With the launch of China's second-board stock market or markets pending, experts are urging securities regulators to pay more attention to risk control and market supervision.

"A second-board certainly implies higher profit potential, but it also involves more risk than the main board because most of the listed firms are offering high-tech issues and are still young and unsettled in their marketing orientation," said Li Jingzhen, an official with the Shanghai Stock Exchange.

"Indeed, investors have to be careful, but the market needs more support from the government to ensure the full transparency of a company's financial status. Enhanced supervision over company behaviour is essential to avoid risks and speculative activities," he said.

There have been tense arguments concerning the rules needed to meet the special demands of a second board. They range from the definition of a high-tech business, what the thresholds that need setting should be and the role of investment funds in the new market.

News that senior market regulators intend to cancel the official definition of what constitutes a high-tech firm was considered by observers as a sign that the second board market will be broader than a mere high-tech conception. It also points to a simplified permission process for market entry that will better meet the funding needs of all promising small and medium-sized enterprises regardless of their industrial sector.

Still, there are more regulatory changes necessary to ensure the healthy development of the second-board market, experts said.

Analysts from the Changjiang Securities Company said the recommendators, mostly influential investment banks, of the to-be-listed companies should also shoulder more responsibility for risk control.

The recommendators should provide honest judgments of the applicants' operations to underwriters and watch over a company's behaviour for two to three years after the listing, they said.

Market fluidity also needs to be raised. While the second board is expected to expand financing available to young businesses, it also provides a withdrawal channel for venture investment, said Wang Songqi with the financial research centre of China's Academy of Social Sciences.

The withdrawal channel should be kept smooth so that more investment will be further attracted to the market. He expected more flexibility of the listed shares on the second board as well as free capital flows in the investment funds.

"Investment funds should open to private investors too," he said, "It will facilitate the injection of more private investment into the second board."

With reports of an accelerated pace of formulating the investment fund law in China, observers hope it will give a clearer definition of the fund and its role in the stock market.

(Business Weekly)