New OTC market for unlisted firms

The expanded pilot share-transfer market for unlisted companies will start to trade on Friday, and eight companies from four high-tech industrial parks will be part of the experimental new board, according to China's top securities regulator.

The China Securities Regulatory Commission will sign memorandums of understanding with the governments of Hubei province and Shanghai and Tianjin municipalities during the market-opening ceremony on Friday to build the collaborative work mechanism and ensure the smooth running of the pilot program.

The share-transfer system for unlisted companies is also known as the "over-the-counter market".

Companies traded on this platform are usually small and medium-sized ones that have not yet reached the listing standards of the exchanges.

China's first OTC market pilot program started in 2006 in Beijing's Zhongguancun, a national high-tech industrial park, for about 100 non-public companies.

The State Council has approved three high-tech industrial parks in Shanghai, Hubei and Tianjin as the new members of the pilot program, aiming to build a nationwide unified OTC market, the so-called new board.

"The existing operation mechanism, regulations and supervision system formed from the Zhongguancun pilot will be unchanged in the short term," said an official from the CSRC, who added that the new rules of the expanding OTC market are under study and will be released soon.

Each high-tech industrial park will have two companies to debut. They are from industries of high-end equipment manufacturing, new materials and chemicals.

There is no financial standard for unlisted businesses going into the new share-transfer market. The securities underwriters can recommend high-quality companies to the investors and disclose their information in time, according to the CSRC.

"Those eight companies will have no plan to raise funds from the new trading, but will use it only for share transfers," the CSRC official added.

Cao Fengqi, director of the Finance and Securities Research Center at Peking University, said that the development of the share transfer system for unlisted companies will help improve private investment and the growth of small-scale businesses.

"For the venture capital institutions, the expanding OTC market will bring them new opportunities for investment," Cao said.

"The venture capital can inject funds and advanced technologies as well as sound management to accelerate the maturity of the companies."

According to the China Association for Small and Medium Commercial Enterprises, SMEs in China account for about 99 percent of the total number of companies, contributing nearly 60 percent of the country's GDP.

"But the hard financing for SMEs is still the biggest challenge," Cao said.

"The expansion of the OTC market is good for the macro economy because that can help improve the real economy, especially for the emerging industries," the CSRC official said.

chenjia1@chinadaily.com.cn