The NEEQ: A Stock Market for SMEs in China

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By Jake Liddle

As of this year, the total number of companies listed on the National Equities Exchange and Quotation (NEEQ) surpassed 11,200, with a turnover of RMB 3.44 billion (US$505.88 million). This marks a boom in number of listed companies over the last few years. But what is behind this growth?

The NEEQ is an over-the-counter (OTC) national securities trading market, providing an alternative finance method to list for Chinese small and medium size enterprises (SMEs) who cannot list on the Main Board market. It is essentially a pre-listing, or startup exchange, that has less stringent and lower capital threshold requirements for listing.

Many SMEs in science and technology, as well as manufacturing, cultural and financial industries, view the NEEQ as an opportunity to develop their business in a competitive manner, and access sectors that fit in with the country’s wider economic growth trajectory.

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Listing requirements

Public limited companies not listed on the Shanghai and Shenzhen stock exchanges, or those that do not reach the Main Board’s standards, can get financial support from the NEEQ.

Unlike the Shanghai and Shenzhen approval based listing, the NEEQ has a registration system in place. Listing on the market takes less than six months after filing an application.

SMEs looking to list on the NEEQ need to meet the following conditions:

    • Be lawfully established;
    • Have a well-defined business plan;
    • Have a good corporate governance mechanism;
    • Have legitimate business;
    • Have a clear equity structure;
    • Issue and transfer shares in accordance with the law;
    • Be recommended and supervised by a legitimate brokerage; and
    • Subsist for at least two years.

Applicant entities then enter into an agreement, with both the NEEQ board and the China Securities Depository and Clearing Company Limited (CSDCC), regarding recommended listing and securities traders. Once this is done, listing procedures can commence.

The NEEQ divides its listed companies into two markets, namely the ‘innovation market’ and ‘basic market’, as a means to manage companies at different stages of development.

Stock exchange can be made through means of agreement, auctions, or market making. For exchange made by agreements, the NEEQ will arrange for a call auction. For those made by market making, two leading securities firm will need to provide market making quotation services.

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The involvement of the market making process in the NEEQ is advantageous to listed companies. Market makers are required to be established security dealers with strength and credibility, imbuing their credibility to the SME valuations.

The valuation is based on the quotations of market makers, who engage in a continuous analysis of the market and its participants. Investors use these quotations to inform their decisions, in turn affecting the market makers’ quotations, and ensuring a more accurate valuation of securities prices.

NEEQ and beyond

Listed companies on the NEEQ come from 15 primary industries. Around 35 percent belong to the manufacturing industry, and around 30 percent to the IT sector.

This percentage of IT companies, regarded as the high tech industry, shows that the NEEQ is consolidating China’s drive to support high tech SME’s in order boost innovation in the country.

While it will play a relatively smaller role in developing China’s financial landscape than the Main Board market, the NEEQ plays an important role in providing financing opportunities to growing high tech startup companies during their formative years.

It also gives SMEs a means to make a transition to eventually list on the main stock exchanges in the future, and compete with larger firms. Already, regulators are looking into methods to allow NEEQ listed companies that perform well in the innovation field to transfer to Shenzhen’s ChiNext board, China’s answer to NASDAQ.

In addition to the funding and support, the NEEQ provides improved credit worthiness through the involvement of equity companies, accountants, lawyers, and other professional bodies involved in due diligence and information disclosure.


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