China expands its OTC market allowing SMEs to raise capital | Global Risk Insights

Seven years after the establishment of its over-the-counter (OTC) market, China has gone a long way towards upgrading the market’s institutional settings, hoping one day to compete with the main-board market.

It has been a fruitful year for China’s equity market reformers: They overhauled old delisting rules, streamlined the application process for mergers and acquisitions of public companies and promised to reopen new initial public offerings (IPOs) next year. On 14th December, the State Council made a further move to expand access to credit for small and medium-sized enterprises (SMEs), the impact of which will be felt in the next five years.

According to this new plan, companies with 200 or fewer shareholders that want to be quoted on the national equities exchange and quotation system (an OTC exchange platform founded in January 2013) will no longer face approval requirements prior to their quoting. Different from China’s main board stock markets in Shanghai and Shenzhen, the OTC exchange was designed specifically for non-public firms to seek capital and investors to trade equities over the counter. These non-public firms are too small to list and too risky for regular bank financing. Essentially, this new liberalization reform of China’s OTC market may give small companies something to look forward to in the coming years.

 

 

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