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Hopes pinned on OTC

By Bi Xiaoning and Hu Yuanyuan (China Daily)
Updated: 2008-05-30 09:07

Tianjin Binhai New Area is working on the detailed regulations for the country's first OTC (over-the-counter) market, with the threshold for companies seeking trade in the market set to be even lower than that for the Growth Enterprise Board, experts said at a financial forum in Tianjin yesterday.

"We are still finalizing the regulations, but the requirements will sure be much lower than those for the main board and even the Growth Enterprise Board," said Cui Jindu, vice-mayor of Tianjin.

The OTC market is expected to help small and medium-sized enterprises raise capital. China has around 10 million SMEs, accounting for nearly 99 percent of registered enterprises. But it is usually hard for them to raise money from financial institutions and most of them cannot afford to list in Shanghai or Shenzhen.

After Tianjin got the go-ahead from the State Council in March to build the country's first OTC market, Beijing is also applying for such a market in its Zhongguancun Park.

"China's OTC market may be co-restructured with the bourses, financial institutions and industry associations. Now the foremost task is to set up the principal regulations of the market," said Ying Zecong, chairman of Tianjin Binhai Joint Venture Holding Co Ltd.

As a cost-effective financing channel for SMEs, OTC has played an active role in overseas capital markets. The over-the-counter bulletin board (OTCBB) market in the United States is a good example to follow in developing Tianjin's OTC market.

The OTCBB market in the US is a heavyweight in the non-main board market, with 3,600 companies, 6,667 kinds of securities and 400 market makers involved in the peak season. It is also a good springboard for companies to list on the main board. Microsoft and Cisco listed in NASDAQ via this market.

Going from application to actual transaction takes just three to six months on the OTCBB market. However, it takes one to two years for initial public offerings, which are also a far more expensive exercise.