Regulator broadens scope of China's OTC market

PUBLISHED : Monday, 28 May, 2012, 12:00am
UPDATED : Monday, 28 May, 2012, 12:00am


Guo Shuqing, China's securities regulator, has broadened the scope of the mainland's over-the-counter (OTC) market to include trade in the securities of small manufacturing companies.

After two years of preparation, the China Securities Regulatory Commission (CSRC) is set to launch the OTC market - also known as the 'third board' - in the second half of this year.

The original blueprint for the new board, prepared under the chairmanship of Guo's predecessor Shang Fulin, aimed to create an over-the-counter market for technology start-ups. But Guo revised the plan to give small manufacturers an opportunity to raise much-needed capital on the market as well.

'Chairman Guo refused to buy into the idea of making the third board a technology-laden market,' said a source close to the CSRC.

'He thinks the national economy needs an OTC market that can facilitate small companies in various industries to raise funds.'

During Shang's tenure at the CSRC between 2002 and 2011, priority was given to the capital requirements of technology firms offering products and services related to the internet, telecommunications, bio-medicine, and new energy.

Under the original plan, the CSRC intended to develop the Securities Trading Automated Quotations (Staq) network at Beijing's Z-Park, also known as China's Silicon Valley, into a national-level exchange.

It was envisaged that the nationally-unified OTC market would be based on the Staq network, which would also link with other trading platforms for technology start-ups across the mainland.

In 2010, the CSRC also gave the green light in principle to Shanghai to set up its own OTC market at the Zhangjiang Hi-Tech Park in Pudong, part of its efforts to expand the trading network of the third board.

The Shanghai OTC market has yet to be launched.

Guo, former board chairman of the China Construction Bank (CCB) and a former head of the State Administration of Foreign Exchange (Safe), revised those plans when he took over as chairman of the CSRC, and told officials that small manufacturing firms that produce low-value exports ranging from shoes to leather bags couldn't be ignored.

Guo was among several strong advocates for incentives to bolster the embattled small-size manufacturers.

Under his directives, the Shanghai and Shenzhen stock exchanges are now also putting the final touches to preparations for a high-yield bond market on which small firms can raise capital.