BSE the new listing option for China’s SMEs

By Lu Jiangxia, Jincheng Tongda & Neal
0
291

On 2 September 2021, President Xi Jinping announced the establishment of the Beijing Stock Exchange (BSE) in his speech at the Global Trade in Services Summit of the China International Fair for Trade in Services, with the aim of supporting innovative small and medium-sized enterprises (SMEs). This article dissects the purpose, background and institutional system of the BSE in order to help companies determine its suitability for their own future listing and financing.

PURPOSE OF ESTABLISHMENT

The idea behind the BSE’s establishment is summarised as: “one position”, i.e. in the service of innovative SMEs; “two relationships”, i.e. differentiation from and interconnection with the Shanghai and Shenzhen stock exchanges, as well as co-ordination and linkage with the innovative and base tiers of the National Equities Exchange and Quotations System (NEEQ); and “three goals” – building a system befitting the characteristics of innovative SMEs, bridging all levels of capital markets, and cultivating specialised and innovative SMEs.

BACKGROUND REVIEW

The BSE evolved from the NEEQ’s select tier, and fully absorbed its registration system from the pilot registration system reform of the Star Market and ChiNext. The NEEQ was established and commenced operation in 2012, becoming the third national securities trading market after Shanghai and Shenzhen, and was expressly positioned to serve the development of innovative, entrepreneurial and growing SMEs.

In 2020, the NEEQ established a select tier and introduced new systems such as board transfer, public offering and continuous action. Since its establishment, the NEEQ has formed a layered system consisting of basic, innovative and select tiers. From its increasingly SME-friendly listing conditions, transaction and financing system to investor suitability management, the NEEQ has laid a strong market foundation with distinctive and differentiated operations. The BSE was built on these foundations to better fulfil the needs of SMEs for financing through the capital market.

RULES AND SYSTEMS

Lu Jiangxia
Senior Partner
Jincheng Tongda & Neal

The BSE’s structure takes the form of step-by-step implementation and gradual progress, generally borrowing from systems of the NEEQ select tier. Companies listed on the BSE are selected from the innovation tier, maintaining “level progression” with respect to the NEEQ’s base and innovation tiers. A pilot registration system for securities issuance was also established.

Rules of the BSE are divided into laws, administrative regulations, departmental rules, normative documents, and self-regulatory rules. In particular, laws include the Securities Law and the Company Law. Administrative regulations include the Interim Measures for Management of the Securities Exchange Risk Fund.

Departmental rules include: the Measures for the Administration of Registration of Public Offerings of Stock to Unspecific Qualified Investors on Beijing Stock Exchange (for Trial Implementation); the Measures for the Administration of Registration of Securities Offerings by Listed Companies on the Beijing Stock Exchange (for Trial Implementation); the Measures of the Beijing Stock Exchange for the Continuous Regulation of Listed Companies (for Trial Implementation); the Measures for the Administration of Stock Exchanges; and other regulatory rules applicable to listed companies issued by the China Securities Regulatory Commission (CSRC).

Normative documents include various guidelines on supporting information disclosure and document filing format issued by the CSRC and applicable to the BSE. Self-regulatory rules include: the Stock Listing Rules of the Beijing Stock Exchange (for Trial Implementation); the Rules for the Examination of the Public Offerings of Stocks to Unspecific Qualified Investors and Listing on the Beijing Stock Exchange (for Trial Implementation); the Rules for the Examination of the Offering and Listing of Securities by Companies Listed on the Beijing Stock Exchange (for Trial Implementation); the Rules for the Examination of Material Asset Restructurings of Companies Listed on the Beijing Stock Exchange (for Trial Implementation); and other supporting rules and guidelines.

First, applicants for listing on the BSE should be innovation tier companies already listed on the NEEQ for one year. Second, unlike the Star Market with its strict requirements for being in the designated six industries and demanding “hard technology” attributes, or the ChiNext with its negative list of industries, the BSE’s gate is opened much wider with no industry exclusions other than real estate development, finance and finance-related sectors.

Finally, the BSE boasts more friendly listing conditions, requiring applicants to meet only one of four sets of market capitalisation and financial index requirements.

REVIEW AND REGISTRATION

An application for listing on the BSE must meet both the above-mentioned issuance and listing requirements under the CSRC regulations. The CSRC and the BSE have a clear division of labour in review and registration, but are also interlinked. The BSE examines and decides whether the issuer meets the issuance and listing conditions and the information disclosure requirements. The CSRC focuses on any omission in the BSE’s review, and compliance of the examination procedure.

The BSE has a review period of two months, while the CSRC makes a decision on registration within 20 working days. In theory, the time between application and listing ranges between six and eight months. For a non-NEEQ-listed company to apply for listing on the BSE after listing on the innovation tier for 12 months, the total time required amounts to roughly two years. While the BSE’s application time requirement is comparable to other markets, it involves less uncertainty.

According to current data, dozens of companies have withdrawn their listing applications, mainly due to issues surrounding the standardisation of financial internal control, operating compliance and disclosure authenticity. The author suggests that companies on the lookout for a listing market choose prudently according to their own characteristics, and seek professional advice to ensure a thorough understanding of the BSE review procedure and standards.


Lu Jiangxia is a senior partner at Jincheng Tongda & Neal. She can be contacted on +86 10 5706 8081 or by email at lujiangxia@jtn.com