China Regulator Said to Submit Plan for More Regional Exchanges

(Bloomberg) -- China’s securities regulator plans to allow more regional equity exchanges designed for small businesses, as the government steps up financing support to the segment of the economy most hit by slowing growth, people with knowledge of the matter said.

Draft rules have been submitted to the State Council that would permit provinces without the venues -- which allow trading of equity in private companies -- to set one up, said the people, who asked not to be named as no final decision has been made.

Selected unlisted small companies will be able to sell stock and debt to qualified investors, including individuals that have a minimum 500,000 yuan ($73,000) in financial assets, the people said. That figure amounts to a sixth of the existing threshold for investment in privately-raised funds, and is being kept low to attract a wider base of investors, they said.

Representatives from the China Securities Regulatory Commission didn’t immediately respond to a faxed request for comment.

The plan is part of efforts to build a multi-layered capital market as the government seeks to cut corporate leverage amid rising bad loans and to bolster smaller businesses deemed crucial to job creation. Authorities will need to ensure there’s no repeat of the widespread irregularities such as price manipulation and embezzlement of client funds that prompted a government crackdown on regional venues in 2011.

As part of that crackdown, the State Council, China’s cabinet, imposed unified rules such as banning the selling of the same security less than five trading days after its purchase. Exchanges that violated those requirements were ordered to shut down.

Under the new proposals, provincial governments will be required to oversee the daily supervision of the exchanges and decide which companies will be able to list, the people said. The CSRC is also considering potentially allowing companies listed on the regional exchanges to tap the startup stock market known as the National Equities Exchange and Quotations to increase market connectivity, they said.

The number of investors in any security on a regional exchange will be capped at 200, a ceiling that now applies to all private-fund investments and is also included in the new rules, according to one of the people.

There are currently about 40 regional exchanges in operation, which have helped raise more than 600 billion yuan for about 13,500 companies, according to one of the people.