Shanghai is preparing to set up an over-the-counter equity exchange for high-tech companies as it steps up efforts to attract more private investors and develop itself into a global financial hub.

The exchange will be located in the Zhangjiang High-tech Park in Pudong and will initially help start-up firms in Shanghai and other cities in the Yangtze River Delta region raise money, according to a government document obtained by Shanghai Daily yesterday.

"The OTC market will be gradually expanded to become a national bourse to promote high technology and increase industry upgrades," said the document, from the Pudong Development and Reform Commission, the district's economic planning body.

The city government, Pudong New Area government and the Shanghai United Assets and Equity Exchange, the local equity transaction exchange, are drafting a proposal for the establishment of the OTC board, according to the document.

"We will enhance communication with financial regulators," said the document, which came in response to a suggestion for an OTC market by the Pudong New Area People's Congress. "We hope to have a breakthrough this year."

The State Council, or China's Cabinet, in March unveiled guidelines to build Shanghai into a major international financial center by 2020 by creating a multi-layered market system and boosting financial services.

"Shanghai should have an OTC equity market to complement its stock and futures exchanges," said Wu Ke, an analyst at Zhongtian Investment Consulting Co, which provides business advice to small high-tech firms. "Some of our clients have been expecting its launch for a long time as it will help them lure investors who want an easier exit mechanism."

China launched its first OTC market in June 2001 in Beijing to accommodate stocks de-listed from the main boards in Shanghai and Shenzhen as well as stocks formerly listed on the Securities Trading Automated Quotations network and National Electronic Trading system.

The STAQ and NET platforms, set up in the 1990s for firms that could not meet main-board listing requirements, were shut down in 1999 because of rampant irregularities. In 2006, the Beijing-based OTC board was turned into a market where technology firms in Beijing's Zhongguancun Technology Park could trade shares as part of the government's efforts to help them raise funds for expansion.

Tianjin last year gained state approval to set up a national OTC market in its Binhai New Area. The cities of Chongqing and Shenzhen are also preparing to launch their own OTC boards.

"An OTC market in Shanghai could help retain local quality high-tech firms and attract other companies to the Yangtze River Delta region," said Wu Zhiguo, a Guohai Securities Co analyst.

(Shanghai Daily April 28, 2009)