(Yicai) Aug. 19 -- China is proposing to stop local governments from providing financial incentives to businesses that list publicly and prohibit securities firms from charging fees based on the results of their sponsorship activities, in a bid to address such issues as financial fraud and ensure the independence of intermediaries.

The justice and finance ministries along with the China Securities Regulatory Commission jointly issued draft regulations on Aug. 16 to standardize intermediary services for initial public offerings, and are seeking public feedback until Sept. 15.

The draft states that local governments at all levels are prohibited from providing rewards to issuers or intermediary agencies based on the outcome of a company’s public stock offering and listing.

Listing incentives have long been common in China, with significant rewards given at various stages of the process, such as post-listing guidance, acceptance of applications, and final approval, all result-driven and awarded in phases.

For example, the Beijing Economic-Technological Development Area Management Committee announced in 2013 that companies going public in the Chinese mainland would get rewards of CNY4 million (CNY559,200) for each of four phases: passing the guidance, having their filing accepted, getting approved, and ultimately listing. Firms floating abroad would receive a lump sum of CNY6 million.

The draft regulations also propose that securities companies engaged in the sponsorship business and accounting firms doing auditing should not charge fees for IPO results. Moreover, law firms should not violate relevant provisions of judicial authorities on lawyer service fees.

IPO intermediaries should reasonably determine their fee based on the actual workload and needed resources and include the payment arrangements in the contract with clients, according to the draft. This would allow securities companies and accounting firms to collect service fees in phases based on work progress.

The draft further specifies that intermediaries and their employees are not allowed to charge additional fees other than those agreed under contract or hike fees using temporary price increases. Fees should not be changed by supplementary agreements or other forms, they state.

Editor: Futura Costaglione