Expert Interpretation: What Is "Green Shoe Mechanism" (3)

Existing disadvantages: current

The green shoe mechanism is not perfect. It plays a dual role in China's stock market, and its operation has defects and drawbacks.

First, induce the listed companies to generate "investment hunger and thirst", and encourage the vicious circle of money.

At present, the ownership structure of Listed Companies in China is mostly "single dominant" phenomenon, and the interests of controlling shareholders are different from those of ordinary investors.

In order to pursue the interests of controlling shareholders, listed companies will certainly raise funds from the hands of ordinary investors to the maximum extent.

The green shoe mechanism gives the controlling shareholder or his agent a more powerful tool.

Its implementation is most likely to be used. When issuing shares, a listed company will not hesitate to violate its integrity, regardless of the actual market situation, blindly maximize the use of the maximum allotment option, sell new shares to subscribed investors, and raise the maximum amount of shares, thereby triggering the "thirst for investment" of the listed companies and promoting their vicious money collection behavior.

The biggest beneficiary of this process is the controlling shareholders and senior management of listed companies, and the interests of ordinary investors have been weakened, which will be a great blow to the smooth and smooth operation of the stock market.

Second, weakening the risk awareness of the main underwriter is not conducive to the improvement of its management.

The implementation of the green shoe mechanism can help the main underwriter to correct the mistakes and minimize the possible losses.

This will greatly weaken the risk awareness of the main underwriters. It is very likely that they will not choose the underwriting method based on market changes, do not correctly judge and predict the medium and long-term trends, but rather rely on the risk free or low risk of green shoe mechanism and pursue more underwriting fees.

The main Underwriters will continue to compete at low level and low risk level, which is not conducive to the establishment of their risk awareness, and is not conducive to the improvement of their backward management level. In the long run, they will also block.

Third, causing unfair competition in the market, breeding speculation and corruption.

On the one hand, as the majority of the placing portion is heavily loaded, the option to subscribe for excess placement can almost be institutional investors. Small investors are excluded because of financial strength constraints, resulting in unfair competition among market participants.

On the other hand, the green shoe mechanism is actually the evolution of a stock futures trading mode, and its regulation and supervision is very difficult.

Institutional investors, because of their strong financial strength and information acquisition capabilities, and other advantages, when the allotment option is exercised, and easily engage with the Underwriters, lead to the covert operation of related parties and even illegal operations. This provides opportunities for speculation and corruption.

Fourth, the regulatory capacity, self-discipline and market credibility of market regulators will undergo severe tests.

The responsibility of the market regulator is to create a fair competition environment, maintain market order and principles, and protect the interests of investors.

If investors buy over the allotment of new shares, poor market performance, moral hazard and adverse selection and other vicious incidents occur frequently, all aspects of the regulator's capabilities will be strongly impacted.

Normative mechanism: Specification

In view of the disadvantages of the green shoe mechanism, we should standardize the stock issuing system, maintain the effective order of the market and the interests of all parties, and we can carry out the specifications and regulations from the following aspects.

1, restructure the ownership structure of listed companies, change the phenomenon of "single dominance" at present and establish a reasonable shareholding structure, so as to eliminate the drawbacks brought about by irrational structures and promote the improvement and perfection of its internal governance mechanism.

2, enhance the responsibility and risk awareness of the underwriters. When underwriting, the Underwriters should improve their ability to judge the comprehensive strength of listed companies, the future operation of securities and their trend, and strive to improve their management mechanism.

3, enhance market pparency. Issuers and underwriters should strictly abide by the obligation of information disclosure. Before implementing the green shoe mechanism, they will report to the SFC in a timely and accurate manner, timely and accurately announce to the market and accept market supervision.

4, market regulators should increase supervision and severely crack down on the covert operation or even illegal operation of related parties such as listed companies, underwriters and institutional investors, so as to put the interests of ordinary investors in the first place, and rebuild and consolidate market credit.