Analysis of Sponsor Regime for Chinese Securities Companies

The sponsor regime is an institutional innovation intended to improve the securities issuing system. It was initiated by China's securities market and is based on its success in overseas markets. From the perspective of its operation, however, there is an asymmetry between risk and return for sponsors. This has been cause for concern and criticism of the sponsor regime. This chapter reviews a number of enforcement sanctions that the China Securities Regulatory Commission (CSRC) has taken against sponsors since 2004. The chapter also makes policy recommendations to help improve the sponsor regime for the future.


The sponsor regime of the Chinese securities market was gradually established as the stock issuing system was continuously improved. This was done in consideration of the development history of the overseas securities market.

Sponsor Regimes in Overseas Securities Market

The sponsor regimes of overseas securities markets, such as the United Kingdom, the United States, Malaysia, and Hong Kong, each have their own characteristics.

The U.K. Alternative Investment Market (AIM): Lifelong Sponsor System

The Alternative Investment Market (AIM) was launched in 1995 by the London Stock Exchange. The sponsor regime is a requirement for the orderly and steady development of the AIM. It is also a means to prevent and dissolve risks in market operation. The financial market regulation in the United Kingdom has long been known for its strictness. The primary objective of institutional regulators is to maintain market confidence and safeguard the interests of investors. In light of the omnipresent coexistence of high return and high risk, regulators require that enterprises listed on the AIM comply with the lifelong sponsor system. Lifelong sponsor means that an enterprise must, from the day it goes public, have a sponsor to ensure its operation activities comply with market rules. A sponsor should be in place for every single day the enterprise remains public. If the sponsor position becomes vacant, the sponsored enterprise has to suspend its stock transactions until a new sponsor takes over.

The sponsor has different roles to play before and after the enterprise goes public. Before public listing, the sponsor is mainly responsible for reviewing the quality and condition of the enterprise, ensuring that it meets the standards and requirements for public listing and providing advice for the enterprise to be listed. At this point, the sponsor essentially plays the roles of tutor and independent auditor. After public listing, the focus of the sponsor's work shifts to urging the enterprise to continuously abide by market rules and perform its information disclosure duties. The sponsor may also communicate with exchanges and investors on behalf of the enterprise. At this stage, the sponsor plays the roles of board of directors' secretary and public relations expert.

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