China on Friday released a new pricing mechanism that would favor minority investors who buy into initial public offerings, paving the way for the resumption of new stock sales on the mainland after a nine-month hiatus.

Under the arrangement, institutional investors would no longer enjoy the privilege of also taking part in the retail tranche of an IPO. The move may significantly boost the chances for individuals to win share allocations, analysts said.

The proposed mechanism, which the securities regulator opened to public comment until June 5, also for the first time sets the maximum number of shares an investor can seek in a single IPO.

"All the measures are just the first phase of the country's moves in reforming its IPO pricing system," the China Securities Regulatory Commission said in a Website statement. "After we finish collecting opinions and settling the rules, we will resume new share sales immediately."

The commission froze all mainland IPOs last September over concerns of a stock glut. The securities regulator has set its sights on working out a new pricing system to weed out unfair advantages enjoyed by institutional investors and to narrow the difference between the IPO price and the trading price at a stock's debut.

In China, the new stock sale process is divided into "offline" and "online" subscriptions.

Under the old regulations, institutional investors bid for a tranche of the IPO and fixed the stock sale price during the offline subscription period.

Then these cash-rich big institutions were again allowed to participate in the online subscription that was also open to individuals, making it extremely difficult for retail investors to participate.

Under the proposal, institutions that have already taken part in the offline subscription won't be allowed to compete with retail investors in the online subscription.

"It will definitely help more retail investors win IPO shares," said Lu Zhiming, an Orient Securities Co trader. "It can boost enthusiasm in the stock market among retail investors and help add liquidity."

The new arrangement also stipulates that during the online subscription period, an investor can apply to buy only up to 0.1 percent of all the shares available in an IPO.

Some analysts, however, believe the stock regulator should do more to give retail investors a bigger say in IPO pricing.

"The IPO price will still be fixed by institutions, but I hope the reform will eventually allow retail investors to participate in the pricing process," said Wu Ke of Zhongtian Investment Consulting Co.

(Shanghai Daily May 23, 2009)