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Rule to streamline negotiated trades

(China Daily)
Updated: 2006-08-16 08:39

SHANGHAI: Negotiated stock trades will no longer be allowed off the exchange floor under an interim rule released by the Shanghai and Shenzhen stock exchanges and the China Securities Depository and Clearing Corporation.

Negotiated trades are privately negotiated transactions executed apart from the public auction market where buyers enter competitive bids and sellers enter competitive offers simultaneously.

The new rule, released on Monday, aims to better regulate negotiated stock trades at a time when China's share reform is nearing completion, said researchers and analysts.

"The new rule makes negotiated trades more transparent and easier to regulate," said Hu Ruyin, head of research at the Shanghai Stock Exchange.

"The specific clause barring such trades from leaving the exchange floor shows the authorities' concern about possible irregularities, since off-exchange floor negotiations may suffer from inadequate information disclosure and unreasonable asset pricing," said Hu.

The rule also allows for negotiated trades between parties with controlling interests resulting from listed companies' acquisitions, foreign investors' strategic investments and other circumstances recognized by the China Securities Regulatory Commission.

All such trades may only be made through the Shanghai and Shenzhen stock exchanges and the China Securities Depository and Clearing Corporation. The exchanges are responsible for reviewing share transfer applications, whereas the clearing house is responsible for responding to inquiries and registering transfers.

The interim rule comes after the Chinese authorities released rules on mergers and acquisitions for publicly traded companies at the start of this month.

"The two rules and other relevant new regulations are complementary with the effect of encouraging mergers and acquisitions among public companies," said Xie Yan, an analyst with Shanghai-based Haitong Securities.

Negotiated stock trades on the markets were reported to be in disarray recently as existing rules became irrelevant due to the ongoing share reform.

Those companies that had completed reform programmes and had shares subject to a lock-up period reportedly had no specific rule to follow in relation to negotiated share transfers.

But many poorly performing companies that have not yet begun reform programmes are now rushing to restructure their assets in accordance with the old rules.

Chinese regulators initiated a share reform in May 2005 to convert about US$250 billion in State-held non-tradable shares into regular traded equity. As of this week, over 80 per cent of domestically listed companies have either completed or started their individual reform programmes.

(China Daily 08/16/2006 page11)