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Penalties for firms in IPO issues

THE Securities Association of China banned Central China Securities Co and Invesco Great Wall Fund Management Co from being involved in setting prices for initial public offerings for three months while another 34 firms got a warning, it said in a statement on its Website on Sunday.

The 36 institutions were penalized after they were found to have quoted unreasonably higher prices in the price-setting mechanism for IPOs in 2008 and later chose not to bid for the shares, the association said.

"Institutions should refuse some underwriters' unreasonable requests to bid higher prices during share sales," said Huang Xiangping, chairman of the stock regulator-affiliated association.

The China Securities Regulatory Commission introduced the price-setting mechanism in 2005 to regulate companies which seek domestic listings to price new shares through negotiations with at least 20 institutional investors.

Under the rule, prices of IPO shares will be ultimately fixed based on demand for the shares on offer and market sentiment. A price range will be worked out in consultation with institutional investors, including fund managers, domestic brokerages, qualified foreign investors as well as trust firms, finance companies and insurers.

However, some institutions were found to have quoted unreasonably high prices during the initial consultation with underwriters to drive up the stock's price range. The institutions then chose not to bid for the stock. Underwriters could earn more commissions from the higher price range.

Others were found to have deliberately quoted a lower price to pull down the stock's offer price so that they could earn more money after the shares went to the market as they usually soared on their mainland debut.


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