Merger Approval Marks End of Shenzhen’s Sleepy Main Stock Board

China’s securities watchdog has approved the merger of the Shenzhen Stock Exchange’s main board and its SME Board, in a move to unify rules and better serve companies’ financing needs.

The combination, which was revealed by Caixin in October, is “a key measure to comprehensively deepen the capital market reform” and can better fulfill the financing needs of companies at different stages of development, the China Securities Regulatory Commission (CSRC) said in a Friday statement (link in Chinese).

The Shenzhen bourse hosts three markets — the main board, the SME board and the ChiNext board. The main board, which dates back to the exchange’s founding in 1990, is home to mainly big blue-chip stocks but hasn’t had an IPO since 2000. The SME board chiefly serves small and midsize enterprises (SMEs) with growth potential, while the ChiNext, which models itself on the Nasdaq exchange in the U.S., focuses on high-growth, high-tech startups.

The Shenzhen exchange unified the guidelines for listed companies’ operations on the main board and the SME board last year, paving the way for their unification.

The merger will be carried out under the principle of “two unifies and four remains” (两个统一、四个不变), the CSRC said. The principle involves unifying the rules of the two boards and unifying regulatory systems, and leaving unchanged IPO criteria, investor requirements, transaction mechanisms, and stock codes and abbreviations.

Pi Liuyi, a deputy director of one of the CSRC’s market departments, said at a Friday briefing that the merger will not weaken the ability of the capital market to serve SMEs. The Shenzhen Stock Exchange will form a structure with the main board and the ChiNext board to provide services for SMEs at different stages of development. At the same time, it will optimize and improve services and increase efforts to support SMEs.

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A source with knowledge of the matter told Caixin that there’s no longer any need to distinguish the main board from the SME board because their listing and regulatory requirements are more or less the same. “After the merger, there’s no need to differentiate the size of a company as long as it meets the criteria to list on the main board,” the source said.

At the end of January, the Shenzhen Stock Exchange had 1,468 companies listed on the main board and the SME board, accounting for 35% of total A-share listed companies, according to the CSRC statement. Their combined market value was 23.39 trillion yuan ($3.6 trillion), about 29% of the total A-share market capitalization, the CSRC said.

Guo Yingzhe contributed to this report.

Contact reporter Timmy Shen (hongmingshen@caixin.com) and editor Nerys Avery (nerysavery@caixin.com)

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