Changpeng Wan
Summary
– China’s securities clearing authority issued an urgent regulatory filing requiring brokerage firms to implement new investor classification rules for the Sci-Tech Innovation Board’s Growth Layer
– Starting September 22, 2025, investor accounts will be categorized as either ‘C’ (eligible for Growth Layer investments) or ‘K’ (standard access) based on risk disclosure agreements
– Existing investors will be automatically classified as ‘K’ unless they sign specialized risk disclosures by September 19, 2025
– Brokerages must enhance investor education through multiple channels including app notifications and direct outreach
A Regulatory Earthquake Rocks China’s Equity Markets
The China Securities Depository and Clearing Corporation (China Clearing) has unleashed market tremors with an urgent regulatory filing that reshapes investment accessibility to high-risk stocks. Dated July 16, 2025 and stamped “特急” (urgent), this directive compels brokerages to completely restructure how investors access the newly created Growth Layer within Shanghai’s STAR Market – China’s answer to NASDAQ focused on cutting-edge technology firms. This intervention arrives amid increased market volatility and mounting pressure to strengthen protections for retail investors navigating the frontier of unprofitable tech startups.
The filing specifically implements recommendations from last year’s “Opinion on Enhancing STAR Market System Adaptability,” targeting what regulators cite as “the structural mismatch between investor risk tolerance and market innovation pacing.” All major securities firms received compliance instructions on July 15th, triggering immediate operational changes. China Securities Regulatory Commission chairman Fang Xinghai emphasized this move “represents the vital final piece of our tiered investor protection framework” during his remarks at the Asian Financial Forum.
The Mechanics of Classification
Beginning September 22, 2025, every brokerage account eligible for STAR Market trading will receive one of two classifications:
Category C: Growth Layer Access
– **Eligibility**: Accounts where retail investors signed specialized Growth Layer risk disclosures OR professional investors cleared for pre-revenue companies
– **Authorization**: Permits trading of stocks in the Growth Layer – the high-risk segment for early-stage firms not meeting profitability thresholds
– **Implementation**: Brokerages must affix “C” designation before market open on September 22
Category K: Standard STAR Access
– **Coverage**: All retail accounts without Growth Layer disclosures & newly onboarded professional investors
– **Restrictions**: Prohibited from participating in Growth Layer IPOs or secondary trading
– **Automatic Assignment**: All existing STAR accounts default to “K” classification on September 19, 2025
China Clearing’s algorithmic enforcement framework automatically flags compliance breaches. According to investment director Zhao Yueming at CITIC Securities, “The system immediately suspends orders violating class permissions – no manual intervention possible.”
Investor Onboarding Evolution
Strict Disclosure Protocols
The Shanghai Stock Exchange (SSE) published mandatory risk disclosure templates on July 13th requiring brokers to explicitly detail five critical hazards:
– Elevated failure risk among enterprises without revenue verification
– Extreme valuation volatility exceeding 50% within single trading sessions
– Potential delisting within 24 months for companies missing development milestones
– Illiquidity scenarios blocking exit positions
– Limited recourse mechanisms for misleading disclosures
Brokers must adopt tactile confirmation protocols where new Growth Layer participants physically sign disclosures or provide e-signatures with biometric validation. “Electronically signed agreements undergo timestamp verification against transaction attempts,” explains Fintech Director Li Qiang at Guotai Junan Securities.
Multi-Channel Investor Education
Regulators mandate brokerages deploy five-point informational campaigns:
– SMS alerts detailing deadlines and implications
– Mobile app pop-ups upon login with mandatory reading time
– Dedicated video seminars explaining Growth Layer mechanics
– One-on-one suitability assessments for high-net-worth individuals
– Physical disclosure documents mailed to investors exceeding age 60
Guojin Securities has already integrated permission toggles in its mobile interface, while Haitong Securities launched virtual reality trading simulators depicting Growth Layer volatility scenarios.
Brokerage Implementation Timeline
Brokerages face critical milestones:
- July 30, 2025: Internal systems reconfigured for dual account classification flows
- August 15, 2025: Investor notification campaigns completed with delivery certifications
- September 5, 2025: China Clearing dry-run testing environmental setup
- September 19, 2025: Mass account reclassification completed
- September 22, 2025: Production systems activated with compliance monitoring
The urgency follows last quarter’s discovery that 28% of investors trading unprofitable startups misunderstood fundamental financial metrics. Regulatory filings reveal intensified focus on taxonomies differentiating “pre-revenue innovators” from “distressed enterprises.”
Strategic Market Implications
Tiered Access Ecosystem
This segmentation creates China’s first codified asymmetric access regime:
– Specialist funds targeting early-stage innovation gain regulatory endorsement
– Individual investors face automated barriers against unsuitable exposure
– Brokerages develop proprietary suitability algorithms under regulatory supervision
Morgan Stanley’s Fintech Research Unit projects Growth Layer trading activity concentrating among just 9%-12% of current STAR participants initially.
Listing Pathway Transformation
Corporate issuers face restructured market-entry options:
| Pathway | Profit Requirement | Timeline | Investor Access |
|———|——————-|———-|—————-|
| Standard STAR | ≥RMB 50M net income | 18-24 months | All qualified investors |
| Growth Layer | None | 6-9 months | Category C holders only |
The differential positioning deliberately aligns with China’s National Innovation Drive. As Shanghai Stock Exchange Chief Cai Jianchun noted at the World Economic Forum, “Calibrated access balances entrepreneurial incubation with national investor protection mandates.”
Innovation Financing Outlook
Early data suggests filtering may stimulate rather than suppress funding:
– Pre-money valuations for Growth Layer candidates rise 18% since policy announcement
– Insider participation in Growth Layer IPOs triples QoQ
– Venture capital firms accelerate funding rounds anticipating premium listings
Hong Hao, chief strategist at Bocom International, notes: “Sophisticated capital welcomes segmentation – eliminating unsuitable participants reduces reflexive panic selling.”
Securities firms must integrate these regulations into client protection frameworks while positioning growth-focused investors appropriately. Consult approved brokers immediately regarding category qualifications to ensure uninterrupted market access. Investors approaching risk disclosure deadlines should directly contact their relationship managers for priority verification – proactive engagement ensures eligibility alignment with evolving portfolio strategies.
