To further perfect the delisting system of listed companies, the China Securities Regulatory Commission (CSRC) has recently issued the “Opinions on Reform, Improvement and Implementation of the Delisting System of Listed Companies” (the “Opinions” for short), and at the same time the Shanghai Stock Exchange (SSE) has released the “SSE Stock Listing Rules (Revised in 2014)” (the “Listing Rules” for short), revising rules related to delisting. Recently, according to the “Listing Rules”, the SSE has revised and released three supporting rules for delisting mentioned in the “Listing Rules”, namely, the “SSE Measures on Re-listing of Delisted Companies (Revised in 2015)” (the “Measures for Re-listing” for short), the “SSE Detailed Rules on Business in Delisting Arrangement Period (Revised in 2015)” (the “Detailed Rules” for short), and the “SSE Administrative Measures on Stock Trading on Risk Alert Board (Revised in 2015)” (the “Measures for Risk Alert Board” for short).
To make the revisions successful, the SSE issued the drafts for comments for the above-mentioned three supporting rules on October 19, extensively soliciting opinions and suggestions from all market participants including 11 listed securities dealers in particular.
In the revisions, we have incorporated into the relevant rules the contents of the SSE’s three previously-released notices on separate businesses involving delisting arrangement period, as well as trading and management of the risk alert board, and abolished the three notices. The abolished three business notices are respectively the “Notice of Issues of Cementing Management of Stock Trading on Risk Alert Board” (Shang Zheng Hui Zi [2013] No. 2 Document), the “Notice of Revising, Abolishing Relevant Business Rules of SSE Delisted Share Transfer System” (Shang Zheng Fa [2013] No. 26 Document), and the “Notice of Issues of Listed Companies’ Shares Entering Delisting Arrangement Period for Trading” (Shang Zheng Fa [2014] No. 15 Document).
As the specific implementation measures for the matters related to the delisting system, the supporting rules for delisting mainly standardize arrangements for listed companies after delisting, including trading arrangements before termination of listing and re-listing arrangements after termination of listing, serving as an important guarantee for smooth implementation of the delisting system, with great significance in safeguarding rights and interests of investors, especially small and medium-sized investors. The revisions are hereby briefed as follows:
I. Revisions to the “Measures for Re-listing”
According to the amendments to the “Listing Rules”, the “Measures for Re-listing” makes consequential revisions to re-listing conditions, interval for re-listing application, procedures of re-listing application and approval for delisted companies, mainly including the following two aspects:
(A) Adjusting the conditions for applying for re-listing: main financial indicators for re-listing should be equivalent to those for IPO.
When formulating the re-listing system for delisted companies in 2012, the SSE made it clear that the conditions for applying for re-listing shall be not lower than those for backdoor restructuring of listed companies and not higher than those for IPO in principle. As the conditions for backdoor restructuring of listed companies as required by the CSRC have been equivalent to those for IPO, the conditions for applying for re-listing have been adjusted in the revisions: main financial indicators shall be equivalent to those for IPO. For example, it is stipulated that the net profit of the company, the lower one of those before and after the deduction of non-recurring profits and losses, should be a positive figure and exceeds RMB30 million in total in the recent three fiscal years; the company’s net cash flow in operational activities in the recent three fiscal years should be more than RMB50 million; or else, the total operating revenue in the recent three fiscal years should be more than RMB300 million.
(B) Making differentiated arrangements for re-listing of companies delisted in different cases
The “Opinions” requires for differentiating companies delisted in different cases in specific conditions, procedures, information disclosure, and trading arrangements for re-listing. In this regard, the following differentiated rules for re-listing of companies delisted in different cases have been made in the revisions:
1. Making differentiated rules for the interval of applying for re-listing
As there are significant differences among the companies delisted for different reasons in willingness of delisting, degree of violation, degree of being trapped in trouble, and other aspects, in order to further increase costs for serious violations such as fraud issuance as well as respect and encourage listed companies to voluntarily implement delisting from their own rational demands and wills, differentiated arrangements for the intervals for re-listing applications submitted by listed companies have been made in the revisions:
(1) A voluntarily-delisted company may submit a re-listing application at any time after listing termination of its stocks;
(2) A compulsorily-delisted company caused by market trading indicators shall have an interval of three months before applying for re-listing;
(3) A company compulsorily delisted for reasons other than serious violations and market trading indicators shall have an interval of twelve months before applying for re-listing;
(4) A company compulsorily delisted for serious violations shall have an interval of an entire fiscal year before applying for re-listing.
2. Adding the conditions for accepting re-listing applications of companies delisted for serious violations
The compulsory delisting of companies for serious violations, characterized by highlighted abruptness and high severity, has significant negative impact on the interests of investors and the market development, and it is highly concerned by market participants. In order to maintain the sound market environment and protect the legitimate rights and interests of investors, the prerequisites for accepting the re-listing application of the companies delisted for serious violations have been stipulated in the revisions.
These prerequisites include having fully corrected the violations, displaced and dismissed the relevant persons liable, made appropriate arrangements for civil compensation, and had the sponsor institutions and lawyers provide the relevant confirmation opinions, etc.
3. Simplifying the procedures and documents for re-listing applications of voluntarily delisted companies
In order to encourage voluntary delisting, respect the autonomy of the companies, and form the flexible market-oriented flow mechanism, the application documents and approval procedures have been properly simplified for re-listing applications of voluntarily delisted companies in the revisions.
Specifically, first, in terms of the application documents, a voluntarily-delisted company may apply to the SSE for exemption from providing relevant application documents that it considers inapplicable; second, regarding the review procedure, the SSE has halved the time for making a decision on whether to approve re-listing or not from the conventional 60 trading days to 30 trading days.
4. Particular regulations on re-listing of delisted companies with serious violations after “error correction”
After the compulsory delisting of listed companies for serious violations, if the identification of the serious violations is revoked or changed, which is regarded as “error correction”, the companies’ listing should be resumed unconditionally. The SSE should cancel its former decisions on delisting the companies’ shares and arrange for re-listing of its shares according to the companies’ applications. Therefore, specific sections have been prepared in the revisions, and arrangements are as follows:
(1). The SSE should cancel its former shares delisting decisions within 5 trading days after receiving related legal documents, if companies delisted for serious violations meet the stipulated changes, for example, relevant decisions on judicial or administrative penalties are altered, revoked, or terminated.
(2) Delisted companies could apply for re-listing to the SSE at any time after the SSE makes decisions on revoking listing termination. Documents required for re-listing applications will be simplified if the companies submit their re-listing applications in line with the stipulated procedures, and the SSE will decide whether to approve of re-listing the shares within 15 trading days.
(3) After re-listing, the companies’ shares need not to be first traded in the SSE’s risk alert board and may be exempted from the provisions of restriction of selling shares by controlling shareholders, actual controllers, directors, supervisors and senior managers in the “Measures for Re-listing”.
In addition, since different documents will be required for re-listing applications of companies delisted for different reasons, the revisions develops an application document list for re-listing of delisted companies according to 3 situations: compulsory delisting, voluntary delisting, and error corrections for serious violations, so as to provide convenience for the companies.
II. Revisions to the “Detailed Rules”
The revisions mainly involves the following 2 aspects:
(1) It is stipulated that shares in voluntarily delisted companies need not to enter the delisting arrangement period for trading. Since voluntary delisting is based on having companies’ shares to quit trading, the shares should not enter the delisting arrangement period for trading after being delisted.
(2) The situations when companies in the process of bankruptcy and reorganization need not enter delisting arrangement period for trading are given. A listed company could be exempted from Article 18 and its shares need not enter the delisting arrangement period for trading, if the company is in the process of bankruptcy and reorganization and it is confirmed by the court or the bankruptcy administrator that to have the company’s shares traded in the delisting arrangement period will collide with the implementation of the bankruptcy procedure or the company’s reorganization plan approved by the court.
(3) It is stipulated that companies planning major asset reorganization could independently determine whether to enter delisting arrangement period. To fully respect shareholders’ autonomy of will, the revisions details different requirements for delisted companies’ entering delisting arrangement period by prescribing that companies planning major asset reorganization should hold shareholders’ meetings to decide whether to terminate the reorganization and enter the delisting arrangement period for trading. The revised contents include:
1. Shareholders’ meeting should be held to choose proper situations
If a listed company has the possibility of being delisted by the SSE and its directorate meeting has discussed, approved and announced the plan to conduct major asset reorganization, its directorate should hold a shareholders’ meeting in time to decide whether to terminate the major asset reorganization and enter the delisting arrangement period for trading after the possible delisting of its shares.
2. Contents of proposals at shareholders’ meeting and requirements for voting
A listed company’s directorate should choose one of the following proposals to submit to the shareholders’ meeting for discussion: the company’s shares enter delisting arrangement period and major asset reorganization is terminated, or the company’s shares do not enter the delisting arrangement period and the major asset reorganization continues. The relevant proposals should be approved by more than 2/3 of all shareholders’ voting rights present at the meeting, and the listed company should release the voting results of the shareholders owning, separately or aggregately, less than 5% of the total issued shares.
3. Make arrangements according to voting results
The shareholders’ meeting should decide to terminate listing or enter the delisting arrangement period according to the voting results.
III. Revisions to the “Measures for Risk Alert Board”
It could be highly risky to trade shares in delisting arrangement period. To fully protect the interests of investors, especially small and medium-sized investors, and improve their risk awareness, the revisions adds contents on investor suitability. The detailed regulations are as follows:
Any individual investor who applies for buying shares in delisting arrangement period should have 2 years of experience in stock trading or above, and hold the assets of RMB0.5 million or above in his/her securities account and capital account.
In addition, 2 items were revised according to the actual conditions:
1. With the launch of the “integrated securities account”, an investor could open more than one securities account. Thus, “a single account” out of “The quantity of a single risk-alert stock accumulatively bought by a single account within one trading day shall be not more than 500,000 shares” in Article 10 is modified into “an investor”.
2. “Provisional Regulations” in the former name (the “SSE Provisional Regulations on Stock Trading on Risk Alert Board”, the “SSE Provisional Regulations” for short) is modified into “Administrative Measures”. Given the fact that relevant regulations in the “SSE Provisional Regulations” and their implementation have been stable since its release in 2012, the “Provisional Regulations” in the former name has been revised as “Administrative Measures”, that is, the “SSE Administrative Measures on Stock Trading on Risk Alert Board” (Revised in 2014).
IV. Opinion collection
The SSE made thorough studies on the opinions of the market after the opinion collection. In general, the majority support the delisting-related supporting rules, believing that they are positive in protecting investors’ interests and building a flexible market-oriented flow mechanism. Besides, some feedbacks put forward their advice and suggestions on some articles in the delisting-related supporting rules.
After careful study, the SSE made adjustments to some articles or statements according to the feedbacks. One of the major adjustments was that the SSE modified the interval for re-listing applications of delisted companies due to serious violations in information disclosure. According to some feedbacks, the harm brought by serious violations in information disclosure is similar to that brought by fraud issuance, and thus the interval for re-listing applications of companies delisted due to serious violations in information disclosure should be the same as that for fraud issuance. After careful study, the SSE holds that this suggestion is reasonable and has referred to it in the new regulation by deciding that the interval for re-listing applications of companies delisted with these 2 situations should be an entire fiscal year.
V. Arrangement during the transition period for re-listing
The SSE has already issued the revised “Listing Rules”, and relevant notices have developed regulations on the arrangement during the transition period for re-listing. To ensure the continuity of the delisting system’s implementation and do not disturb the investors’ original market expectations, companies delisted before the “Listing Rules” takes effect are applicable to the re-listing conditions prescribed in the former listing rules of the SSE in the principle of anti-retroactivity. The transition period will be 36 months after the “Listing Rules” takes effect. For regulations concerning the transition period for re-listing, please refer to the notice on releasing the “Listing Rules” issued by the SSE.