China's leading over-the-counter exchange cracks down on illegal trading
Beijing's New Third Board to investigate 'ultra-high' price quote on fears of overheating
The mainland's leading over-the-counter (OTC) equity exchange is cracking down on illegal trading, with concerns growing that the market, which is aimed at small, high-growth firms and private equity investors, is overheating.
The operator of Beijing's New Third Board said on Tuesday it was investigating a series of "ultra-high" price quotations during the week of March 23-27. The price of one share of Anhui Hauheng Biotechnology, for example, at one point cost 99,999.99 yuan (HK$126,500) before falling back to 1,058 yuan a share.
Such high quotes can be an indication that a stock is being manipulated, with very large prices being used to entice people into the market.
The National Equities Exchange and Quotations, which operates the exchange, said it was investigating some trading accounts that had "seriously disrupted market order".
"We have zero tolerance, and will take out our sword," it said.
The New Third Board used to be a backwater, but government policies aimed at developing alternative funding sources for small companies, which often lack access to bank loans, have turned it into the mainland's hottest stock market over the past year, with more than 2,000 companies now listed.
Premier Li Keqiang visited the New Third Board in December, and said he hoped it could become a leading example for the development of OTC markets across the mainland.
Last year it became the only mainland OTC platform where brokerages could make markets in selected stocks, helping to boost liquidity.
Regulators have also said they will formalise a route for companies on the board to upgrade to the main stock exchanges - a shortcut round the mainland's long and slow-moving initial public offering queue.
Investors have jumped on the policy signals, and pushed the New Third Board's index up more than 70 per cent in the first quarter of this year, dwarfing the main stock market's stellar gains. Turnover totalled more than 16 billion yuan in the first quarter alone, eclipsing the 13 billion yuan booked in all of last year.
While policymakers will be pleased at the board's success, the concern is that market manipulation and weak oversight could harm its credibility, undermining the aim of giving small companies access to finance without them having to tap the shadow banking system or join the congested IPO queue.
"The crackdown won't have a big impact on investor enthusiasm. Instead, it sends a strong signal that regulators want to protect investors so that the market can develop in a healthy manner," said Jim Wong, a partner of Hiway Law Offices, who focuses on OTC board-related business.
Analysts expect more than 3,000 companies will be listed on the board by the end of this year, more than the number listed on the Shanghai and Shenzhen stock exchanges combined.
"This market has just started to attract attention, so the investment opportunity is huge," said Zhou Liang, a fund manager who is launching his third New Third Board fund.
