Lacking of enforcement
For example, Changjiang Securities, which sponsored the float of technology company Shenzhen Sunway Communication on the ChiNext last year, broke the rules by failing to point out in its report that fewer than 30 percent of staff at the company had tertiary education, which was required by the rules of ChiNext.
According to financial data provider Wind, the share prices of the five companies that Changjiang Securities sponsored in the past three years have dropped more than 30 percent.
With a lack of serious enforcement, sponsors have little impetus to clean up their acts. They can recommend companies with high risk and low investment value and not bear any responsibility.
"Given the important role played by sponsors, these failures must be regarded most grimly," Mark Steward, head of enforcement at the Hong Kong Securities and Futures Commission, said when his agency took action against Mega Capital (Asia).
Mainland investors want the same watchdog vigor. They want to see immediate action when false auditing is uncovered in IPO applications. They want to see guilty companies delisted and remuneration made to investors. They also want to see IPO sponsors held to account for their part in deception.
"Whether the mainland should introduce a system to return money to investors from false listing information after an IPO should be considered in any future amendments to securities law," said Huarong Law Firm's Xu.
Currently on the mainland, money invested in initial share offers is returned only if malfeasance is found before the actual listing.
Cases of insider trading and false auditing have severely damaged the credibility of mainland stock markets for years. Only by stepping up regulatory enforcement can the confidence of investors be restored. The Hontex case in Hong Kong is a good case in point.