The Shanghai Stock Exchange is asking for advice from experts about reforming China's exchange listing rules.

Draft plans for the listing rules need revision, some insiders say.

In a statement filed late on Monday, the exchange asked for opinions from industry insiders about the reform of China's listing and transaction rules, a sign that the securities regulator plans to launch the reform probably next month - ahead of the launch of a Nasdaq-type growth board.

China's listing rules have been in the spotlight after several companies, PetroChina in particular, suffered from bleak performances after a stellar debut.

Shares of PetroChina opened at 48.6 yuan (US$6.65) in November last year and have slid nearly 50 percent since then.

The core of the problems, some insiders say, lies in the initial public offering system which favors institutional investors over individuals in share pricing and allotment.

The current system has three ways of subscribing to share issues: private placement to strategic investors, private special subscription for institutional investors and open on-line subscription.

But even in the on-line subscription which distributes IPO issues by the size of funds, individual investors have little chance of competing with rich institutional investors.

Thus most individuals can only buy shares after trading begins. In a bullish market with high sentiment, a large number of retail buyers pushes the share price to an unreasonable height and watches it nosedive when institutional investors start to sell.

"The biggest characteristic of the current system goes to its leaning towards institutional investors. It creates loopholes for speculation in IPO trading and threatens market stability," said Wang Cheng, an analyst with Guotai Jun'an Securities Co.

At the end of last year, the China Securities Regulatory Commission and Shanghai Stock Exchange invited a group of brokers and insurance companies to discuss the phenomenon of PetroChina's performance, paving the way for the reform.

So far, there are a few draft plans on the market, including one which wants to establish a monitoring system on pricing and adopting a market value or stock accounts-based allotment system for shares.

But these measures will not protect the interests of smaller investors, analysts said.

(Shanghai Daily January 23, 2008)