Securities Regulator Sheds Light on Beijing Stock Market Plans, New Third Board OTC Market to Provide the Foundations

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China’s securities regulator has provided more detailed information on plans to launch a bourse in Beijing that were first unveiled by President Xi Jinping during a speech delivered on 2 September at the 2021 China International Fair for Trade in Services.

On the same date the official website for the China Securities Regulatory Commission (CSRC) said in an official statement that it would “highlight unique characteristics in establishing the Beijing Stock Exchange, and better service the high-quality development of innovative small and medium-sized enterprises.”

CSRC said that China would further deepen reform of the “New Third Board” (the National Equities Exchange and Quotations over-the-counter system for share trading), and “establish the Beijing Stock Exchange upon the foundations of the selection layer of the New Third Board.”

The securities regulator indicated that the focus would be on financial inclusion, as well as driving the growth of smaller, more innovative companies.

“[China] will further raise the ability to service small and medium-sized enterprises, and create a main position for servicing innovative small and medium-sized enterprises.

“Deepening reform of the New Third Board and establishing the Beijing Stock Exchange is an intrinsic necessity for the capital markets better supporting the growth and strengthening of small and medium-sized enterprises, and a necessary requirement for implementing the national innovation-driven development strategy.

“It is a major move for comprehensive deepening of capital market reform under new conditions.”

CSRC said that the New Third Board has become a “major platform” for capital markets to service small and medium-sized enterprises since officially entering operation in 2013, and that since 2019 CSRC had launched a slew of reforms that include “establishing the selection layer (精选层), establishing public issuance systems, and introducing ongoing price competition and transfer mechanisms.”

“[This] has stimulated market vitality and obtained positive results,” said CSRC.

CSRC placed special emphasis upon the “selection layer” (精选层) of the New Third Board, and its use as the foundation for the launch of the Beijing Stock Exchange.

“Since establishing the selection layer over a year ago, its overall operation has been successful, and it has attracted a cohort of ‘small but beautiful’ high-quality small and medium-sized enterprises to list for trading,” said CSRC.

“It has laid firm enterprise foundations, market foundations and systems foundations for further deepening of reforms and the establishment of the [Beijing] stock exchange.”

CSRC also highlighted the ideological and theoretical underpinnings for the launch of the Beijing Stock Exchange.

“The main thought for the establishment of the Beijing Stock Exchange is strictly abiding by the ‘Securities Law,’ and in accordance with the principles of step-by-step implementation and orderly gradual advance, overall transfer of all foundational systems of the select layer, and upholding the [principle] that listed enterprises on the Beijing Stock Exchange are generated from the innovative layer of companies,” said CSRC.

CSRC said that the process of implementation would involve a focus on the following principles.

  • Firmly upholding “one position.” “The Beijing Stock Exchange will firmly uphold the market position of servicing innovative small and medium-sized businesses, respecting the development laws and growth stages of innovative small and medium-sized businesses, and raising the accommodating and targeted nature of the system.”
  • Effectively dealing with the “two relationships.” The first is “upholding overlapping development and linkage and connection between the Beijing Stock Exchange and the Shanghai and Shenzhen bourses, as well as regional equities markets, effectively employing the board-transfer listing mechanism role.” The second is “upholding overall coordination and system linkage between the Beijing Stock Exchange and the existing innovation layer and foundation layer of the New Third Board, and upholding the balance of the market structure.”

A final principle will be achieving the “three targets” of:

  1. Establishing foundational system arrangements that match the unique features of innovative small and medium-sized enterprises, and that cover issuance and listing, transaction, market exit, ongoing regulation and adaptive regulation for investors, thus supplementing shortcomings in the area of financial inclusion development in the multi-tier capital market.
  2. Smoothing out the hub function of the Beijing Stock Exchange in a multi-tier capital market, and forming mutually complementary and mutually reinforcing growth paths for direct financing of small and medium-sized enterprises.
  3. Cultivating a cohort of elite and distinctive new small and medium-sized enterprises, forming a positive market ecosystem with a passionate wave of innovation and entrepreneurship and the mass participation of qualified investors, with intermediary institutions performing their duties and responsibilities.

CSRC said that trials for the securities issuance registration system would continue to be held concurrently with the establishment of the Beijing Stock Exchange.

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