Walter Hutchens’ Blog

This Xinhua story indicates the Shanghai property rights exchange will engage in “trustee management of stock rights of non-public listed companies.”

An exchange. Handling transfers of shares. But not shares of “listed” companies.

This phenomenon is apparently fairly common on in China.

Andrew Collier of the South China Morning Post recently reported on share trading on these “unofficial” exchanges. He’s written about a thriving exchange in Chengdu and comments by Li Rongrong, head of the State-owned Assets Supervision and Administration Commission (SASAC), that these exchanges might be a way to sell down government stakes in SOEs

There has even been talk of developing these property rights exchanges into a kind of OTC market, a “third board” (with the Shanghai and Shenzhen boards being the “main board” and some yet-created high tech Nasdaq-like exchange being the “second board). This PRC article discusses the effort to unite local property rights exchanges into a nationwide network.

But what is the legal basis for share trading on these exchanges?

Article 153 of the Company Law requires CSRC or State Council approval for a public listing. Presumably these are characterized as negotiated transfers, “xieyi zhuanrang,” not the spot transactions that occur on stock exchanges.

Still, Article 144 of the Company Law requires that share transfers (without any qualifiers about listed or unlisted shares) shall be conducted through stock exchanges established in accordance with law. Article 95 of the Securities Law requires the State Council to approve establishment of stock exchanges. So, are these property rights exchanges approved as stock exchanges by the State Council? I am not aware that they are.

It has of course been common for practice to gallop ahead of law in China and elsewhere. But here it seems we have flagrant disregard for legal texts concerning a kind of property right that only exists as a legal creation. Very strange.