Merger of boards sets stage for capital market reform

Shenzhen Stock Exchange recently issued a notice announcing commencement of the merger of its Main Board and the Small and Medium-sized Enterprise Board following approval from the top securities regulator.

After the merger, the exchange will form a market structure dominated by the Main Board and the Growth Enterprise Board with a simpler structure, having more distinctive features and clearer positioning. That will help clarify the functional positioning of different boards, thus enhancing the vitality and resilience of the whole capital market.

Since its establishment under the SSE's Main Board in May 2004, the SME Board has basically maintained the same institutional arrangements as the Main Board in terms of listing, information disclosure, trading mechanism and investor requirements. Therefore, the merger will not lead to any substantive revision of the laws and regulations or changes in the trading mechanism or investor thresholds. It only changes the securities category of the original SME Board company; the securities codes and abbreviations will remain as they are.

After more than 10 years of development and growth, some SME Board-listed companies have become the ones with large market capitalization, and their performance, trading characteristics and other aspects are similar to those under the Main Board. So the merger is intended to solve the SME Board's misnomer problem while preparing for comprehensive reform of the capital market.

After the merger, the Shenzhen Stock Exchange's market pattern will help deepen the financial supply-side structural reform and enhance the ability of the capital market to serve the real economy. The move has also led to speculation among investors on whether the full registration system will be introduced soon.

Undoubtedly, the merger of the two boards marks an important step in the capital market's reform, but it does not mean that the registration system will be implemented soon. The right conditions still need to be created for the Shanghai and Shenzhen stock markets to implement the registration system.

However, the merger is conducive to the formation of unified business rules in the stock market, and improving market efficiency and reducing the difficulty of supervision. And it will lay the foundation for the further implementation of the registration system in the whole market.