China to allow qualified financial firms to list on New Third Board

SHANGHAI (Reuters) - China’s securities regulator said on Friday it would resume listings by qualified financial institutions and private equity firms on the country’s over-the-counter (OTC) New Third Board, part of efforts to fund innovation and stimulate growth.

The China Securities Regulatory Commission (CSRC) also said on its official microblog that hedge funds would be allowed to act as market makers on the board. Previously, only brokerages could act as market makers there.

The New Third Board has expanded rapidly over the past two years, and has become China’s biggest OTC equity exchange, currently hosting 7,455 companies.

But the exchange has also suffered from various problems recently, including high price volatility, a shortage of liquidity in many companies, and frequent fundraising by financial firms.

Some financial firms, were barred from listing on the New Third Board, sources told Reuters in January.

On Friday, CSRC said that after studying the issue of fundraising by financial firms, new applicants are now allowed to list under tougher supervision and disclosure rules, as long as they obtain licenses from China’s financial regulators. Qualified private equity firms will also be allowed to list.

CSRC will also allow hedge funds to act as market makers in order to improve “price discovery” as well as financing by small companies.

“Trading has been tepid recently, which is why regulators want to introduce market makers to invigorate the market,” said Wang Jin, partner at Hiways Law Offices. “But whether the measures will work effectively needs further observation.”

Reporting by Nathaniel Taplin and Samuel Shen; Editing by Jacqueline Wong