Shanghai Stock Exchange: Q&A On SSE's Reform Of Delisting System

On July 27, the Shanghai Stock Exchange (SSE) released the “SSE Detailed Rules (Draft Version) for Trading of Shares with Risk Alert” (the Detailed Rules for short), which marked the materialization and institutionalization of the delisting scheme of the SSE and the "SSE Stock Listing Rules". Recently, the SSE made the following remarks on relevant issues including the establishment of the Risk Alert Board in an interview with the press:

Q: what is the main purpose of setting up the Risk Alert Board for the new delisting system?

A: the prevailing speculation on underperformance shares has harmed the sound development of the capital market, so the SSE proposed to set up the Risk Alert Board while issuing the “Scheme (Draft Version) of Perfecting Delisting System of SSE-listed Companies” (the Scheme for short) on April 29, for the purpose of trading the shares in the companies with delisting risk alert and disclose major risks to investors on the board.

On June 28, the SSE officially released the Scheme to conduct necessary trading limits, market monitoring measures, and investor suitability management measures on the Risk Alert Board, as well as carry out strict regulation on the information disclosure of the companies on the board. On July 7, the SSE issued and implemented the "SSE Stock Listing Rules" amended according to the delisting scheme, so as to stipulate that the issues related to the Risk Alert Board is subject to the SSE's further notice. The Detailed Rules issued on July 27 is the materialization and institutionalization of the delisting scheme of the SSE and the "SSE Stock Listing Rules", with an aim of protecting legal rights and interests of investors, strengthening risk control, and curbing the speculation on underperformance shares.

Q: What is the SSE's opinion on the market responses caused by the to-be-implemented asymmetric trading limit system for the Risk Alert Board mentioned in the Detailed Rules?

A: the Detailed Rules plans to implement the asymmetric trading limit system for the shares in the companies with delisting risk alert, namely, the maximum trading limit of 1% and the minimum trading limit of 5%, which aimed to curb the speculation on underperformance shares and guide the value regression of the above shares. It was noted that some market participants including investors held different opinions after we publicly solicited opinions. Some held that the system is too strict, while some proposed to implement the symmetrical trading limits and gave detailed suggestions on amendment and perfection. Upon publicly soliciting opinions, the SSE will seriously rationalize all the opinions and advices, conduct full argumentation, and amend and perfect the scheme.

Q: When will relevant detailed rules for the Risk Alert Board be officially implemented?

The establishment of the Risk Alert Board needs our preparations for relevant businesses and technologies. After the amendment and perfection made according to the opinions from the market and investors, the Detailed Rules will not be implemented promptly as it needs a transitional period. The Detailed Rules is planned to be implemented on January 1, 2013. At that time, the shares in the existing *ST and ST companies with delisting risk alert not revoked yet, and those in the newly-increased companies with delisting risk alert, the companies with delisting collection, the companies whose listing is resumed, the relisted companies, and the companies with other major risks will be all traded on the Risk Alert Board.

Q: The Shenzhen Stock Exchange has recently made special arrangements for encouraging listed companies' voluntary delisting. Does the SSE make relevant arrangements, either?

A: The SSE's reform in the delisting system is designed to boost the market to give full play to its role. Therefore, the SSE will give encouragement and support to the companies which make a voluntary choice or take an initiative to delist their stocks when they meet or may meet the delisting requirements. The SSE will prioritize the companies meeting relisting requirements through their own efforts or the assets reorganization after having initiatively delisted their shares for relisting upon examination and approval by the SSE Listing Committee with no need for the approval of the China Securities Regulatory Commission. The requirements for relisting have been specified in the SSE's listing rules.

Q: What special arrangements does the SSE make to implement delisting policies for B-share companies?

A: Just as the SZSE does, the SSE ushers in the trading price indicator for the delisting standard in the reform of delisting system, stipulating that A-share and B-share companies shall delist their stocks when the daily closing prices of their stocks are lower than the face value for 20 consecutive trading days.

As the B-share market has been inactive for long time with stock prices languishing, some companies with only B shares are prone to meet the delisting requirements according to the information available in hand. Considering the special circumstances in the B-share market, as for the companies with only B shares confronted with delisting for meeting market indicators rather than financial indicators, the SSE encourages them to keep listing by dint of shareholding increase by major shareholders, repurchase, stock reduction, capital reduction and other ways. Besides, the SSE supports B-share companies to introduce domestic institutions as strategic investors for conducting assets reorganization, injecting capital or quality assets, improving the fundamentals, and enhancing their investment values.

Moreover, the SSE encourages B-share companies to voluntarily delist their stocks and will arrange their relisting based on historical factors and their demands when they meet the requirements for relisting after voluntary delisting.