Small and Medium Enterprise Board

Small and Medium Enterprise Board
Name	Small and Medium Enterprise Board
Native name	中小企业板
Foundation	2004
Location	Shenzhen, China
Owner	Shenzhen Stock Exchange
Currency	Renminbi (CNY)

Small and Medium Enterprise Board. The Small and Medium Enterprise Board is a specialized market segment established within the Shenzhen Stock Exchange to facilitate equity financing for growing companies. It operates under the main board's legal framework but with distinct listing rules tailored for smaller, dynamic firms. The creation of this board marked a significant step in the development of China's multi-tiered capital market system.

Overview

The board was launched as a transitional platform to support the development of a dedicated growth enterprise market in China. It is administratively part of the Shenzhen Stock Exchange and shares its trading and settlement systems. The segment is designed for companies that have moved beyond the start-up phase but are not yet large enough to meet the stringent requirements of the Shanghai Stock Exchange main board. Its establishment was a precursor to the later launch of the ChiNext market, which targets more innovative and high-growth firms.

History and Development

The concept for a dedicated board for small and medium-sized enterprises was proposed in the late 1990s following studies of international models like NASDAQ. After years of planning, the Small and Medium Enterprise Board was officially inaugurated on May 27, 2004, with the first batch of eight companies, including Zhejiang Jinghua Laser and Jiangsu Hongdou, beginning trading on June 25, 2004. Its launch followed the success of the Hong Kong Stock Exchange's Growth Enterprise Market and was part of broader financial reforms under the China Securities Regulatory Commission. The board's creation was a direct policy response to the financing difficulties faced by SMEs in the Pearl River Delta and Yangtze River Delta regions.

Listing Requirements and Regulations

Listing criteria on the board are less rigorous than those for the main board of the Shanghai Stock Exchange but maintain core requirements for profitability and corporate governance. Companies must have a minimum of three consecutive years of profitability prior to their initial public offering. The minimum public float is set at 25% of total shares for companies with a capitalisation below Renminbi 400 million. All listed firms are subject to the disclosure rules and ongoing supervision of the China Securities Regulatory Commission. The board also mandates that sponsors, often major investment banks like CITIC Securities, provide continued guidance for listed companies.

Market Performance and Impact

Since its inception, the board has grown to host hundreds of listed companies from sectors like advanced manufacturing, information technology, and consumer services. It has become a vital channel for private enterprise in China to access public capital, fostering the growth of firms such as Hikvision and Sany Heavy Industry. The board's performance is often seen as a barometer for the health of China's dynamic private sector. Its success demonstrated market demand for SME financing and provided crucial experience for regulators ahead of the launch of the Science and Technology Innovation Board in Shanghai.

Comparison with Other Market Segments

The board is distinct from the main board of the Shenzhen Stock Exchange, which hosts larger, more established state-owned and private enterprises. It is considered less risky and requires a longer operating history than the neighbouring ChiNext board, which is often compared to the NASDAQ for its focus on high-tech and high-growth companies. Unlike the National Equities Exchange and Quotations over-the-counter market, the Small and Medium Enterprise Board offers higher liquidity and greater visibility to institutional investors like Fidelity Investments and BlackRock.

Challenges and Criticisms

Critics have argued that the board's listing standards, while lower than the main board, still exclude many genuine start-ups and innovative firms, a gap later addressed by ChiNext. There have been instances of market manipulation and accounting fraud among listed companies, raising concerns about investor protection. Some analysts contend that the board's existence as a separate segment within the main exchange created unnecessary regulatory complexity. Furthermore, its performance can be highly volatile, influenced by broader monetary policy shifts from the People's Bank of China and fluctuations in the Shanghai Composite Index.

Category:Stock exchanges in China Category:Shenzhen Stock Exchange Category:Economy of China