OTC boards will give firms more funding options
By Feng Jianmin |
August 4, 2012, Saturday
|
Print Edition
Print Edition
CHINA yesterday announced the expansion of over-the-counter equity market in hopes of broadening fundraising channels for capital-thirsty small firms and bolstering the economy.
Trading of shares in non-public companies will be extended to three technology zones in Shanghai, Wuhan and Tianjin after a trial program was launched in Beijing in 2006, the China Securities Regulatory Commission said yesterday.
"The OTC boards are set up to provide equity transactions and private placement services to startups and innovative companies," the regulator said. "This will help promote private investment and the development of small and medium-sized companies."
The regulator did not disclose detailed rules for the OTC boards.
Analysts said that if the initiatives are carried out smoothly, they could significantly expand channels for small firms to raise capital and offer a much-needed platform for private equity and venture capital investors to profit.
"China definitely needs a nationwide OTC equity market under uniform regulation," said Zhao Xu, an analyst at Northeast Securities. "That will help build a multi-layered capital market that serves the huge variety of companies."
A report by China Securities Co said the boards will also provide more revenue for brokerages and more exit strategies for venture capital firms.
The analysts estimated that venture capital firms will be able to earn a combined 70 billion yuan (US$11 billion) from the OTC board over the long term.
The regulator said the OTC market may have limited fundraising volume even with the expansion, but it could help reduce growing liquidity pressure on the country's main stock exchanges.
Earlier media reports said reforms in the OTC market may also include lowering requirements on listed companies and allowing qualified individual investors to buy shares.
However, industry insiders have cautioned that before the OTC market get into full swing, authorities have to ensure the market are fundamentally solid with sufficient risk-control tools.
Due to lack of liquidity and unclear regulatory guidelines, the development of the OTC market has lagged main stock boards and the Nasdaq-like ChiNext board.
Only 124 companies are traded on the Zhongguancun OTC board in Beijing, China's first OTC market.
Trading of shares in non-public companies will be extended to three technology zones in Shanghai, Wuhan and Tianjin after a trial program was launched in Beijing in 2006, the China Securities Regulatory Commission said yesterday.
"The OTC boards are set up to provide equity transactions and private placement services to startups and innovative companies," the regulator said. "This will help promote private investment and the development of small and medium-sized companies."
The regulator did not disclose detailed rules for the OTC boards.
Analysts said that if the initiatives are carried out smoothly, they could significantly expand channels for small firms to raise capital and offer a much-needed platform for private equity and venture capital investors to profit.
"China definitely needs a nationwide OTC equity market under uniform regulation," said Zhao Xu, an analyst at Northeast Securities. "That will help build a multi-layered capital market that serves the huge variety of companies."
A report by China Securities Co said the boards will also provide more revenue for brokerages and more exit strategies for venture capital firms.
The analysts estimated that venture capital firms will be able to earn a combined 70 billion yuan (US$11 billion) from the OTC board over the long term.
The regulator said the OTC market may have limited fundraising volume even with the expansion, but it could help reduce growing liquidity pressure on the country's main stock exchanges.
Earlier media reports said reforms in the OTC market may also include lowering requirements on listed companies and allowing qualified individual investors to buy shares.
However, industry insiders have cautioned that before the OTC market get into full swing, authorities have to ensure the market are fundamentally solid with sufficient risk-control tools.
Due to lack of liquidity and unclear regulatory guidelines, the development of the OTC market has lagged main stock boards and the Nasdaq-like ChiNext board.
Only 124 companies are traded on the Zhongguancun OTC board in Beijing, China's first OTC market.
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