By Li Hongmei
China's planned development of an expanded New Third Board pilot program, a national share transfer system pilot program for small and medium-sized enterprises (SMEs), moved a step closer to completion after regulators issued a statement on Dec. 14 on related issues, reports the National Business Daily.
The State Council, China's Cabinet, announced that the over-the-counter (OTC) market known as the New Third Board, or the Chinese version of the NASDAQ, will be expanded to cover all innovative and promising companies.
An executive with a securities firm said the company is busy adopting measures to respond to the expanded pilot program since the New Third Board will become regular business for securities firms.
The recently issued statement claimed that qualified enterprises can apply directly to be listed on the New Third Board through stock exchanges, and 200 SMEs are expected to be listed one month after the expanded program goes into effect.
There already 339 companies listed on the New Third Board, with a total market value of 40 billion yuan (US$6.5 billion). Meanwhile, more than 2,000 enterprises have signed agreements with securities firms to get listed on the board. In the next five years, some 7,000 companies with a total market value of 1.4 trillion yuan (US$228.9 billion) are expected to list.
The China Securities Regulatory Commission (CSRC) noted that the expansion of the New Third Board is unlikely to significantly divert capital from China's A-share market, which refers to stocks that trade on the Shanghai and Shenzhen exchanges, due to three factors.
The commission said there is a huge difference in investor definitions between the two markets, while the regulations on the issuance of shares on the New Third Board and the number of issuers are much stricter. Finally, since the trial points of the share transfer system pilot program will be expanded to apply nationwide, this will help reduce pressure on companies to issue shares on the A-share market and it will ease anticipation for its expansion, the CSRC said.
Some analysts added that given the high risks and high threshold for investing in the New Three Board, the board will mainly attract individual investors in the A-share market.
The New Third Board was initiated in 2006 as an experimental platform that was intended to facilitate financing for China's non-listed small, promising high-tech enterprises, allowing them to transfer shares and raise funds for specified purposes. It has looser regulations than the main board but stricter ones than the coming second board, the paper said.
Last year, transactions on the board decreased 22.8% from 2011, and the average funding per firm came in at only 33.8 million yuan (US$5.5 billion), far from enough to feed China's hungry SMEs, according to the Xinhua News Agency, citing statistics.
