(Yicai Global) April 30 -- The ChiNext board’s recently approved switch to registration-based initial public offerings, as opposed to ones that need regulatory approval, will help woo overseas-listed Chinese companies and will directly benefit top securities firms, according to overseas investment firms.

Authorities approved a trial run of the Nasdaq-style board’s registration-based IPO system on April 27. It is expected to be much quicker than the approval-based system through the China Securities Regulatory Commission which can take months, even years. The only other registration-based IPOs allowed on the mainland are on the Shanghai Stock Exchange’s ChiNext equivalent, the Star Market.

This is good news for ChiNext as it will attract many overseas-listed Chinese firms to return to the mainland, Zhou Wenqun, China equity fund manager at Bermuda-based Fidelity International, told Yicai Global. The conditions for listing in the US through the issuance of American Depositary Receipts are not so favorable, so the move should encourage privately held companies to turn to the Shenzhen Stock’s Exchange’s ChiNext.

The registration system will allow firms to secure a valuation more in line with the market before going public, Zhou added. This will improve the efficiency of the listing process and curb speculation of shell resources, he said.

ChiNext's next system is an exemplary step that should be the start of an evolving ecosystem, New York-based investment bank Morgan Stanley said in a research report. Standards do not appear to be compromised, while the system adds flexibility.

On one hand, it will allow for bigger price movements, a higher retail investor threshold and the potential need for more research which should encourage retail money to shift to funds, it said

On the other hand, the new system should gradually lead to stable, market-oriented pricing that lays the foundation for the potential future relaxation of IPO allotment and for stronger ties with institutional and high net worth investors, it added. This would reinforce other revenue opportunities, such as prime brokerage.

Brokerages will be the direct beneficiaries, it added. Morgan Stanley expects firms such as CITIC Securities and China International Capital that are strong in these areas to outperform and gain market share. Its calculations show that this reform will have a two percentage point return on equity improvement for top brokers over the next two to three years without considering leverage increase.

Editor: Kim Taylor