Some securities companies are currently stepping up preparations for direct equity investment. While some have already submitted draft schemes to the regulator, according to market sources.

China Merchants Securities, a first-tier company, officially kicked off its project of direct equity investment early last year, while Great Wall Securities, a second-tier company, is now busy finishing preliminary research and preparation work.

"Those companies which are preparing for direct equity investment, are mainly encouraged by a speech made by Shang Fulin, chairman of the China Securities Regulatory Commission (CSRC)," a person familiar with the situation said.

Early last December, in a speech in Shenzhen, Shang said China will build the Agency Share Transfer System, or the so-called third-board market, into a national platform where non-listed companies and high-tech companies can transfer their shares under unified regulation.

Shang also said China should establish a private offering market besides the public offering one, by studying the linkage mechanism between accredited investors and private offerings.

It is commonly believed this speech encouraged securities firms to look into direct equity investment of non-listed companies, though CSRC has not yet offered any timetable. In fact, CSRC convened several meetings last year, discussing the possibility and operating practices of venture capital investment by brokerages.

Securities companies have been banned from investing directly in any industries since the 1990s. The ban was spurred by failed investments among those was China Southern Securities. Most of China Southern's real estate investments turned out to be non-performing assets, which triggered the company's collapse.

Now CSRC is preparing for a pilot project and has asked about 15 qualified securities companies, all of which belong to first-tier companies under CSRC's classification, to submit plans of how they would directly invest in the third-board.

Initially only shares of small- and medium-sized high-tech companies in Beijing's Zhongguancun High-Tech Park, which are traded on the third-board, can be targeted by securities firms, though later the scope will be expanded.

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