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China new third board to split into two markets

Reporter: Mi Jiayi 丨 CCTV.com

05-31-2016 00:22 BJT

The government has confirmed details of how it will split the National Equities Exchange and Quotations, also known as the New Third Board, into two segments at the end of June. Fewer than 1,000 of the some 7,000 listed companies will be posted to the new innovation segment of the board and allowed more favorable treatment. How is that all going to change over-the-counter trading in China?

The NEEQ market started to trade publicly in January 2014, serving as a finance platform for startups. So far, it has attracted some 7,300 companies, while the A share markets in both Shanghai and Shenzhen have fewer than than 3,000 in total. Trading volume on the new third board is far less than in the A-shares markets, however -- only several hundred million yuan, while Shanghai or Shenzhen alone has a daily volume of more than 100 billion yuan. That huge contrast has made some companies on the new third board very unhappy.

"There is not enough liquidity in the new third board, which means individual investors are not confident about the market. If my cornerstone investors begin to lose faith and leave us, there will be a nosedive in our stock price. It would be a disaster to our image and for our chances of getting financing in the future," said Pan Zhong, CEO of Blue Sky Environmental Protection & Tech.

The regulator's decision to divide the board is intended to resolve this problem by reviving trading volume in companies that are doing well. Companies that are moved onto the innovation market will have to meet at least one of three requirements set by the regulator -- each one of the three checks on various aspects of a company's profitability and sustainability.

Analysts say the division will improve regulatory efficiency and help companies with strong performance get financing more easily. Companies that don't meet the standards will remain on the basic market where they are now, and all companies will have their performance reviewed annually to decide whether they should be promoted to or removed from the innovation market.

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