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On December 28, 2018, SZSE published the Guidance No. 2 of Shenzhen Stock Exchange on Information Disclosure by Listed Companies – Trading Suspension/Resumption (hereafter the Guidance on Trading Suspension/Resumption) which took effect on the same day. In response to the CSRC's Guidance on Improving the Trading Suspension/Resumption System for Listed Companies (hereafter the Guidance), SZSE formulated the Guidance on Trading Suspension/Resumption as a major means to enhance basic market systems, maintain market fairness and safeguard investors' legal rights.
As a basic capital market system, the trading suspension/resumption system for listed companies is aimed to improve disclosure effectiveness while protecting investors' right to fair trade and maintaining market fairness. Therefore, optimization of the system plays a pivotal role in better exploiting market mechanism, increasing liquidity, improving resource allocation, protecting investors' right to trade and building global presence.
In recent years, under the guidance of the CSRC, SZSE has made continuous efforts in standardizing trading suspension/ resumption of listed companies. In May 2016, SZSE published the Memo of Trading Suspension/Resumption for Listed Companies that imposes strict requirements on trading suspension reasons, specifies the term of trading suspension and elaborates on disclosure requirements. By encouraging no trading suspension or short-term suspension and progressive disclosure, the Memo enhanced the regulation on companies that take advantage of the trading suspension/resumption system to suspend their stock trading for a long time. With joint efforts of all parties, the market has seen a sharp decrease in suspended company stocks and in suspension time. Up to now, only 13 listed companies are suspended from trading in the SZSE market, and the problems of arbitrary and long-term suspension have been alleviated effectively. Companies gradually embrace the concept of short-term and intermittent trading suspension and pleasant results are achieved in this stage of trading suspension/resumption standardization.
By taking new problems and market situation into consideration on the basis of preliminary regulation, the Guidance on Trading Suspension/Resumption ensures trade opportunities, shorterns suspension time and enhances disclosure to the greatest extent in compliance with the Guidance. It makes the following arrangements: First, narrowing down the list of approved reasons for trading suspension. It forbids trading suspension out of restructuring not involving share offering, non-public share offering, outward foreign investment and conclusion of material contracts. Second, shortening the trading suspension term. Suspension due to asset purchase via share offering is limited to 10 trading days and suspension because of other types of restructuring is forbidden. Suspension due to change of control and tender offer is limited to 5 trading days. Suspension out of bankruptcy reorganization is not allowed in principle, and where indeed necessary, the term shall not exceed 5 trading days. Generally, trading should not be suspended when SZSE is reviewing and inquiring about a restructuring scheme or when a company is replying to such inquiries. Third, intensifying disclosure requirements. It sets higher standards on disclosure of trading suspension by reason of asset purchase via share offering, specifies the progressive disclosure requirements for major events that will not result in trading suspension, and defines the duty of confidentiality for restructuring involving share offering that will not cause trading suspension. Fourth, improving the supporting regulatory mechanism. It clarifies trading suspension/resumption principles and mandatory resumption provisions, enhances due diligence of relevant parties and establishes a trading suspension notification system.
The Guidance on Trading Suspension/Resumption is formulated by SZSE sticking to the principle of openness after thoroughly considering all suggestions of various market parties obtained by phone, email and WeChat. It enhances the previous version by including trading suspension due to asset purchase via targeted convertible bond issuance, raising the disclosure requirements for asset purchase via share offering, increasing the progressive disclosure requirements for restructuring, and postponing the disclosure of shareholder information before trading suspension. Next, following the Guidance on Trading Suspension/Resumption, SZSE will earnestly fulfill its duties as a front-line regulator to ensure sound performance of basic market systems, protect the rights and interests of minority investors and boost robust development of the capital market.
