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China widens access to over-the-counter exchanges

[December 14, 2013] SHANGHAI (Reuters) — China will expand and liberalize access to its over-the-counter (OTC) market to all qualified small and medium-sized enterprises (SMEs), the Chinese State Council announced Saturday.

The announcement follows reports in state media on Friday quoting unnamed sources saying the reform could happen before the end of the year, with some saying it could come as soon as December 25, but it appears the government moved even more quickly than even insiders expected.

The China Securities Regulatory Commission, acting under instructions from the State Council, will eliminate approval procedures for applicant companies with 200 or fewer shareholders.

The announcement also said institutional investors will be encouraged to participate, in particular brokerages, insurance companies, investment funds and foreign funds.

The move to ease access to the OTC market, which focuses on facilitating private placements in smaller Chinese firms, follows announcements that regulators will allow China's IPO market to re-start in early 2014.

Beijing has been consistently trying to expand access to credit for small- and medium-sized enterprises (SMEs), which are usually too small to list but at the same time are too risky for Chinese banks to finance.

But analysts say initiatives such as OTC exchanges and high-yield bonds designed for use by smaller companies have so far been hamstrung by regulatory restrictions and lack of investor interest, while efforts to force banks to lend to SMEs have mostly backfired.

China's primary OTC market was originally launched in Beijing in 2006, with around 200 firms trading on the platform, and then expanded to Shanghai.

Other Chinese cities and provinces have also announced plans to create local platforms.

(Reporting by Pete Sweeney; editing by Nick Macfie)


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