New stock offerings make big money, strategic placements turned into employee self-placements, new normal or new chaos?

The transformation of the Beijing Stock Exchange, also known as the "Little Sweetie", is currently being warmly pursued by various market funds. The results of several new stock offerings are attracting attention, especially the strategic allocation phase of the new stock offerings, which has become a focal point. The high proportion of internal allocations has become a controversial issue. On October 20th, the results of the Danah Life Sciences' offering were announced, with strategic investors only including two entities, 85% of which were initiated by CMB Capital Management and aimed at the asset management plan established for Danah Life Sciences' senior executives and employees, with 15% allocated to the lead underwriter CMSC. The asset management plan's strategic allocation approached the upper limit of 10% of the initial offering size, at 8.5%. Similarly, Taikayin also faced controversy due to the high proportion of allocations to the asset management plan established by senior executives and employees. In a recent offering for Taikayin, also initiated by CMB Capital Management, the asset management plan for employees of the company secured 3.85 million shares of the strategic allocation, accounting for 87% of the total allocation and nearing the upper limit of 10% of the initial offering size. These are not the only two new stock projects on the Beijing Stock Exchange. For example, the new stock Guangxin Technology had a strategic allocation quota of 40 million shares, with shares distributed among 10 institutions. The asset management plan for employees of "China Securities Co.,Ltd. Stock Manager GUANGXIN TECHNOLOGY1" held 19 million shares, close to 10% of the initial offering size. OMS Machinery had a strategic allocation quota of 4 million shares, shared among 16 institutions, with the asset management plan for the senior management and core employees, "CindaOMS Machinery1", receiving a 41.75% allocation, nearing the upper limit of 10% of the initial offering, at 8.4%. Siasun Robot & Automation, a super-small cap stock on the Beijing Stock Exchange, allocated 1.13 million shares to employees in the strategic allocation, accounting for approximately 30% of the share. The release of these allocation results has sparked ongoing discussions, focusing on two main aspects: 1. The distortion of "10% internal employee shares". According to the current rules of the Beijing Stock Exchange, senior management and core employees of the issuer can participate in the strategic allocation through special asset management plans or employee shareholding plans. This arrangement should be a supplementary part of the allocation structure, rather than the dominant force. Market concerns arise when the proportion of internal allocations to employees continuously approaches the upper limit, leading to a significant reduction in opportunities for ordinary investors and external professional institutions to participate. Whether the strategic allocation has become a "cash machine" for a few is a point of contention. 2. Speculation on stock reduction. According to the relevant rules of the Beijing Stock Exchange, strategic allocation shares only need to comply with explicit lock-up period requirements (generally 12 months, which can be extended to 18 months), and can be reduced as required at the end of the lock-up period, while conventional stock reductions need to adhere to multiple constraints such as "dividends, price breaking/declining below par". If senior management included in the employee asset management plan acquire a large number of shares through strategic allocation, they can reduce holdings after the lock-up period ends, potentially leading to short-term cashing out behavior that could harm the long-term development interests of the company and the rights of small and medium investors. The image shows the announcement of the offering results for Danah Life Sciences, with only two entities participating in the strategic allocation. The image shows the announcement of the offering results for Taikayin. The image shows the announcement of the offering results for OMS Machinery. The image shows the announcement of the offering results for GUANGXIN TECHNOLOGY. How can the market controversy of "strategic allocation turning into self-allocation" be understood? According to the opinion of senior investment banker Wang Ji Yue, he believes that this controversy lies in the changing understanding of the distribution model of benefits in the market with different stages. In an environment where new stocks are generally rising, and the certainty of returns from strategic allocations is high, the tendency of the distribution model of benefits naturally attracts widespread attention. Why has this allocation of shares attracted attention and even controversy? The core lies in the significant profit-making effects combined with adjustments in the market mechanisms of the Beijing Stock Exchange. When the market opened in November 2021, the Beijing Stock Exchange had only 81 listed companies with a total market value of less than 300 billion yuan. For a considerable period of time, the market's recognition and acceptance of the Beijing Stock Exchange were limited, with investors mostly in a wait-and-see state. The number of new stock offerings was low, the pace was slow, and the performance after listing was relatively flat, making it difficult for investors to gain significant profit opportunities. Since 2024, the new stock market of the Beijing Stock Exchange has seen explosive growth. In the entire year, 40 companies completed new listings, with 17 companies listing on the Beijing Stock Exchange since 2025. In terms of performance, the average first-day price fluctuation of these 40 listed companies reached 266.08%, with a median of 245.62%; for the 17 companies listed since 2025, the average first-day price increase was as high as 331.56%, highlighting the significant profit-making effects. The high return characteristics of strategic allocations further enhance their attractiveness. According to Shenwan Hongyuan Group's securities research, the floating return rate and win rate of strategic allocations on the Beijing Stock Exchange have increased significantly since 2024. With the decrease in the valuation of new stock offerings and the increase in secondary market valuation levels, the overall floating return rate of the 22 institutions whose allocations have been unlocked since 2025 has reached 137%, with a win rate achieving 100%. One key milestone mentioned by industry practitioners is October 2023. At that time, the appearance of the Beijing Stock Exchange's first-ever new stock with a first-day return of "10 times" for AHWIT ignited market enthusiasm, increasing the attention and return rates of new stocks on the Beijing Stock Exchange. Before this, the main challenge for the new stock IPOs on the Beijing Stock Exchange was to find strategic allocations; after 2024, this situation completely reversed, with strategic allocations becoming a means of making money with closed eyes. This is how one practitioner described the current market situation. From "protection of issuance" to the "market-oriented competition" flavor The strategic allocation system of the Beijing Stock Exchange is not a completely new design, as its origin can be traced back to the period of the New Third Board's selection layer and even earlier than the related systems of the ChiNext board. In January 2020, the National Equities Transfer Company released and implemented the third batch of rules for the comprehensive deepening reform of the New Third Board, officially launching the public offering and listing business for the selection layer, which enriched the scope of strategic allocations, allowing senior management and core employees to participate in strategic allocations through flexible forms such as asset management plans and employee shareholding plans, laying the foundation for the subsequent establishment of strategic allocation on the Beijing Stock Exchange. To further activate market participation, the Beijing Stock Exchange revised the rules for securities issuance and underwriting management in early April 2025, making two key adjustments: expanding the maximum number of strategic investors and increasing the maximum allocation percentage of strategic allocation. Specifically, for public offerings of stocks with a quantity exceeding 50 million shares, the new regulations stipulated that the number of strategic investors participating should not exceed 35, and the total amount of shares allocated should not exceed 50% of the total public offering quantity. For public offerings of stocks with less than 50 million shares, the maximum number of strategic investors was limited to 20, and the total amount allocated should not exceed 30% of the total public offering quantity. The intention of this adjustment was to create space for cooperation between employee shareholding plans and external institutional investors, forming a dual endorsement effect of "internal personnel + professional institutions." For example, TGGF introduced professional institutions such as CITIC SEC and CICC as strategic investors during the issuance, together with an employee shareholding plan, creating a diversified long-term investor structure and effectively reflecting the original intent of the system design. However, the rule adjustment also brought new issues, such as the participation of some "dubious" private equity institutions in the strategic allocation list, leading to potential risks of interest transmission. In response, the Beijing Stock Exchange continued to promote system optimization, and in the latest audit dynamics at the end of September 2025, further clarified the requirements for the participation of strategic allocations. The Beijing Stock Exchange emphasized that to enhance the fairness and regulation of strategic allocation arrangements, prevent the risk of interest transmission, and lead underwriters should strengthen the verification of the selection criteria and qualification of strategic investors. According to the latest requirements, the investors eligible to participate in strategic allocations on the Beijing Stock Exchange mainly include six categories: large companies or their subsidiaries with strategic cooperation relationships or long-term cooperation visions with the issuer's business operations; large insurance companies or their subsidiaries with long-term investment intentions, state-level large investment funds or their subsidiaries; securities investment funds established through public fundraising, primarily investing in strategic allocation stocks and operating in a closed manner; subsidiaries related to sponsor institutions participating in follow-up investments; special asset management plans or employee shareholding plans established by senior management and core employees of the issuer; and other investors that comply with legal regulations and business rules. The emergence of this controversy over strategic allocations turning into internal allocations has also led to a new wave of disputes. From a positive perspective, the participation of internal personnel in strategic allocations could help incentivize senior executives and core employees through linked benefits, meeting the requirements of market-based pricing mechanisms under the registration system reform and serving as an innovative measure in the Beijing Stock Exchange's support for the development of innovative small and medium enterprises. However, when the internal bias is excessive, this positive effect can turn into a negative impact. For example, the concentration of allocation shares towards internal personnel can restrict the participation space for external long-term funds (such as large companies with synergistic value, state-level investment funds), professional institutional investors, shrinking the original function of strategic allocations to "introduce external resources and achieve industrial synergy," weakening the mechanism's role of nurturing external resources and industrial synergy, resulting in a deviation from the original intention of the system to serve innovative small and medium enterprises and construct a diversified investor structure. Could this become the norm? Regarding whether the "internalization" of strategic allocations will become the norm on the Beijing Stock Exchange, there are differing opinions among market participants. However, it is generally believed that through systematic optimization via rule design, the return of strategic allocations to their original purpose is likely, and controversies arising from "internal bias" may indirectly push for further standardization of the strategic allocation system on the Beijing Stock Exchange. Practically, in terms of the framework of institutional participation, referencing the experience of the Shanghai and Shenzhen markets, the most significant participants in strategic allocation projects since 2024 are insurance funds; according to data from the Beijing Stock Exchange research team at Open Source Securities, private equity funds remain the main force in strategic allocations on the Beijing Stock Exchange, accounting for approximately 70% of the participation. This suggests that external professional institutions are still a significant force in the strategic allocation market, and the complete "internalization" of allocations is less likely. However, making the strategic allocations return to their original purpose has become a market consensus. As a common tool in mature international capital markets, the core value of strategic allocations lies in ensuring the smooth issuance and optimizing resource allocation. By introducing long-term capital and strategic partners, strategic allocations can help new listed companies quickly adapt to the capital market, achieve industrial synergy, and capital operation, forming a dual empowerment that ultimately creates a positive model of deep binding and shared development between investors and IPO companies. To achieve this goal, targeted optimization is needed from the perspective of system design. Market participants have put forward optimization suggestions that mainly focus on two aspects: first, setting a maximum limit on the allocation percentage for a single entity, suggesting that each institution's allocation should be controlled within 2%-5%, allowing for decentralized allocation to fully leverage the empowering effects of various strategic investors and avoid excessive concentration in a single entity; second, extending the lock-up period for employee shareholding plans to two years or more, ensuring that employee interests are deeply tied to the medium-term development of the company, guiding them to focus on the company's long-term value, rather than pursuing short-term cashing out profits. Industry professionals emphasize that the strategic allocation system itself is not inherently flawed. The implementation of senior management and core employee strategic allocations on the Beijing Stock Exchange is not only a necessary requirement under the market-based pricing mechanism of the registration system reform but also an innovative measure to support the development of small and medium enterprises. Through multiple mechanisms such as benefit binding, signal transmission, and governance optimization, this system effectively balances the short-term financing needs of companies with long-term value creation, providing crucial institutional support for the Beijing Stock Exchange in creating a "main base serving innovative small and medium enterprises." For the Beijing Stock Exchange, the emergence of controversy over strategic allocations is a normal occurrence in the market development process. To build a world-class securities exchange, continued rule improvement, such as setting differentiated lock-up periods and enhancing fund oversight, has the potential to further leverage the positive role of the strategic allocation mechanism in stabilizing the market, motivating talent, and optimizing the ecosystem. As indicated by the market consensus, only when there is reasonable profit and loss fluctuation in investments can true long-term investors be filtered out, which is both a sign of a mature capital market and an essential path for the Beijing Stock Exchange to achieve high-quality development. Since its establishment over four years ago, the Beijing Stock Exchange has established a set of characteristic institutional arrangements that are tailored to the characteristics of innovative small and medium enterprises, with the role of serving innovative small and medium enterprises becoming increasingly prominent. Faced with new issues arising in the strategic allocation stage, continued system optimization and regulatory perfection will be crucial. How to make strategic allocations truly an "empowerment tool" for the capital market rather than a "cash machine" for a few, is not only the common expectation of market participants but also a necessary step for the Beijing Stock Exchange to evolve through solving problems. This article was reprinted from "Cailianshe". Edited by GMTEight: Xu Wenqiang.