Research On Liquidity Of China's SME Board Market

This research is on the liquidity of China's small and medium-sized enterprise board (SME-board) market. Its purpose is to discuss theoretically how the mature SME-board market operates with accordance to the international practice. This paper analyzes the liquidity of the SME-board market of our country as follows. First of all, the relevant theories of liquidity is introduced, and the factors that influence the liquidity under the market microstructure theories are discussed, such as the trade mechanism, the transaction cost, the market transparency , the behaviors of participants in the market etc. Secondly, successful experiences and lessons learned from overseas venture capital stock markets are used for reference in order to find the rule of the venture capital stock market. Moreover, combined with China's current conditions, positive conditions to increase the market liquidity of our country are discussed, such as the fast economic development, developed electronic trade system, large capacity of this market, fine listing resources etc; the potential problems to hinder the market liquidity of our country are analyzed, such as no market-making system, too high transaction cost, the transparency of the market, few institutional investors etc; and simple analysis on the SME-board market that has already operated for three months is presented. Finally, suggestions to improve the liquidity of the SME-board market of our country are put forward.Based on the above discusses, the following suggestions are proposed to increase the SME-board market liquidity. First, the market-making system should be introduced when the condition is appropriate, and be integrated with our country's existing order-driven system to improve the SME-board market. Second, for the interests of dealers, the rational institutional investors should be trained first so as to reduce price fluctuation and strengthen investors' confidence in the SME-board market. Secondly channels for security traders to finance should be added. Third, the transaction cost should be reduced to promote the participation in this market. Fourth, the information announcing mode should be reformed to show the proper and enough information.