Regulation triggers mixed responses
By Sun Min (China Daily)
Updated: 2005-01-05 09:50

The new policy for the transfer of unfloated shares of China's listed companies within stock exchanges has stirred mixed responses in the stock market.

It has been applauded as a way to improve the transparency of such transfers and market liquidity. However, it has been criticized for the possibility of eroding the interest of the small investors.

As scheduled, buyers and sellers of unfloated shares of domestic listed firms started to implement the transfer of such shares via the stock exchanges yesterday.

Such shares, either held by the State or legal persons, are not listed in the exchanges or open to public trading, but they can be acquired by institutions or individuals via private negotiations with the owners or auctions.

In the past, relevant transactions were often done outside the bourses, but lack of transparency and information disclosure brewed insider-trading and other irregularities.

The Shanghai and Shenzhen stock exchanges and China Securities Depository and Clearing Corp Ltd jointly released a rule on the handling of the unfloated shares transfers in the middle of December.

The rule, which took effect on Saturday, is the first guideline promoted by the securities regulators to oversee the transfer of unfloated shares. It said such transfers must be carried out under the supervision of stock exchanges, who will check on the qualification of the buyers and sellers, the legality of the deals and relevant disclosure. Investors can also check the information of the transfers via exchange websites. To avoid speculation, it is required that a buyer can not sell unfloated shares he acquires until a month later.

Regulators certainly want to make nontradable shares transfers more standard and transparent, said Dong Chen, an analyst with China Securities Co. If such shares have to be transferred within the bourses, then they should attract more attention from institutional investors and the demand for such shares will be growing, said Dong.

That should enhance the liquidity in the market and help push up the prices of the unfloated shares.

Such unfloated shares still account for about two-thirds of all the equities of domestic listed companies and therefore have much affected the overall market liquidity.

If their transfers can be speeded up, it might also pave the way for the massive State holding sell-down programme that has been discussed for years, analysts said.

However, that may be unfair to the ordinary investors in the secondary market, said Peng Lixin, an analyst with CITIC Securities. It is still hard for most individuals to access the transactions of the State and legal person shares, as a single buyer has to be able to purchase at least 1 per cent stake of a listed company at once, according to the new rule. If the unfloated shares are sold through in such a wholesale manner, they would pull down the prices of the shares of the same listed company that are already floated in the market, Peng said.

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