Avoiding Misinterpretations of the ’Third Board’

　　The State Council announced on December14 an expansion of its over-the-counter (OTC) market， a share transfer system for small andmedium-sized enterprises (SMEs)， further revealing China’s efforts to build a multilevel capital market.

　　Yet， there are still some misconceptionson the OTC market，also known as the NewThird Board.

　　Firstly， some people think that the third board is another stock exchange alongside the Shanghai and Shenzhen stock exchanges dueto the fact that it has been clearly designatedas the third national stock exchange. However，as opposed to investment outlets for bothordinary people and institutions， the New Third Board is geared toward institutional investors. Inthis sense， the expansion doesn’t have anythingto do with attracting common investors to tradestocks like the Shanghai and Shenzhen stockexchanges， but allowing qualified enterprises toget listed on the New Third Board.

　　Secondly， it is worth mentioning that theNew Third Board is designed to facilitate directfinancing and capital withdrawal for SMEs，rather than providing a trading place for stockinvestors.

　　As an OTC market， it lags behind theShanghai and Shenzhen stock exchanges interms of liquidity. Since companies listed onthe New Third Board are exposed to more risks，they should not have liquidity equal to publiccompanies. Similar cases can be seen in moredeveloped markets. In the United States， enormousenterprises are traded in an OTC market with poor liquidity， and only a few of themeventually achieve success in building up theirstrength there.

　　It’s ridiculous to believe the expansion of the New Third Board means more active stocktransactions and more capital investment.Given the original intention of its establishmentand international conventions， the New ThirdBoard doesn’t aim to stimulate transactions， forit can only attract venture capital investmentthat has a high-risk tolerance， rather than shortandmedium-term funds which account for thebulk of trading on the Shanghai and Shenzhenstock exchanges. This explains why the expansionwill not compete with the main board.

　　Lastly， the expansion has been mistakenly taken as a blow to the ChiNext， the growthen terprise board. Some people believe thatwhen large numbers of enterprises transfertheir stock listings to ChiNext， share prices willinevitably drop. Indeed， the New Third Boardis considered an incubator for innovative businesses.Enterprises listed on the board willnaturally head toward the goal of being listed onChiNext or SME board. Nonetheless， the NewThird Board will not impose pressures on theother two boards. Theoretically， as long as themarket forces are dominant， the expansion ofthe ChiNext and SME board will not be affectedby the New Third Board.

　　Misunderstandings about the New ThirdBoard may lead to irregularities on the stockmarket. Therefore， to better cope with theprospective expansion of the New ThirdBoard， the public should develop a correctunder standing of it.