Caricature: China Knowledge Press Pte Ltd

On Jan 3, CSRC publicly solicited opinions on the Guidelines for Public Offering of Securities Investment Funds to Invest in Listed Stocks in National Small and Medium-sized Enterprise Share Transfer System. The release of this document marks another historic breakthrough for China’s New Third Board, which is also known as China’s National Equities Exchange and Quotations (NEEQ). Currently at RMB 2.9 trln market capitalization, and plethora choices of some 8,000 over private equities (companies) listed on the NEEQ, more retail investors are expected to join the bandwagon to invest into these companies with lower net-worth threshold’s requirement.

On the same day, NEEQ issued the final three basic business rules of "Directional Issuance Rules", "Information Disclosure Rules" and "Governance Rules for Listed Companies", and related "Guidelines for Listing Review", "Guidelines for Contents and Format of Listing Application Documents" and "Directional Issuance Guidelines for Stocks".

Come so far, documents that started to solicit opinions since Nov 8 2019 have basically finalized and released to the public. All reforms expected by New Third Board since 2015 have been implemented at unprecedented speed from Nov 2019 to Jan 2020.

As early as Nov last year, China lowered entry requirement for individuals investing in NEEQ stocks. The criteria for investors to invest in the Selection Tier, Innovation Tier and Basic Tier are RMB 1 mln, 1.5 mln and 2 mln, respectively. Compared with the previous entry requirement of RMB 5 mln, threshold for investors is now significantly lower. It is of positive significance to improve the liquidity of the New Third Board.

Sources: China Securities Regulatory Commission, NEEQ

Meanwhile, the guidelines issued on Jan 3 also allow mutual funds to directly invest in the Selection Class of New Third Board. Along with lower market-entry’s threshold, degree of individual investors to participate in the Selection Class could increase. The New Third Board is expected to benefit from larger investment opportunities and improved structure of investor communities. More individual investors would be able to invest in high-quality innovative and entrepreneurial companies through mutual funds, and New Third Board’s investment liquidity could be further boosted. On foreseeable future, institutional investors including QFII are expected to enter the New Third Board.

In addition, the official website of China Securities Depository and Clearing has also issued a "Notice on Optimizing Business Related to Account Identification of NEEQ", making it clear that security brokers can handle transactions of the New Third Board online for investors. Through such online platform, increasing market participants will invigorate the trading and enhance liquidity, thus bringing about the improvement of the valuation potential of these listed companies on NEEQ.

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