More firms allowed on New Third Board
The China Securities Regulatory Commission (CSRC) said on Friday, 27th May 2016, that it will resume listings of financial institutions, including private equity, on its Over-The-Counter (OTC) New Third Board – The NEEQ market. The regulator suspended the fundraising of financial institutions on the NEEQ market in January, on concerns of fund misuse such as using capital for speculative trading instead of investing it in small firms and startups. CSRC said that after studying the issue of fundraising by financial firms, new applicants who have obtain licenses from China’s financial regulators are now allowed to list under tougher supervision and disclosure rules. Qualified private equity firms will also be allowed to list.
CSRC also said that more investment vehicles such as private equity and hedge funds, and venture capital firms, are to be allowed to conduct market-making business on the over-the-counter share trading market. Previously, only brokerages could act as market makers.
The NEEQ also released the final version of its plan to divide its listed companies into two segments: the basic market and the innovative market. It had revised the draft rules by improving the effectiveness of the requirement of listed firms to be qualified for its innovative market.
The New Third Board had an explosive growth over the last 3 years, resulting in the number of listed companies to be more than the combined amount on the Shanghai and Shenzhen stock exchanges. However, the quality of the companies on the board varies greatly due to the low entry requirements for the market. Some companies managed to get some capital from the market, traded for a while and later became empty shells.
Companies hoping to be selected into the innovation level must meet relatively high requirements on three sets of criteria:
i) their net profit, return on net assets ratio, the number of share holders; or
ii) compound growth rate, revenues, and capital stock; or
iii) market value, shareholders’ equity and the number of market makers.
It is estimated that only a small percentage of the listed companies on the New Third Board will be selected into the innovation level.
On the same day, the Shanghai and Shenzhen stock exchanges has also streamlined their regulations on the trading suspension of listed companies, putting a cap on the maximum trading suspension period to three months for reasons of major asset restructuring by listed companies.
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