CSRC Sets Out Uplisting Obligations for Overseas OTC Companies

China's top securities regulator, the China Securities Regulatory Commission (CSRC), has issued a warning to domestic companies trading on overseas over-the-counter (OTC) markets that wish to uplist to a stock exchange. The CSRC mandates these companies to file a record with the regulator shortly after submitting an uplisting application [para. 1]. [para. 2] A recent guideline published on May 7, 2023, emphasizes that these companies must adhere to the procedures laid out in the Trial Administrative Measures for Overseas Securities Offering and Listing by Domestic Companies, effective March 31, 2023. These measures establish a new framework for supervising overseas share sales by mainland companies, providing a clear process for filing, vetting, and approval [para. 2].

[para. 3] The CSRC's clarification came after a domestic company initially trading on an overseas OTC market applied to uplist to a stock exchange without informing the CSRC, thereby violating the trial measures. Although the CSRC didn’t name the company, insiders revealed it was Wetouch Technology Inc., a Chengdu-based touchscreen manufacturer. Wetouch was previously traded on the OTCQB in the U.S. and announced plans to uplist to Nasdaq in September 2021. In a filing to the U.S. Securities and Exchange Commission (SEC) on March 21, 2023, Wetouch stated its application was pending, and the uplisting occurred in February this year [para. 4].

[para. 6] In a prospectus filed to the SEC on February 9, Wetouch indicated that its legal counsel advised that since its stock was already trading in the U.S., no filings were needed with the CSRC before the offering's completion. However, they noted a requirement to submit filings to the CSRC within three days of closing the offering [para. 7]. Wetouch and its legal advisors recognized the substantial uncertainties surrounding the new regulations' interpretation and enforcement. Initially, Wetouch planned to file with the CSRC but couldn’t provide all required materials, notably a commitment letter from lead underwriters. Despite this, the company proceeded with its uplisting [para. 8][para. 9].

[para. 12] The CSRC's recent guideline clarified that while trading on an overseas OTC market does not require record-filing, uplisting to a stock exchange mandates that a filing be made with the CSRC within three working days after submitting an uplisting application to overseas regulators. Furthermore, companies applying for uplisting before March 31 last year and still awaiting approval must complete the necessary filing procedures before finalizing the uplisting [para. 14]. Wetouch's March 21 SEC filing mentioned their application for Nasdaq uplisting [para. 15].

[para. 15] The CSRC has significant enforcement tools at its disposal, including ordering rectification, issuing warnings, and imposing fines ranging from 1 million yuan ($138,307) to 10 million yuan on companies and up to 5 million yuan on executives. Securities companies and other advisers failing to ensure compliance can also be fined, with individual executives facing fines up to 2 million yuan. It remains unclear what specific actions the CSRC will take against Wetouch Technology [para. 16].