CHINA’S securities regulator said Tuesday that it has launched a points system to penalize stock underwriters who arrange deals for poor quality firms.

　　The China Securities Regulatory Commission (CSRC), in an effort to improve the quality of China’s markets, said that it will bar lead underwriters from taking on new business if they commit too many misdeeds.

　　“The new rules aim to further standardize the business of lead underwriters, raise their business quality and enhance their sense of honesty and credibility,” the CSRC said in a statement published in official State newspapers.

　　Underwriters which lead deals for poorly performing firms will be penalized and see their deal quotas cut if they accumulate 12 points within a year, the statement said.

　　The CSRC awards brokerages quotas that allow them to arrange simultaneously two to eight initial public offerings, rights issues or additional share offers.

　　The number of deals in a quota is now based on each brokerage’s performance record and scale of operations. The CSRC said it will substract one deal for every 12 points accumulated by a lead underwriter.

　　For example, a lead underwriter will get 12 points if it arranges an IPO, additional shares or a rights issue for a company that made a loss within the same year, the CSRC said.

　　A lead underwriter will get six points if the issuer reports more than a 50 percent drop in earnings from its core business in the same year as the share offer, the CSRC said.

　　A five-point penalty will be imposed if a share prospectus is found to have false and misleading information or to have omitted key information.

　　Underwriters will also be held responsible if companies change investment targets for IPO proceeds.

　　The two underwriters with the highest number of points each year will have two deals cut from their quotas. Those ranking third to fifth will have one deal cut, the CSRC said.

　　China launched a sweeping campaign in late 2000 to clean up its massive US$540 billion stock markets, which are saddled with loss-making State enterprises and poor accounting practices.

　　The government tightened delisting rules and raised information disclosure requirements, and punished a slew of listed firms, brokerages, banks and accounting offices in the process.

　　The clampdown was a major factor in a near 30 percent fall in the country’s stock indices since their peak in June last year and is still regarded as a lingering negative factor on the market. (SD-Agencies)