Why China’s New Tech Exchange Has Regulators Worried

While China has some of the world’s biggest technology companies, many are listed in the U.S. and Hong Kong. A trading venue opened in Shanghai two years ago made it easier for them to access funding at home. The Nasdaq-style SSE STAR Market has relatively relaxed rules on listing and trading that drew the attention of big names including Jack Ma’s Ant Group Co. and Semiconductor Manufacturing International Corp. But it also attracted a slew of other companies lured by the prospect of easy cash, prompting moves by regulators to tamp down the frenzy amid a broader drive to curb risks in the financial system.

It’s “where the rising star companies cluster,” according to its website. Part of the Shanghai Stock Exchange, it has a simplified system under which tech companies and startups face less red tape in getting the nod to sell shares. The changes are aimed at lowering the wait time for approval to three months, compared to perhaps years on China’s other stock venues. The new board also removed limits on the pricing of initial public offerings and eliminates caps on first-day trading gains. To discourage fraud, regulators asked sponsoring brokerages to invest in the companies and lock in their capital for a fixed period of time. While unprofitable firms are allowed to list, they must meet minimum requirements for market value, revenue, research and development or cash flow.