Beginning of trading on the new Chinese stock exchange

Trading on the Beijing Stock Exchange began on November 15, just two months after Chinese President Xi Jinping proposed the new exchange made up of innovation-driven small and medium-sized enterprises. The first day’s turnover was 9.57 billion yuan ($ 1.5 billion), which is equivalent to just 1% of the combined daily turnover of the country’s other two exchanges in Shanghai. and in Shenzhen.

The first batch of listings on the new stock exchange included 81 companies, ten of which were making their debuts after recently doing IPOs. The other 71 shares transferred from the “selected level” of China’s OTC National Equity Trading and Listing System (NEEQ), used to trade shares of small unlisted companies on the Shenzhen or Shanghai stock exchanges. One of the main reasons for launching the new exchange was to provide a venue with greater liquidity than NEEQ to trade these stocks.

Chris Liu, Invesco

According to Chris Liu, Senior Portfolio Manager, China A-Investments at Invesco, “Brokers will benefit the most from the initiative, as the establishment of the new exchange will increase NEEQ’s commercial liquidity and encourage more SMEs to be listed. on the new stock exchange, which is good for brokerage business and IPO business. “

The Beijing Stock Exchange’s focus on small businesses active in high-tech manufacturing and service industries will complement the Shanghai Nasdaq-style Star Market and the Shenzhen Stock Exchange ChiNext Start-Up Board .

According to Liu, the Beijing Stock Exchange targets small companies at an even earlier stage of development than those on the boards of STAR and CHINEXT. “The minimum required market capitalization is the lowest for the Beijing Stock Exchange among the three exchanges.” He added that “the overlap between the existing exchanges is small as these 3 exchanges focus on companies of different sizes and focusing on different areas of industrial value chains.”

The volume on the new exchange is expected to increase, although it will remain a negligible proportion of the total turnover of the country’s stock market. “We expect the initial trading on the Beijing Stock Exchange to have only a limited impact on A-share performance and liquidity,” China International Capital Corporation analyst Li Qiusuo wrote in a published memo. just before the launch of the stock exchange. Li expects the daily volume to increase up to three times, but even then it would be less than 3% of the total.

The launch of the new exchange is part of China’s plan to promote equity financing to reduce banks’ exposure to credit risk. Eight mutual funds targeting the stock market have completed their registration, according to the China Securities Regulatory Commission. Mutual funds are expected to provide more liquidity in the coming months.

Only qualified investors, numbering around four million in China, are allowed to trade on the new exchange. Among the minimum requirements, one must have at least 500,000 yuan of assets in stock accounts and two years of trading experience. Qualified Foreign Institutional Investors (QFII) and licensed foreign traders holding the Yuan offshore can also trade on the stock exchange.

The listing requirements for the new stock exchange are less stringent than those on the Shanghai and Shenzhen stock exchanges, with companies required to have a minimum market capitalization equivalent to around $ 31 million. No price change limit has been set for the first day, but now stocks will be allowed to go up or down up to 30% per day, against limits of 10% and 20% for various boards in Shanghai. and in Shenzhen.

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