Market reactions towards Monday’s launch of tier management by the National Equities Exchange and Quotations, better known as the New Third Board (NTB), are relatively moderate as firms in the innovation layer are now under more stringent scrutiny. Also, preferential policies aimed to shore up these firms have not been in place yet.
The NTB provides a platform for the exchange of shares in non-publicly traded companies (often with simple business models and of small size).
An index measuring the board’s market making transactions fell from 1151.64 points to 1142.17 points from Monday to Wednesday, while equities trading volume saw a slight increase before returning to the level prior to the tier management.
“Favorable policies to boost these firms are unlikely to be put forward within the year. On the contrary, firms in the innovation tier are facing stricter supervision,” said a source close to the NTB.
The NTB regulators believe that supervision over firms listed in the innovation layer must be strengthened before ushering in any incentives. Specifically, these firms are expected to publish regular reports and profit forecasts timely and name a board secretary to improve governance structure.
“We are happy to be selected into the innovation layer, but I do hope the regulators would step forward and give us a shot in the arm as soon as possible, otherwise the loss to us for disclosing more information would outweigh gains,” said an unnamed director of a firm listed in the innovation layer.
Actually, 106 firms of the 953 listed in the innovation layer are looking to an IPO on one of mainland’s main board, namely the Shanghai or Shenzhen bourse, according to the 21st Century Economic Report. It is understandable since the main boards provides better financing channels and liquidity.
“These firms longing for a debut on the main boards have to wait at least around 3 years to enter into the examination and approval procedure, given current queueing time for an IPO,” according to Yuan Ji, chief research officer at Guangzheng Heng Sheng.
Yuan expects that institutional incentives targeting the NTB, such as mutual funds entering into the capital market, would be in place in two or three years.