Dec 06, 2016 04:37 PM

CSRC to Tighten Oversight of Regional Securities Exchanges

(Beijing) — China's top securities regulator is stepping up oversight of the country's so-called "fourth board" — regional exchanges in which private company shares are issued and traded — in a move toward a more-unified supervision of capital markets.

People close to the China Securities Regulatory Commission (CSRC) told Caixin that after consulting provincial-level governments, regulators have already submitted to the State Council, China's cabinet, a draft of regulations that will cover regional exchanges and trading platforms. Final approval is expected later this month.

The CSRC's intent is to unify regulations in what has been a fractured market. The rules may include minimum investor financial requirements and controls over the number of exchanges that can operate. The provincial-level governments will be in charge of carrying out the policy.

China has 40 regional exchanges, listing about 13,500 companies, which have raised about 645 billion yuan ($93.7 billion) since 2008 through the issuance of equity shares and bonds to a small number of investors.

Provincial-level governments began establishing these exchanges to help small and midsize companies raise funds by issuing equity shares and bonds on a limited basis. They were intended to complement the larger exchanges, including the Shanghai and Shenzhen stock exchanges, and the Beijing-based National Equities Exchange and Quotations (NEEQ), known as the New Third Board, an over-the-counter market for startups.

Unlike these larger exchanges, the fourth-board exchanges are for smaller, private companies that have fewer than 200 investors. Local financial regulatory authorities are in charge of the daily supervision and management of these markets.

A deputy general manager of one regional exchange told Caixin that different thresholds are applied for individual investors to trade on the fourth board. Beijing's regional exchange requires investors to have a minimum of 3 million yuan in their respective accounts, while some other regional platforms demand as little as 100,000 yuan.

People close to the regulators said the new draft will allow individual investors with more than 500,000 yuan in capital to trade on the fourth board, but it is not clear whether it will become a single unified standard for all the regional markets.

The CSRC will impose dual-track regulation over these markets in conjunction with local governments, according to people who are familiar with the matter. While the CSRC will roll out the regulatory policy, the provincial-level governments will carry it out and deal with any risks.

Under the draft policy, the governments will not be allowed to approve additional equity share trading platforms if one already exists in the province or region, and only one platform will be allowed if none exists, people close to the CSRC said.

The northeastern province of Heilongjiang has three local platforms for equity shares, while Shandong, Liaoning and Fujian provinces and the Guangxi region have two each. Yunnan province does not have a trading platform.

Sources with knowledge of the issue told Caixin that companies traded on the regional equity share platforms could seek to transfer to the Beijing-based national over-the-counter market. But the details of how that will be done remain unclear.

Contact reporter Dong Tongjian ( ; editor Ken Howe (

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