February 18, 2013 / 2:56 AM / 4 years ago

CORRECTED - China widens investor access to over-the-counter market

3 Min Read

(Clarifies that suspension of IPO rules applies to all mainland exchanges, not just two main boards, in paragraph 6)

* China to allow individual investors to invest in OTC shares

* Trusts, wealth management funds also to participate

* Move follows effective suspension of IPOs on main boards

* Regulators encouraging firms to seek alternative funding channels

SHANGHAI, Feb 18 (Reuters) - China is giving investors greater access to its over-the-counter (OTC) market as Beijing moves to expand access to credit for small, privately-owned firms that are now largely shut out of the county's financial system.

The new rules, published by China's National Equities Exchange and Quotations Co Ltd (NEEQ), which operates the OTC markets, allow participation by individual investors with over two years of investment experience and 3 million yuan ($481,300) worth of securities assets, and by new classes of institutional investors including trusts and wealth management funds.

The regulations, which are effective immediately, also lifted a previous restriction that limited investors to 200 per issue.

China's OTC market, which focuses on facilitating private placements in smaller Chinese companies - in particular technology firms - was originally launched in Beijing in 2006, with around 200 firms trading on the platform.

But analysts and participants complained that the lack of a clearing mechanism for trades, plus the limit of 200 investors per issue, kept it short on liquidity.

However, the China Securities Regulatory Commission (CSRC) has recently begun encouraging firms currently stuck in queues for listing on mainland exchanges to consider alternative routes to raising capital.

In addition to encouraging companies to look into bond markets, the CSRC has already lowered administrative barriers to listing abroad and has now increased access to another capital channel by increasing access to the OTC market.

In the name of rebuilding market confidence shaken by stories of insider trading, the CSRC has effectively suspended consideration of IPO applications until March while underwriters, auditors and regulators double-check financial statements of applicants.

The suspension also satisfied a long-standing petition from mainland investors that IPOs be halted in order to prevent new issues from diluting valuations, and is credited by some analysts for setting off a massive rally that has seen the Shanghai Composite Index gain around 25 percent since Dec. 4. ($1 = 6.2325 Chinese yuan) (Reporting by Pete Sweeney; Editing by Kim Coghill)

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