NEWSNov 02, 2018

The Reform of the New 3 Board Market was Promoted, and a Number of Amendments Were Issued

“Improving the market financing function” has always been an important work for the new 3 board (OTC) market in 2018, and the reform process of the new OTC market has been continuously promoted.

On October 29th, the National SME Share Transfer System revised and issued the "National SME Share Transfer System Sponsored Securities Merchants Listing Recommended Business Regulations" (referred to as "the sponsored brokerage listing recommendation business regulations"), and the" Guidelines on the Content and Format of Listing Application Documents of the National SME Share Transfer System". The Document further standardizes the recommendation business of the listed securities companies, strengthens the management of the listed company's equity distribution, clarifies the listing responsibilities of the listed securities companies, prevents the listed recommendation business risks, and improves the overall market efficiency. The amendments to certain rules have been implemented since the date of promulgation.


Issuance Financing System


In recent years, with the rapid development of the new OTC market, new situations and new problems have emerged. The current stock issuance system can no longer fully meet the needs of listed companies, and it is imperative to further improve the issuance financing system of listed companies.


The implementation of the parallel review mechanism is one of the performances of the optimization of the issuance financing system. Prior to this, after the funds were raised, the listed company had to go through a number of processes, including signing a tripartite regulatory agreement with the sponsoring brokerage and commercial banks, verifying the investment by the accounting firm, and issuing opinions from the brokers and lawyers. After the completion of all the documents and the formation of the filing documents to the national share transfer system, the record review process will be initiated. This "series" review makes the idle time of the funds much longer than the time required for the record review, while the parallel review replaces the serial review, which can effectively shorten the idle time of the raised funds and allow the listed companies to put the relevant funds into production as soon as possible. Industry insiders have calculated that the average idle time of the listed companies after the reform can be shortened by more than 20 days, and under this mechanism, the share transfer company will realize the declaration and filing “T+1”.


Another embodiment of the improvement of the issuance financing system is the establishment of an authorized issuance system, which stipulates an authorized issuance system for “one-time annual general meeting of shareholders and the implementation of the board of directors” to improve the efficiency of small-issue issuance decisions. After the introduction of the system, the internal decision-making time of the listed company's microfinance can be shortened by more than 15 days, supplemented by the parallel review mechanism, and the listed company can complete the issuance financing within half a month at the earliest. Some industry insiders predict that about 20% of listed companies' financing needs can be realized through authorized distribution.


Merger and Acquisition Restructuring System


In the past two years, there have been many mergers and acquisitions involving new OTC enterprises. The regulatory authorities have also reformed the related matters of mergers and acquisitions, and solved the problems encountered by enterprises in mergers and acquisitions before. Some brokerages pointed out that "the previous policy on the number of issuers and the appropriateness of investors restricts the enthusiasm of external investors or investors who do not meet the appropriate shareholders' participation in mergers and acquisitions. It also affect the efficiency of mergers and acquisitions by using equity instruments to some extent, which greatly increased the cost of M&A.” After the reform of the M&A system, it is clear that in the major asset reorganization, the number of issued shares of the listed companies will not be restricted by 35 people, and asset holders who do not meet the conditions for public transfer of shares are allowed to participate in the subscription as restricted investors. This reform is undoubtedly a major breakthrough. It will promote the new OTC to expand the scope of financing for asset restructuring, further reduce the cost and difficulty of enterprise restructuring, improve the efficiency of enterprise restructuring, and promote the development of listed enterprises.
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