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NPC to discuss changing stock registrations

The development of a shelf registration system for share issues is expected to come up for discussion on Friday by the Financial and Economic Affairs Committee of the National People's Congress, said an expert close to the matter.

The NPC is the nation's top legislature.

A consensus has emerged that China will replace its verification-based initial public offering system with a much simpler and more efficient shelf registration system, under which all qualified companies can issue shares as long as they follow relevant laws and meet disclosure requirements.

"The China Securities Regulatory Commission has submitted the first draft of the amendment to the Financial and Economic Affairs Committee of the National People's Congress, and experts will discuss the development of the IPO registration system on Friday," Liu Junhai, a law professor at Renmin University of China, said on Thursday.

The CSRC may also introduce an arbitration system to better compensate investors who experience losses caused by such illegal practices as insider trading or making false statements, said Xiao Gang, the chairman of the CSRC, in an article published on Wednesday.

The arbitration system is expected to be part of the revision of the Securities Law. It's been proposed since 2006, Liu said, although it's been less controversial than the shelf registration proposal.

Under arbitration, those who are suspected of trading on inside information or making false statements to other market participants could turn to financial regulators and negotiate a settlement with investors who lost money as a result.

"Investors who pursue civil litigation often have to bear high costs due to the burden of proof, but they receive limited compensation," said Xiao, adding that arbitration can protect individual investors by giving them a more timely and efficient solution.

Arbitration is widely used in the United Kingdom, United States and the Hong Kong Special Administrative Region. More than 80 percent of the financial cases reach settlements in some jurisdictions, according to the CSRC.

"The old solution was to punish or intimidate violators with a fine, but that didn't help investors who'd lost money," said Xiao.

Liu said that by introducing arbitration, regulatory efficiency will be improved, and those who break the law will have a second chance to "make things right".

"But they still have to admit their wrongdoing and settle with other investors in exchange for a lighter punishment from the regulator.

"The commission is testing the waters and collecting investors' responses to the article," said Liu.

Xiao proposed that trials of the system be held before the official implementation of an arbitration system.

The amendment of the Securities Law, which is to start this year, has drawn intense market attention. How to protect investors and uphold market efficiency as well as fairness are major issues. Experts say three drafts are expected before the amendments are finally passed.

Dai Tian contributed to this story.

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