Placement Targets) shall be registered with, and be subject to the self-regulation of, the Securities Association of China.

Article 7: An Inquiry Recipient shall satisfy the following conditions:

(1) being established in accordance with the law and not having been subjected to administrative penalties, regulatory measures or criminal punishment during the most recent 12 months for a major violation of laws or regulations;

(2) being eligible to invest in shares according to law;

(3) having a good credit record, and having the organisation and personnel required to independently engage in Securities investment;

(4) having a sound internal risk assessment and control system that functions effectively, and risk control indices complying with relevant provisions; and

(5) if it has been removed from the list of Inquiry Recipients by the Securities Association of China in accordance herewith, 12 months having elapsed since the date of such removal.

Article 8: The following institutional investors serving as Inquiry Recipients shall, in addition to satisfying the conditions specified in Article 7, satisfy the conditions set forth below:

(1) securities companies that have been approved to deal in Securities business for their own account or the securities asset management business;

(2) trust and investment corporations for whom at least two years have elapsed since their re-registration by the relevant regulatory departments, that have registered capital of not less than Rmb400 million and have had an active securities market investment record during the most recent 12 months; and

(3) finance companies that have been established for at least two years, have registered capital of not less than Rmb300 million and have had an active securities market investment record during the most recent 12 months.

Article 9: When carrying out the price inquiry, the lead underwriter shall provide an investment value research report to the Inquiry Recipients. None of the offeror, the lead underwriter or the Inquiry Recipients may publicly disclose the contents of the investment value research report in any manner, unless otherwise provided by the CSRC.

Article 10: The investment value research report shall be independently prepared and signed by the underwriters' research personnel, and the underwriters may not provide an investment value research report prepared by an institution outside the underwriting syndicate. An underwriter that issues investment value research reports shall establish a sound quality control system for investment value research reports, and the personnel who prepare the investment value research reports shall comply with the securities company's internal control systems.

Article 11: The following requirements shall be complied with in the preparation of investment value research reports:

(1) independence, prudence and objectivity;

(2) true, accurate, complete and authoritative cited information, and the source thereof must be stated;

(3) consistency and continuity in the assessments of the offeror's industry; and

(4) no false or misleading statements, or material omissions.

Article 12: An investment value research report shall provide a comprehensive analysis of the factors that affect the investment value of the offeror, and, at minimum, include the following information:

(1) the offeror's industry, industry policies, a comparison of the offeror and its main competitors and the offeror's position in the industry;

(2) an analysis of the offeror's business performance and growth prospects;

(3) an analysis of the offeror's profitability and financial position;

(4) an analysis of the project into which the offer proceeds will be invested;

(5) a comparison of the investment value of the offeror and comparable listed companies in the same industry; and

(6) macroeconomic trends, stock market trends and other factors that have a material impact on the investment value of the offeror.

An investment value research report shall provide a forecast of the reasonable investment value of the offeror's stock based on the foregoing analyses and by applying the valuation method commonly accepted in the industry.

Article 13: The offeror and its lead underwriter shall promote the offering and make pricing inquiries to Inquiry Recipients, and promote the offering to the public via the internet, after publication of the preliminary offer document for the IPO and the offer announcement.

Inquiry is divided into two phases, preliminary inquiry and bookbuilding. The Offeror and its lead underwriter shall determine the offer price range through the preliminary inquiry and, within the offer price range, the offer price through bookbuilding.

Article 14: If the initially offered shares are to be listed on the small and medium-sized enterprise board or the growth enterprise board, the offeror and its lead underwriter may determine the offer price based on the results of the preliminary price inquiry, without carrying out the bookbuilding procedure.

Article 15: An Inquiry Recipient may, in its own discretion, decide whether to participate in a preliminary inquiry. If an Inquiry Recipient applies to participate in the preliminary inquiry, the lead underwriter may not refuse it without a valid reason. An Inquiry Recipient that did not participate in the preliminary inquiry or that participated in the preliminary inquiry but failed to provide a valid quote may not participate in bookbuilding or offline private placement.

Article 16: Inquiry Recipients shall provide a reasonable quote based on the principles of independence, objectivity and good faith, and may not hold consultations on their quotes or deliberately depress or boost their quotes.

Article 17: The account of the lead underwriter for the securities traded for its own account may not participate in the price inquiry for the share offering, the offline private placement or the online offering.

An Inquiry Recipient in a de facto control relationship with the offeror or its lead underwriter may not participate in the price inquiry for the share offering or the offline private placement, but may participate in the online offering.

Article 18: The offeror and its lead underwriter shall report the offer price range and the offer price to the CSRC for the record and announce the same once each has been determined.

Article 19: In their promotional work, the offeror and its lead underwriter may not mislead investors, interfere in the normal quoting and purchase by the Inquiry Recipients or disclose information on the offeror other than the preliminary offer document and other such public information. The promotional materials may not contain false or misleading statements or material omissions.

Article 20: Within one month after the end of a year, an Inquiry Recipient shall draw a conclusion from the inquiries in which it participated during the year and give an explanation as to whether it continues to satisfy the conditions specified herein and whether it complies with the regulatory requirements hereof in respect of Inquiry Recipients. The concluding report shall be submitted to the Securities Association of China for the record.

Article 21: When a listed company offers Securities, it may determine the offer price through inquiry or hold consultations with its lead underwriter to determine the offer price.

The price determined for a Securities offering by a listed company shall comply with relevant provisions of the CSRC on the offering of Securities by listed companies.

Part Three: Sale of securities

Article 22: If at least 400 million shares are to be offered in an IPO, a private placement may be made to strategic investors. The offeror shall execute private placement agreements with the strategic investors in advance and submit the same to the CSRC for the record.

The offeror and its lead underwriter shall disclose in the offer announcement the criteria for the selection of the strategic investors, the total number of shares to be placed with the strategic investors, the percentage of the total number of shares offered for which such placement will account, the lockup period and others.

Article 23: Strategic investors may not participate in the preliminary inquiry or bookbuilding procedure for an IPO, and shall undertake to hold the shares obtained in the private placement for no less than 12 months. The lockup period shall commence to count from the date the shares from the public offering are listed.

Article 24: The offeror and its lead underwriter shall place shares with those Inquiry Recipients that participate in the offline private placement. If the total number of publicly offered shares is less than 400 million, the number of shares offered in such private placement may not exceed 20% of the total number of shares offered. If the total number of publicly offered shares is 400 million or more, the number of shares offered in such private placement may not exceed 50% of the remaining offered shares after the private placement to the strategic investors. The Inquiry Recipients shall undertake to hold the shares obtained in the offline private placement for no less than three months. The lockup period shall commence to count from the date the shares from the public offering are listed.

If shares in the offering are placed with strategic investors, the number of shares not subject to a lockup period after the conclusion of the offering may not be less than 25% of the number of shares offered.

Article 25: Share Placement Targets shall be limited to the following types:

(1) securities investment funds whose offering has been approved;

(2) the National Social Security Fund;

(3) the accounts of securities companies for dealing in Securities for their own account;

(4) securities companies' pooled asset management schemes whose establishment has been approved;

(5) the accounts of trust and investment corporations for dealing in Securities for their own account;

(6) pooled trust schemes established by trust and investment corporations and for which the reporting procedure has been carried out with the relevant regulatory department;

(7) the accounts of finance companies for dealing in Securities for their own account;

(8) the approved Securities investment accounts of insurance companies and insurance asset management companies;

(9) Securities investment accounts managed by qualified foreign institutional investors;

(10) enterprise pension funds recorded with the relevant regulatory department;

(11) securities investment accounts managed by the institutional investors recommended by the lead underwriter at its own discretion; and

(12) other Securities investment products approved by the CSRC.

Article 26: An Inquiry Recipient shall designate separate fund accounts and Securities accounts for the Share Placement Targets that it manages, which are to be used exclusively for bookbuilding and offline private placements. The designated accounts shall be registered with the CSRC, the Securities Association of China and the securities depository and clearing institution.

Article 27: When a Share Placement Target participates in a bookbuilding procedure and offline private placement, it shall pay in full the purchase moneys. The aggregate number of shares purchased from any single designated Securities account may not exceed the total number of shares placed with the Inquiry Recipients in the offering.

Article 28: If an offeror and its lead underwriter determine the offer price through bookbuilding, in the event that the total number of shares validly purchased at or above the offer price exceeds the number offered in the offline private placement, the private placement shall be allocated pro rata for all of the valid purchases at or above the offer price.

Article 29: The lead underwriter shall verify the registration of the Inquiry Recipients and the Share Placement Targets. Shares may not be placed with an Inquiry Recipient if:

(1) it did not participate in the preliminary inquiry;

(2) the name or account information of the Inquiry Recipient or Share Placement Target is inconsistent with that registered with the Securities Association of China;

(3) it failed to provide a quote within the specified period of time or to transfer in full the purchase moneys; or

(4) there is evidence indicating that it violated laws or regulations or breached the principle of good faith in the course of the inquiry.

Article 30: The offline private placement by the offeror and its lead underwriter shall be carried out simultaneously with the online offering.

If the offer price has not been determined at the time of the online offering, the investors participating in the online offering shall make their purchase based on the upper limit of the price range. If the final offer price is lower than the upper limit of the price range, the difference shall be refunded to the investors.

When participating in online offerings, investors shall comply with the relevant provisions of the stock exchange and the securities depository and clearing institution.

Article 31: If an IPO reaches a certain scale, the offeror and its lead underwriter shall establish a clawback mechanism between the offline private placement and the online offering to adjust the percentages of the offline private placement and the online offering based on the purchases.

When online purchases are insufficient, the shares may be reallocated offline and made available for purchase by institutional investors participating offline. If purchases still remain insufficient, the shares may be purchased offline by other investors recommended by the underwriting syndicate.

Article 32: If, after conclusion of the preliminary price inquiry, less than 20 Inquiry Recipients have provided a valid quote, in the case where less than 400 million shares are being publicly offered, or less than 50 Inquiry Recipients have provided a valid quote, in the case where 400 million shares or more are being publicly offered, the offeror and its lead underwriter may not determine the offer price, and shall suspend the offering.

If valid purchases by offline institutional investors within the predetermined limit for offline sale are insufficient, the shares may not be reallocated online, and the offering may be suspended. If the offline quoting outcome does not meet the expectations of the offeror and lead underwriter, or if the online purchases are insufficient or if purchases still remain insufficient after an offline reallocation following insufficient online purchases, the offering may be suspended. The specific circumstances for suspension of the offering may be agreed upon by the offeror and the underwriters, and disclosed.

After the suspension of an offering, it may be reinitiated during the term of validity of the approval document following record filing with the CSRC.

Article 33: If a listed company is to offer Securities and a profit distribution plan or a plan for conversion of the common reserve to share capital has not yet been submitted to the shareholders' general meeting for a vote or, although adopted by the shareholders general meeting, has not yet been implemented, the offering shall be made after the implementation of the plan. Until the relevant plan has been implemented, the lead underwriter may not underwrite the Securities offered by the listed company.

Article 34: If a listed company is to offer shares to its existing shareholders (Rights Offering), it shall allocate the same pro rata to those shareholders registered on the date of record.

Article 35: If a listed company offers shares to the public in general (Subsequent Offering) or offers convertible bonds, the lead underwriter may classify the institutional investors that will participate in the offline private placement and allocate different percentages of the private placement to the different classes of institutional investors. The private placement shall be allocated in the same ratio to those institutional investors in the same class. The lead underwriter shall specify in the offer announcement the criteria for classifying the institutional investors.

If the lead underwriter does not classify the institutional investors, it shall establish a clawback mechanism between the offline private placement and the online offering. The percentage allocated to both after the clawback shall be identical.

Article 36: When a listed company makes a Subsequent Offering or offers convertible bonds, it may preferentially offer all or part of them to its existing shareholders. The percentage of such preferentially offered shares shall be disclosed in the offer announcement.

Article 37: If a listed company makes a non-public offering of Securities, the selection of the offer targets and their number shall comply with relevant provisions of the CSRC on the offering of Securities by listed companies.

Part Four: Securities underwriting

Article 38: Before underwriting Securities, a securities company shall submit its offer and underwriting plan to the CSRC.

Article 39: When underwriting Securities, a securities company shall do so under a firm commitment underwriting or best efforts underwriting arrangement in accordance with Article 28 of the PRC Securities Law. Best efforts underwriting shall be used if a listed company does not elect to sell its shares offered in a non-public offering itself or when a listed company makes a Rights Offering.

Article 40: If best efforts underwriting is to be used for a share offering, the handling measures in the event of the failure of the offering shall be disclosed in the offer announcement. After the failure of the share offering, the lead underwriter shall assist the offeror in making the refunds to the share subscribers at the offer price plus interest at the bank deposit rate of the same period.

Article 41: If, pursuant to laws and administrative regulations, a Securities offering requires underwriting by an underwriting syndicate, the underwriters comprising the syndicate shall execute a syndication agreement, and the lead underwriter shall be responsible for organising the underwriting work.

If two or more securities companies are to act as co-lead underwriters for a Securities offering, all of the securities companies acting as lead underwriters shall jointly bear the responsibilities of lead underwriters and perform the relevant obligations. If an underwriting syndicate comprises three or more underwriters, it may have a deputy lead underwriter to assist the lead underwriter in organising the underwriting activities.

Article 42: The members of an underwriting syndicate shall carry out the underwriting activities in accordance with the syndication agreement and the underwriting agreement, and may not carry out a fraudulent underwriting.

Article 43: The underwriting agreement and syndication agreement may be executed after the determination of the offer price.

Article 44: The lead underwriter shall establish a dedicated department or organisation to coordinate the joint completion of tasks such as information disclosure, promotion, bookkeeping, pricing, private placement and settlement of moneys, etc., by the company's investment banking, research, sales and other such departments

Article 45: In the course of the underwriting process, a securities company may not offer overdrafts, rebates or other means determined as improper by the CSRC to induce others to purchase shares.

Article 46: The arrangements for the suspension and resumption of the listing of relevant Securities during the Securities offer period of a listed company shall comply with the relevant rules of the stock exchange.

The lead underwriter shall, in accordance with relevant provisions, pay interest on the frozen purchase moneys in a timely manner.

Article 47: Once payment of the purchase moneys by the investors has concluded, the lead underwriter shall engage an accounting firm qualified to engage in securities-related business (Accounting Firm) to verify the purchase proceeds and issue a proceeds verification report. In the case of an IPO, it shall additionally engage a law firm to certify that the inquiry and private placement to the strategic investors and Inquiry Recipients complied with laws, administrative regulations, these Measures and other provisions and issue a legal opinion thereon.

Article 48: If the number of shares to be offered in an IPO is 400 million or more, the offeror and its lead underwriter may, in the offer plan, adopt an over-allotment option. The exercise of the over-allotment option shall comply with the provisions of the CSRC, the stock exchange and the securities depository and clearing institution.

Article 49: When Securities are offered to the public, the lead underwriter shall submit an underwriting concluding report, which draws a conclusion from the basic details on the offer period and the performance of the new shares after the listing, to the CSRC for the record within 10 days after the Securities are listed, together with the following documents:

(1) the published version of the prospectus;

(2) the underwriting agreement and syndication agreement;

(3) the certifying opinion of the lawyer (for IPOs only);

(4) the proceeds verification report of the Accounting Firm; and

(5) other documents required by the CSRC.

Article 50: When a listed company makes a non-public offering of shares, the offeror and its lead underwriter shall submit the following documents to the CSRC after completion of the offering:

(1) a report on the offering;

(2) the report of the lead underwriter on the compliance of the offer process and the subscription targets;

(3) the certifying opinion of the offeror's lawyer on the compliance of the offer process and the subscription targets;

(4) the proceeds verification report of the Accounting Firm; and

(5) other documents required by the CSRC.

Part Five: Information disclosure

Article 51: In the course of the offering, the offeror and the lead underwriter shall prepare the information disclosure documents and perform their information disclosure obligations in accordance with the procedures, with the contents and in the format specified by the CSRC.

Article 52: The information disclosed by the offeror and lead underwriter in the course of the offering shall be true, accurate and complete, and may not contain false or misleading statements or material omissions.

Article 53: The offeror and its lead underwriter shall publish the information disclosed in the course of the offering in at least one newspaper and the internet website(s) designated by the CSRC, and make it available in a location designated by the CSRC for public consultation.

Article 54: With the exception of not containing the offer price and the amount to be raised, the contents and format of the preliminary offer document disclosed by the offeror shall be identical to, and have the same legal effect as, the prospectus.

Article 55: When publishing the preliminary offer document or the abstract of the prospectus, the offeror and its lead underwriter shall additionally publish the offer announcement, which shall provide a detailed explanation of the offer plan.

After the offer price has been determined, the offeror and its lead underwriter shall disclose details of the offline purchases and the specifics of the offline quotes.

Article 56: When the offeror and its lead underwriter announce the offer price and price-earnings ratio, the earnings per share shall be calculated based on the net profit for the year before the offer, as audited by an Accounting Firm, before and after deducting non-recurring profits and losses (whichever is lower) divided by the total share capital after the offer.

If the offeror provides an earnings forecast, it shall additionally make a supplementary disclosure of the price-earnings ratio based on the earnings forecast. The earnings per share shall be calculated based on the forecast net profit for the year in question, as reviewed by an Accounting Firm, before and after deducting non-recurring losses and gains (whichever is lower) divided by the total share capital after the offer.

The offeror may additionally disclose the price to book ratio and other such offer price indicators that reflect the particularities of the offeror's industry.

Article 57: If a private placement is made to strategic investors in an IPO, the offeror and its lead underwriter shall disclose in the announcement on the results of the offline private placement the names of the strategic investors, the number of shares they subscribed for and the lockup period that they committed to, and others.

Article 58: After a listed company offers new shares in a non-public offering, it shall prepare and disclose a report on the offering in accordance with the requirements of the CSRC.

Article 59: Until the Securities in an offering are listed, the offeror and its lead underwriter shall prepare and announce information disclosure documents as required by the stock exchange.

Part Six: Regulation and penalties

Article 60: If an offeror, securities company, securities service institution or Inquiry Recipient violates these Measures, the CSRC may order it to rectify the matter. It may take such administrative regulatory measures against the person directly in charge and the other persons directly responsible as a regulatory discussion, declaration as persona non grata, and others, and shall record the same in their integrity files and announce the same.

Article 61: If an offeror, securities company, securities service institution or Inquiry Recipient or its person directly in charge or another person directly responsible violates laws, administrative regulations or these Measures and, in accordance with the law, should be subjected to administrative penalties, it/he/she be shall be penalised in accordance with relevant provisions. If it/he/she is suspected of having committed a criminal offence, its/his/her case shall be transferred to the judicial authorities in accordance with the law, which shall pursue its/his/her criminal liability.

Article 62: If a securities company commits any of the acts set forth below, in addition to bearing the legal liability specified in the Securities Law, it may not participate in Securities underwriting for 36 months from the date confirmed by the CSRC:

(1) it underwrites Securities that have not been approved;

(2) in the course of the underwriting, it engages in advertising or other publicity or promotional activities that are fraudulent or mislead investors or uses improper means to induce others to purchase shares; or

(3) the information that it discloses in the course of the underwriting contains false or misleading statements or material omissions.

Article 63: If a securities company commits any of the acts set forth below, in addition to bearing the legal liability specified in the Securities Law, it may not participate in Securities underwriting for 12 months from the date confirmed by the CSRC:

(1) it divulges share offering information in advance;

(2) it uses unfair competitive means to solicit underwriting business;

(3) it fails to disclose information in accordance with provisions in the course of the underwriting;

(4) its actual method of proceeding in the course of the underwriting is inconsistent with the offer plan submitted to the CSRC; or

(5) it violates relevant provisions in preparing or issuing the investment value research report.

Article 64: If an offeror or its underwriter(s) violate(s) provisions by offering financial assistance or compensation to investors that participate in the subscription, the CSRC may order it/them to rectify the matter. If the circumstances are serious, the CSRC shall give it/them a warning and impose a fine.

Article 65: The Securities Association of China shall remove an Inquiry Recipient from the list of Inquiry Recipients if:

(1) it no longer satisfies the conditions specified herein;

(2) it has been subjected to regulatory discussion three or more times in the most recent 12 months for violations of relevant regulatory requirements; or

(3) it fails to submit its annual concluding report on time.

Part Seven: Supplementary provisions

Article 66: For the purposes of these Measures, the term "online offering" means a Securities offering made through a stock exchange's technical system.

For the purposes of these Measures, the term "offline private placement" means a Securities offering that is not made through a stock exchange's technical system, but is organised and carried out by the lead underwriter.

Article 67: The offering and underwriting of other securities of listed companies shall, mutatis mutandis, be handled in accordance with these Measures.

Article 68: These Measures shall be effective as of September 19 2006. The Measures for Administration of the Share Underwriting of Securities Institutions (Zheng Wei Fa [1996]) No.18), Circular on the Prohibition of Improper Acts in Share Offerings (Zheng Jian Fa Zi [1996] No.21), Circular on Resolutely Halting Overdrafts and Other Such Acts in Share Offerings (Zheng Jian Fa Zi [1996] No.169), Circular on Prohibiting Securities Institutions from Purchasing Shares that They Underwrite (Zheng Jian Ji Zi [1997] No.4), Circular on Strengthening the Oversight of the Share Underwriting Business of Securities Institutions (Zheng Jian Ji Gou Zi [1999] No.54), Circular on Issues Relevant to Private Placement of Shares to Legal Persons (Zheng Jian Fa Xing Zi [1999] No.121), Circular on Issues Relevant to Share Listing Arrangements (Zheng Jian Fa Xing Zi [2000] No.86), Supplementary Circular on the Oversight of the Share Underwriting Business of Securities Institutions (Zheng Jian Ji Gou Zi [2000] No.199), Circular on the Conduct of Company Promotion Via the Internet by Companies Issuing New Shares (Zheng Jian Fa Xing Zi [2001] No.12) and Circular on Several Issues Concerning the Trial Implementation of an Inquiry System for Initial Public Offerings of Shares (Zheng Jian Fa Xing Zi [2004] No.162) shall be repealed simultaneously.