At the end of 2018, when attending the opening ceremony of the first China International Import Expo, the national leaders delivered a speech, announcing the establishment of the Sci-Tech Innovation Board (STAR Market) on the Shanghai Stock Exchange and the pilot implementation of the registration-based system. It was stated that the establishment of the STAR Market is to implement the strategy of building a strong country through science and technology and innovation-driven development, and it is also an important measure to stimulate the vitality of the capital market and protect investors.

On March 2nd this year, the rules for the STAR Market were officially launched. The China Securities Regulatory Commission (CSRC) and the Shanghai Stock Exchange (SSE) officially issued and implemented the main institutional rules for the establishment of the STAR Market and the pilot registration-based system. This means that after nearly a month of public consultation on opinions, the supporting rules for the STAR Market and the pilot registration-based system, which have attracted great attention from the market, have been officially issued and implemented. The official launch of the STAR Market immediately sparked widespread public discussion, especially investors are particularly concerned about the specific requirements of the STAR Market. Below is a brief introduction to ten key points:

1. Threshold of 500,000 RMB and 2 years of experience remain unchanged

From the perspective of the public consultation results, most investors recognize the current suitability requirements for STAR Market investors, while some investors believe that the investor threshold is too high or too low.

The Shanghai Stock Exchange stated that, based on data calculation, the asset threshold of 500,000 RMB and 2 years of securities trading experience as suitability requirements are relatively appropriate. There are about 3 million individual investors in the existing A-share market who meet the criteria, and together with institutional investors, their trading volume accounts for more than 70% of the total. Overall, it balances the risk-bearing capacity of investors and the liquidity of the STAR Market.

2. All existing A-share investable funds can be used to invest in STAR Market

The Shanghai Stock Exchange emphasized that the implementation of the investor suitability system does not bar investors who do not meet the requirements from the STAR Market. Small and medium-sized investors who do not meet the investor suitability requirements can participate in the STAR Market through public fund products and other products.

Next, the Shanghai Stock Exchange will actively promote fund companies to launch a number of public fund products mainly investing in the STAR Market.

In addition, upon inquiry to the regulatory authorities, all existing public funds that can invest in A-shares can invest in STAR Market stocks, and the 6 strategic placement funds issued earlier can also participate in the strategic placement of STAR Market stocks.

3. Why T+0 trading mechanism is not implemented

The Shanghai Stock Exchange stated that during the public consultation on the supporting business rules for the establishment of the STAR Market and the pilot registration-based system, many investors suggested introducing the T+0 trading mechanism.

In fact, the T+0 trading mechanism is not a new thing in the A-share market. The Shanghai Stock Exchange implemented the T+0 trading mechanism in its early days, but eventually switched to the T+1 trading system because the market conditions were not mature.

There have been consistent calls for the implementation of the T+0 trading mechanism in China, but there are also different opinions. After a comprehensive assessment, in accordance with the principle of steady launch and gradual progress, the T+0 trading mechanism was not included in the business rules released this time.

4. Further optimization of the share reduction system

Lock-up period for shares held by core technical personnel is adjusted from 3 years to 1 year, and after the expiration, 25% of the pre-IPO shares can be reduced each year;
• Optimize the share reduction restrictions for shareholders of unprofitable companies, and make gradual arrangements for share reductions by controlling shareholders, actual controllers, directors, supervisors, senior management, and core technical personnel;
• Clarify that other arrangements for share reductions on the STAR Market shall be implemented in accordance with the current share reduction system;
• Specific shareholders may transfer their pre-IPO shares through private transfer and placement methods, and the specific matters shall be separately stipulated by the exchange.

5. Further clarification of listing standards for red-chip enterprises

It is stipulated that relevant red-chip enterprises that meet the requirements of  the Notice of the General Office of the State Council Forwarding the Opinions of the CSRC on Carrying out the Pilot Program of Issuing Stocks or Depositary Receipts by Innovative Enterprises in the Domestic Market (Guobanfa〔2018〕No. 21)  may apply for listing on the STAR Market.

Among them, unlisted red-chip enterprises overseas that have  rapidly growing operating income, possess independent R&D and internationally leading technologies, and hold a relatively advantageous position in the competition of the same industry may apply for listing on the STAR Market if they meet one of the following conditions:

The estimated market value is not less than RMB 10 billion;
• The estimated market value is not less than RMB 5 billion and the operating income in the most recent year is not less than RMB 500 million.

6. 20% price limit for competitive trading

The price limit for STAR Market stocks is relaxed to  20% , and there is no price limit for the first  5 trading days after the new shares are listed.

The calculation formula for the price limit of STAR Market stocks is as follows:

Price limit = Previous closing price × (1 ± Price limit ratio)

7. After-hours fixed-price trading

After-hours fixed-price trading refers to a trading method in which, after the closing call auction ends, the exchange's trading system matches the closing price declarations in the order of time priority and executes transactions at the closing price of the day.

Trading time:  15:05 to 15:30 of each trading day
• Stocks that are still in suspension at 15:00 on the same day shall not conduct after-hours fixed-price trading

8. Voting right differential arrangement

If an issuer does not have a voting right differential arrangement before its initial public offering and listing, it shall not set up such an arrangement after listing.
• The total shares held by shareholders with special voting rights in the listed company shall account for more than  10% of the company's total issued voting shares.
• The number of voting rights per share of special voting rights shall be the same, and shall not exceed  10 times the number of voting rights per ordinary share.