The China
Securities Regulatory Commission (CSRC), the country's
securities watchdog, on Monday approved the establishment of a
small and medium-sized enterprise (SME) board on the Shenzhen Stock
Exchange.
The SME board, the beginning of a long-expected second board
market, will operate as a special sub-board of the main Shenzhen
board and cater to small- and medium-cap stocks. However, it will
run somewhat independently, with its own index, trade code and
supervision system, according to a CSRC press release.
CSRC approval came on the heels of permission from the State
Council.
Authorities also accepted rules designed by the Shenzhen
exchange on the issuing, trading and supervision systems of the SME
board. That is a substantial first step towards the development of
an entirely independent second board market, a CSRC spokesman
said.
The step-by-step approach is expected to help the exchange and
regulators better prepare for higher risk-control requirements.
As early as 2000, Shenzhen had planned to launch a NASDAQ-style
second board market and suspended initial public offerings on the
main board to prepare for the new market. But the slump of similar
markets overseas and the bursting of the tech-stock bubble made
Chinese authorities wary of speculation and risk.
The plan was temporarily shelved, but was raised again this year
in a guideline document of the State Council on the development of
the capital market.
Launching the SME board would enrich China's capital market,
which has been expanding rapidly but still has a rather simple
structure, the CSRC spokesman said. It would also help SMEs obtain
more funding.
The board is intended not to cover only tech firms or start-ups,
but a wider range of stocks.
The present threshold for listings will remain the same. But to
strengthen risk control, regulators will introduce some special
trading rules and enhance disclosure requirements and auditing of
the fund application for the SME stocks.
Neither CSRC nor the Shenzhen Stock Exchange said when new IPOs
would start, but most insiders believe it will happen very
soon.
An investment banking source said many SMEs had lined up in
front of the exchange on the expectation of an immediate resumption
of IPOs.
However, some investors also worry that the resumption of IPOs
in Shenzhen would lead to a fast market expansion that would divert
some funds from existing stocks.
The CSRC spokesman said authorities would try to keep the pace
of new listings in line with market capacity to maintain
stability.
(China Daily May 18, 2004)