restricted tradable shares

Introduction

Restricted circulation shares refer to the issuance of shares by listed companies to the general public. These shares are not subject to the same unrestricted trading rules as shares held by the general public. Rather, these shares can only be held or traded by a certain designated group of investors, such as company insiders, employees or institutional investors.

Restricted circulation shares are a relatively novel form of financing in the capital market, which has been gradually popularized since its introduction in China in 2015. Among them, the advantages of restricted circulation shares are more prominent than other forms of financing, including lower costs, greater control of information, higher liquidity and freedom from short-term changes in market sentiment.

The Advantages of Restricted Circulation Shares

The main advantages of restricted circulation shares are:

1. Lower Cost. The cost of issuing restricted circulation shares is much lower than that of issuing public shares, as the process for issuing these shares is simpler than for public shares. When listing such shares, the issuer does not need to complete the underwriting process, saving time, energy and money.

2. Greater Control of Information. Since the restricted circulation shares issued by the company are held by a small group of investors, any information associated with the company is more easily controlled and can be distributed to the owners or traders of these shares at the company’s discretion. Thus, the company will have greater control over the information it releases to the public.

3. Higher Liquidity. Unlike public shares, restricted circulation shares are more easily traded, as they are held by a small group of investors who can more easily monitor and understand the company’s performance and adjust their portfolios accordingly. This gives these investors more freedom and flexibility when it comes to trading their shares.

4. Freedom from Short-term Changes in Market Sentiment. Unlike public shares that can be trading at a premium or discount to their underlying asset value on any given day, restricted circulation shares are more immune to short-term changes in market sentiment and can more accurately reflect the underlying asset value. This stability can provide a reason for investors to hold such shares over an extended period.

Conclusion

Restricted circulation shares provide a variety of advantages to companies that issue them and to investors who acquire them. Companies are able to issue these shares at lower cost, with greater control of information and more flexibility when it comes to trading their shares. For investors, these shares provide the potential for higher returns as well as greater stability and liquidity.

Limited-circulation stock is a type of financial instrument issued by a company to its existing shareholders, typically with a view to maintaining a stable shareholder structure and protecting the liquidity of the stock. It usually has the same voting rights and dividend rights as ordinary shares, but it cannot be freely transferred or traded in the stock market. Its circulation and trading are very limited, so it can also be called “Circulation Restricted Stock” and “Trading Restricted Stock”.

Limited-circulation stocks can be divided into two categories, primary-circulation restricted stocks and secondary-circulation restricted stocks. Primary-circulation restricted stocks are stock shares that are issued to existing shareholders on a pro-rata basis and other shareholders cannot buy them in the stock market. Secondary-circulation restricted stock refers to stock shares that are issued and tradable in the stock market, in which shareholders can freely purchase, but the issuance design and implementation process set by the company will limit the trading volume of shareholders.

The purpose of issuing limited-circulation stock is to introduce foreign capital to a company with a stable shareholder structure and protect its financial rights, while avoiding possible hostile takeovers. Generally speaking, a company will issue a certain amount of limited-circulation stock and issue a notification of the shares, so that other shareholders cannot purchase the limited-circulation stock in the stock market. Meanwhile, the company can hold the corresponding subscription rights for investors, but holders of such subscription rights have the right to revoke them so that the stock pricing remains fair.