At this year’s National Securities and Futures Regulatory Conference, the then incumbent chairman of the China Securities Regulatory Commission (CSRC), Guo Shuqing, mentioned 10 key tasks in reform and regulation for this year, one being acceleration of the development of multi-faceted capital markets, and expansion of the scope of the pilot “new third board” projects.
The ceremony for the unveiling of the National Equities Exchange and Quotations (NEEQ) was held on 16 January 2013. The NEEQ is a national securities exchange, the establishment of which was approved by the State Council. At present, there are four “new third board” parks: Beijing Zhongguancun science park; Shanghai Zhangjiang high-tech industrial development zone; Tianjin Binhai high-tech industrial development zone and the Wuhan East Lake high-tech development zone.
With a view to overseeing National Equities Exchange and Quotations Ltd (NEEQL) and non-listed public companies, the CSRC has issued such regulations as the Management of National Equities Exchange and Quotations Ltd Interim Measures, and the Measures for the Oversight of Non-Listed Public Companies, which, together with the Business Regulations for National Equities Exchange and Quotations (for Trial Implementation), and the Rules for Information Disclosure by Companies Listed on National Equities Exchange and Quotations, issued by NEEQL, constitute the framework of compliance guidance documents for the NEEQ.
NEEQ listing conditions
A company applying to list its stock on the NEEQ is required to satisfy the following conditions:
- being lawfully established and having been in existence for at least two years; in the case of a limited liability company that was converted as a whole into a joint stock limited company by translation of the original book net value of its assets into shares, its period of existence can be counted from the date on which the limited liability company was established;
- its business being clear, and having the capacity to continue as a going concern;
- having sound corporate governance mechanisms and operating in a lawful and compliant manner;
- its equity being clear, and its offering and transfer of stock being lawful and compliant;
- the chief agency broker having sponsored it and continuing to provide it with guidance; and
- other conditions required by NEEQL
These listing conditions do not contain such rigid requirements as size and profitability indicators for companies, or that they be required to be high-tech companies. From this it can be seen that the newly revised NEEQ listing conditions are conducive to small and medium-sized enterprises requiring financing to enter the NEEQ to secure such financing.
A company is required to co-operate in due diligence undertaken by the chief agency broker and law firm. The chief agency broker is required to establish a dedicated project committee to conduct the due diligence of the company.
The law firm is also required to establish a dedicated project committee to conduct the due diligence of the company and issue its legal opinion on that basis. The due diligence mainly looks at: (1) the personality of the company; (2) whether the company satisfies the listing conditions; (3) the independence of the company; (4) the connected transactions between the company and its affiliates; (5) whether there is competition between the company and its affiliates, and whether effective measures have been taken to avoid such competition; (6) details of the principal property of the company; (7) details of the material claims and debts of the company; (8) details of the company’s material asset changes, and mergers and acquisitions; (9) details of the formulation and amendment of the company’s articles of association; (10) the rules of procedure and details of the compliant operation of the company’s shareholders’ general meeting, board of directors and supervisory board; (11) details of the shareholdings and integrity of the company’s management and core technical personnel; (12) details of the company’s payment of taxes; (13) details of the lawfulness and compliance of the company’s environmental protection, product quality and technical standards; (14) the company’s business development objectives; (15) details of the litigation and arbitration in which the company and its major shareholders holding at least 5% of its shares are involved in, and any administrative penalties imposed; and (16) whether the sponsor engaged by the company has chief agency broker qualifications.
To list, a company must first apply to the CSRC for approval. The steps are as follows: (1) establishment of, or being converted into, a joint stock limited company; (2) adoption of an internal resolution concerning the company’s proposed entry into the NEEQ; (3) execution by the company of a sponsorship and listing agreement with the broker and a legal services agreement with a law firm; (4) co-operation in the due diligence conducted by the chief agency broker and law firm; (5) submission by the chief agency broker of the sponsorship report and other required documents to NEEQL; (6) issuance by NEEQL of an opinion upon review; (7) review by the CSRC; and (8) other matters.
After the company obtains the approval document from the CSRC, and before its stock is listed, it is required to carry out, in accordance with the relevant procedure specified by NEEQL, the listing procedures, mainly consisting of the following: (1) executing with NEEQL a listing agreement that specifies the parties’ rights, obligations and other relevant matters; (2) executing with China Securities Depository and Clearing Corporation a securities registration and service agreement, and carrying out centralised registration of all stocks; and (3) disclosure of such documents as the transfer prospectus in accordance with NEEQL regulations.
These are the basic conditions and procedure for a non-listed company to enter the NEEQ.
Fang Dengfa is a partner and Song Wen is an associate at Zhonglun W&D Law Firm in Beijing
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