Investors at a brokerage in Huaibei, Anhui province, on Monday. China plans to set up a nationwide over-the-counter board, which will be open to some individuals. Wu He / For China Daily

'Third board' to help cash-strapped smaller companies raise funds

China will allow small and medium-sized non-public companies to have their securities traded on a national over-the-counter market, with individuals allowed to invest, an official with the country's top securities regulator said on Monday.

For the nationwide OTC market, to be known as the "third board", the State Council will set up a uniform exchange platform as it aims to help cash-strapped businesses raise funds.

Yao Gang, vice-chairman of the China Securities Regulatory Commission, said at a meeting that there may be no specific profitability requirement for the OTC market, but companies should meet other requirements such as "regular and continuing operations".

Yao said that requirements for individual investors "will be relatively stricter" as OTC market investments carry higher risks than those involving listed companies. The requirements will involve investment experience and assets, but the specifics are still being studied, the CSRC said.

Many analysts said it is likely that the new exchange will launch in Beijing to balance China's "financial geography" between the north and south.

The national OTC market will be an expansion of Beijing's Zhongguancun pilot program, which started in 2006 as a trading platform for about 100 non-public, high-technology companies.

During the past year, transactions for the Zhongguancun program totaled less than 600 million yuan ($95.3 million), the regulator said. According to the CSRC, so far only 1.71 billion yuan has been raised via this platform.

It is time to promote a nationwide, uniformly regulated OTC market, which is an important component in a mature multi-level capital market that will serve the development of the industrial economy, said Chen Gongyan, chairman of the Securities Association of China.

"The OTC trading service business may become the next growth point of securities companies and (lead) financial sector innovation in the direction of international standards," Chen said.

So far, 115 companies have traded unlisted shares on the pilot "third board". Five have gone on to issue shares on the Shenzhen Stock Exchange.

"After transactions in the national OTC market, companies may develop and reach the standards for going public, and the relevant regulatory policies are under discussion," the CSRC vice-chairman said.

Securities companies are waiting for official details about the OTC market framework, and competition in this new business segment will be fierce, said a manager at Western Securities Co Ltd.

chenjia1@chinadaily.com.cn

(China Daily 05/08/2012 page13)