Caixin
Feb 14, 2019 01:26 AM
FINANCE

New High-Tech Board Stirs Hype Concern Among Regulators

Regulators expect the new board to start accepting companies in the next couple of months. Photo: VCG
Regulators expect the new board to start accepting companies in the next couple of months. Photo: VCG

China’s top securities regulator Wednesday sought comments from the industry on the forthcoming Nasdaq-style high-tech board, expressing concerns over possible market hype, sources told Caixin.

The China Securities Regulatory Commission (CSRC) convened a meeting with experts and executives from brokerages, mutual funds, venture capital and tech startups to discuss rules for the planned high-tech board in Shanghai and the pilot program to test registration-based initial public offerings (IPOs).

CSRC officials expressed concerns at the meeting that the new trading venue, which will test several trading reform measures, may spark market hype after its launch, sources close to the matter told Caixin.

“The high-tech board is a government-backed project that may spark speculative trading by investors,” said a brokerage source. “Regulators are concerned that it will in turn hurt investors.”

The CSRC and the Shanghai Stock Exchange issued draft rules for the new board before the Chinese New Year holiday. Under the rules, the new board will test a long-anticipated registration-based IPO mechanism, relax requirements on companies’ profitability and open the door to tech companies with unconventional legal and shareholding structures. The changes fueled expectations that the new board will kick-start long-needed but stagnating stock market reforms.

The draft rules include a series of measures to rein in market speculation. For instance, stricter requirements will be set for retail investors to trade at the board, including at least 500,000 yuan ($74,035) in investment capital and two years of equity trading experience.

The new board will also adopt stricter delisting rules and allow short selling of individual stocks to rein in speculation, according to the draft rules.

Some participants at the Wednesday meeting argued that the requirements for investors are too high and will block 80% of retail investors from entering the new market, Caixin learned. Others suggested that the new board should shorten the stock settlement cycle from next-day to same-day to improve market liquidity and reduce price fluctuation.

The new board will focus on companies in technology and emerging sectors such as high-tech equipment manufacturing, new energy, biotechnology, big data and cloud computing, according to the CSRC. Unlike the existing markets in Shenzhen and Shanghai, the new board will not set rigid requirements on companies’ profits. Instead, it will allow companies to list if they meet one of five criteria involving market value, profit potential, revenue, research capacity and business outlook.

The regulators are collecting public opinions on the new board while racing to nail down the rules. The Shanghai exchange said all technical preparations for the new board will be ready by the end of March. Analysts said they expect to see the first listings on the new board as soon as April.

Contact reporter Han Wei (weihan@caixin.com)

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