A And B Shares Of A Unified Design

B-Share system is an important set-up in our history, which played a key role in developing security market and attracting overseas investments in the past. Up to Sep. 2007, the total market value of shares in both Shanghai Stock Exchange and Shenzhen Stock Exchange amounts to almost RMB8.3 trillion, while B-Share only occupy 3.2% of the total market value, saying RMB0.2672 trillion, most of which are native investors' assets. So the function of the B-Share market is weaker and weaker. The total value of H-share is gradually increasing and the amount of QFII assets may be enlarged to $30 billion from $10 billion by the end of 2007, so we have more methods to attract overseas investments, from which we can conclude that the position of B-Share in the security market is more and more embarrassing.Both A-Share and BrShare represent the same equity because they are issued by the same company, but pricing them differently due to the different market doesnot comply with the principle--the same shares have the same price in the samemarket. Moreover, it is very few in the global markets that one country has two separately parallel security markets. So a reform to B-Share has been seen necessary and integrity of A-Share and B-Share is imperative.In long term of view, integrity is the basis of a security market, therefore one of the main objectives of stock exchanges and its supervision commissions in most of countries and regions, including China. The reform of non-tradable shares integrates the A-share markets by issuing and implementing a series of policies, legislations and programs which are in accordance with Chinese special conditions. Because of the similarity of the reform of non-tradable shares and the integrity of A-share and B-share, we can realize the integrity by utilizing the idea of the reform of non-tradable shares.With realizing the unique relationship between A-Share and B-Share and the necessity of the combination, it is more meaningful to develop a set of detailed schemes targeting at being the theoretical reference of draw-up of regulations and issuance of policies by relevant authorities.With reference to the experiences gained from the reform of non-tradable shares, this report brought up a set of detailed schemes for combining A-Share and B-Share, i.e. the allotment of cash, the allotment of shares and the allotment of warrants. The allotment of cash usually is not isolated used and as a package with other schemes. We applied the conservation of value method to calculate the amount of cash, which is easy to understand and proved more close to actual value when test the cash give-out and share-to-share in the non-tradable shares. For the allotment of shares, we adopted Value-at-Risk method, which not only considers the measurement of the risks of share price and liquidity of the shares, but also the characteristics of China market, a new market comparing to those matured market. The said method is also applicable to other schemes, e.g. the allotment of cash etc. As for the allotment of warrants, we introduced call covered warrants taking in consideration of the current situation of B-Share. The method is able to resolve the post combination compensation problem. In terms of the calculation of option price, we still use the traditional Black-Sholes Model by adding in break-even item. The report took Vanke as an example for illustration and pointed out that not all schemes workable in their case. In conclusion, the selected scheme for A-Share and B-Share combination should be aiming at the specialty of each individual company.