China Securities Regulatory Commission issued over the weekend an official regulation on refinancing activities of A-share listed companies, aiming to curb their excessive fundraising which has led to speculative trading and market volatility.

According to the modified rules, the maximum shares that listed companies can issue through private placements should not exceed 20% of their total capitalization.

The new rules also require a time gap of at least 18 months from the previous share issuance by listed companies if they plan to issue additional shares. In addition, listed companies, excluding financial companies, cannot hold long-term and high-value financial assets for trading and investment purposes in their previous accounting period when they apply for refinancing.

Data from Wind Information show that A-share listed companies raised a total of 1.5 trillion yuan (US$219 billion) through private placements last year, nearly 10 times the amount raised by IPOs. It is believed that a large portion of the capital raised by listed companies has been channelled into the wealth-management market and high-yield, risky financial products through the shadow banking sector.

Deng Ge, the CSRC spokesman, said that the regulation is intended to address some of the serious problems with the existing system of refinancing, including the excessive financing by listed companies and using the proceeds for speculative trading.

"It has led to a short-term chase of profits, and hurts the effective resource allocation and the formation of long-term capital in the market," Deng said at a recent news conference.

Noticeably, convertible bonds and preferred stocks are not restricted by CSRC. It is still possible that arbitrageurs can still get a “free lunch” from the interest rate gap through the debt capital markets.

“The bond market is also connected with small loans companies, which offer a high interest rate to SMEs because of the high margin of the bonds,” says an executive from a European bank in an interview with the Asset. “The interest rate last year was 18%. Investors can still benefit” from the difference in interest rates.