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On November 16, SZSE issued the Implementation Measures on Forced Delisting of Listed Companies for Major Violation of Law (hereinafter referred to as the Implementation Measures) and amended the Rules Governing Share Listing and the Implementation Measures for the Relisting of Delisted Companies for improvement. Regarding the issues of market concern, SZSE spokesman answered the media questions.
1. Q: What are the major background and significance for issuing the Implementation Measures?
A: Listed companies are the cornerstone of capital market. Their quality directly influences the sound and stable capital market development. Fundamental to capital market, the delisting system of listed companies is an important arrangement for the market to play the survival-of-the-fittest mechanism and has significant functions in adjusting market economy structure and purifying market ecology. On July 27, CSRC issued the Decision on Amending the Opinions on Reforming, Improving and Strictly Implementing the Delisting System for Listed Companies (hereinafter referred to as the Decision). That has further improved the content of forced delisting for major violation of law and consolidated an exchange's decision-making entity responsibility for implementing forced delisting against companies committed serious violations, which is significant to further perfect fundamental market functions, strengthen market players' vitality and enhance investors' confidence.
SZSE has been attaching great importance to the crucial role of delisting system. By reinforcing delisting regulation, we have improved the deterrence of supervision, the quality of listed companies and the protection of investors' rights and interests. Under the CSRC leadership and through years of exploration and perfection, SZSE has increasingly refined its delisting related rules. As of now, more than 30 public companies have undergone forced delisting. In order to crack down and contain listed companies' fraudulent issuance, illegal disclosure of major information and serious violations in "five security" fields, SZSE now has developed the Implementation Measures for "fixing the leakage" of the existing delisting system and refining the implementation standards and procedures of conditions for forced delisting for major violation of law. Formulating the Implementation Measures is significant mainly in the following four aspects:
First, to drive the in-depth and extensive development of economic reform. As a crucial investing and financing platform, capital market has been playing positive roles in optimizing resources allocation and adjusting economic structure. The Implementation Measures further increases the resource allocation efficiency, promotes the decisive roles of market in allocating resources and boosts the long-term sound development of multi-tiered capital market.
Second, to firmly carry out the spirit of the CSRC Decision. Under the CSRC leadership, SZSE has practically assumed an exchange's decision-making entity responsibilities for delisting by formulating the Implementation Measures to resolutely punish serious violations of law, adjust and optimize delisting mechanism, purify market environment, as well as guide rational investment and value investment.
Third, to ensure efficient execution of new delisting rules. In terms of implementation standards and procedures, the Implementation Measures makes specific further arrangements to differentiate crooked IPO, fake restructuring listing, falsified annual reports and major violations in five security fields. By specifying the concrete implementation standards, it increases the operability of relevant standards and strengthen the enforcement of forced delisting for major violation of law.
Fourth, to actively respond to market ills and market concerns. In 2014, CSRC released the Opinions on Reforming, Improving and Strictly Implementing the Delisting System for Listed Companies. That established a forced delisting system against fraudulent issuance and major information disclosure violations, greatly deterring the illegal behaviors of public companies. The Implementation Measures has further improved such forced delisting system. On the one hand, it clearly includes the following into the category of major violation. That is, some listed companies recently seriously go against legal operation and production to put corporate and individual interests above national, public, ecological, production and public health security. On the other hand, the Implementation Measures states strict arrangements in corresponding implementation procedures to simplify delisting process, speed up delisting tempo and improve delisting efficiency.
2. Q: The Implementation Measures specifies the delisting conditions for "five security" reasons. What is the major basis for that? And what's the expected role for it to play?
A: CSRC has made clear in the Decision that apart from listed companies' fraud issuance, illegal major information disclosure and other behaviors disrupting securities market order, a stock exchange shall implement listing suspension or termination against the company stocks according to laws in case of major illegal acts involving national, public, ecological, production and public health security. This is an important move in advancing delisting mechanism with the times, which is beneficial to the long and healthy development of multi-tiered capital market. In the Implementation Measures, the content related to the "five security" is added to the definition and conditions of "forced delisting for major violation of law". This means that a company stock shall be delisted if the company conducts major violations involving the "five security" that are of malicious nature, harmful to national and public interests or seriously affect its listing status. SZSE pays high attention to listed companies' information disclosure involving the "five security" by carrying out regular investigation and urging companies to give warnings on relevant risks. For violations of laws and regulations, SZSE initiates disciplinary sanctions in time with seriousness. The inclusion of "five security" in the delisting calculus will play an important role in three aspects.
First, it adapts to the market development need to promote a pure and healthy environment. "Five security" is associated with national strategy and deployment. The inclusion of such major violations into the delisting calculus helps strengthen the sense of responsibility of market participants while encouraging listed companies to firmly carry out the new development concept, perform their social responsibility and make role models in maintaining national security, protecting ecological environment and safeguarding public health and safety etc.
Second, it raises investors' risk awareness and protect their rights and interests in a more extensive way. The social function of delisting rules is to protect the rights and interests of investors. It is the starting point and objective of perfecting the delisting rules. The violations involving "five security" hurt not only the interest of customers, but the investment behaviors in securities market. The addition of such violations into the forced forced delisting conditions is favorable to maintain market order and helps the practice of protecting the rights and interests of investors.
Third, it further specifies the market expectation. The Implementation Measures specifies the delisting standards for the "five security" fields. Such major violation conditions mainly include revoking business licenses, shutting down or being revoked according to law; revoking the production and operation license for main businesses; or other circumstances that may result in the loss of legal qualification to continue production and operation. The implementation basis of the delisting for such major violations is the administrative penalty from relevant administration or the effective guilty verdict made by the People's Court according to the Criminal Law.
3. Q: What are the aspects the Implementation Measures normalize? And what are the features?
A: The Implementation Measures states clearly in the implementation basis, standards, subjects and procedures of listed companies' forced delisting for major violation of law. It is mainly of the following four features:
First, the efficiency of delisting is improved. Firstly, the period of suspension of listing due to major illegal event will be shortened from 12 months to 6 months. Secondly, restructuring or compensation will not be considered for those companies which suspended from listing due to major illegal event. These companies will be delisted directly as 6 months are expired, and they cannot resume listing status. Thirdly, companies delisted due to illegal events except fraudulent issuance, can apply for resumption of listing, with the time interval extended from one year to five years. Fourthly, companies delisted due to fraudulent issuance should not resume listing for ever.
Second, centering on "listing status", standards for delisting are explicitly specified. Firstly, "zero tolerance" policy is resolutely implemented for fraudulent issuance. The listing status needs to have a legal basis. The company's listing status mainly comes from IPO and restructuring listing. If the company obtained the IPO issuance approval or restructuring listing approval by fraud, their listing status will not have a legal basis. Fraudulent issuance directly leads to the companies' termination of listing status. Secondly, "falsification" to avoid delisting will be severely punished. Listed companies' acts of using financial fraud to retain their listing status seriously disrupt market order, occupy market resources, and distort pricing functions. These companies should be resolutely punished. Thirdly, the scope of supervision will be extended. When dealing with the listed companies' major illegal acts, the seriousness of the company's major illegal acts, the legal liability that company should assume, the degree of influence on the company's production and operation, and other serious factors, will be taken into account. Companies committed major illegal acts will be seriously dealt with, and their listing status will not be retained.
Third, the basis for delisting is solid. All kinds of administrative organs are administrative law enforcement agencies that implement supervision and management in areas such as national security, public security, ecological security, production safety, public health and safety, and securities market. People's courts are judicial organs that judge and determine whether listed companies have criminal responsibility. The Implementation Measures will take the administrative punishment decision of the relevant administrative organ and the effective judgment of the people's court as basis, ensuring that the illegal facts are distinct and the basis for delisting is clear.
Fourth, the principle of "fairness, openness and justice" is resolutely implemented. On the one hand, the decision body for delisting is authoritative, and the listing committee of the exchange comprehensively considers the illegal situation of the listed company and makes prudent, independent and professional judgments; on the other hand, the procedures for implementing forced delisting for listed companies due to major illegal events are open and transparent, with the procedures of defense, hearing and review set. These fully guarantee the listed company's right to interpret and communication, and the transparency of delisting procedures.
4. Q Recently, some companies have disclosed that they have been transferred to the public security organs according to law. How can the Implementation Measures be applied to the new and old situations?
A: In accordance with the spirit of the Decision, before the implementation of the Decision, if the listed company has been identified by the CSRC committing a major illegal act or has been transferred to the public security organ according to law, and the decision to terminate its listing status is made, the original rules shall apply to this situation; After the Decision take effect, new rules will be apply to the situations in which the listed company receive administrative punishment from CSRC or found be in violation of law in the effective judicial judgment. In this case the listed company shall be suspended from listing or terminated the listing due to illegal act, regardless of when the illegal act occurs.
Take several companies which recently disclosed that they have been transferred to the public security organs according to law as example, the Implementation Measures have different treatment for cases locating in different the stages of delisting procedures. In the first case, the decision to suspend the listing has been made. If there is no other situation lead to suspension or termination of listing, the suspension of the listing will continue. After the people's court has made a guilty verdict against the company and the verdict becomes effective, the company will be judged according the new rules whether it constitutes a major violation of the law and deserve forced delisting. For the second case, the delisting risk warning has been implemented (companies listed on the ChiNext Board disclosed the suspension of listing risk warning), and if there is no situation of suspension or termination of listing, the suspension of trading will continue until the people's court makes a guilty verdict against the company. After the verdict entry into force, the company will be judged according the new rules whether it constitutes a major violation of the law and deserve forced delisting. If the company's stock is forced to be delisted according to the new regulations, the "escape period" of 30 trading days will not be repeated, but there are still relevant arrangements for the delisting transitional period. If one of the above situations exists, and if the public security organ decides not to file a case or revoke the case, the people's procuratorate makes a decision not to prosecute, and if the people's court makes an acquittal judgment, the company's stock may resume normal trading status upon application by the company.
5. Q: In response to the major law violations situation of annual report fraud in avoidance of delisting, the Implementation Measures take the financial indicators of 2015 as the beginning point to distinguish new and old situation. How to understand taking 2015 as a starting point?
A: The current forced delisting system for major illegal situation is clearly defined in the Opinions on Reform, Improvement and Strict Implementation of the Delisting System of Listed Companies issued by the CSRC in November 2014. Therefore, the Implementation Measures take the 2015 annual report as starting point as defining the new and old situation of major illegal acts of annual report fraud in avoidance of delisting. That is, in the retrospection, only companies whose financial indicators of the consecutive fiscal year starting from 2015 trigger the delisting standards will be delisted.
Specifically, the delisting process will be initiated against a listed company in case of situations that trigger a delisting specified in SZSE's Rules Governing Share Listing, have false records, misleading statements or major omissions in its disclosed annual reports, and avoid delisting according to the facts confirmed by CSRC's administrative penalty decision. For example, in case of its negative audited net profits for the accounting years of 2015, 2016 and 2017 after backward adjustment, if the 2018 net profit is still negative, or the net profit after deducting extraordinary profit and loss is negative, or the net asset at the end of the period is negative, or the operating income is less than CNY10 million, or the audit report is with disclaimer of opinion or adverse opinion.
6. Q: For companies which committed major violations in the past years but were "reborn" after restructuring, should they be forced into delisting?
A: For companies which were "reborn" after restructuring listing, if their production and operations, and corporate governance have been substantially improved, the delisting of its shares will waste market resources, which is not the original intention of the forced delisting system for major violations. Therefore, in order to truly effectively allocate market resources, we made the following arrangements in the Implementation Measures. Before the implementation of the new regulations, if a listed company has legally completed the restructuring listing, and the relevant major violations occurred before this restructuring listing and were irrelevant to this listing, and the current directors, supervisors and senior managers have not received CSRC's administrative penalty in the past 36 months or the public censure from the exchange in the past 12 months, it can apply for exemption of forced delisting for major violations.
7. Q: SZSE solicited public opinions on the Implementation Measures some time ago. How about the specific solicitation and adoption?
A: On March 9, 2018, SZSE issued a draft of the Implementation Measures to solicit public opinions. During the solicitation period, we collected opinions of all parties in the market through telephone, and e-mail etc.. Meanwhile, we also paid close attention to comments, opinions and suggestions from the media.
After sufficient argument and analysis, SZSE absorbed some opinions and accordingly revised and improved the Implementation Measures, including clarifying and improving the situations triggering forced delisting due to major violations and the implementation procedures, and clarifying non-retroactivity arrangements.
8. Q: What is the main revision to the Rules Governing Share Listing this time?
A: SZSE, based on its supervision function and the principle of focusing on the key points and making up the weak points, initiated this revision which mainly includes the following:
First was to put into practice the new rules for delisting and strictly implement the forced delisting system arrangements due to major violations. This revision clearly defines the requirements for the implementation procedures, listing suspension and resumption and related information disclosure of the forced delisting for major violations involved in the implementation of delisting risk warning (*ST; regular listing suspension risk warning announcements for ChiNext;), listing suspension, listing resumption, forced delisting, and re-listing, so as to bridge the Implementation Measures.
Second was to resolutely implement the newly amended Measures on Administration of Securities Exchanges (hereinafter referred to as Administration Measures) to consolidate the institutional basis for front-line supervision. The Administration Measures, which came into effect on January 1, 2018, focused on strengthening the frontline supervisory responsibilities of the exchange. For the implementation of the Administration Measures, we mainly revised to adjust the scope of supervision targets, clarify the basis for frontline supervision and enrich frontline supervision means.
Third was to fully bridge other supporting rules, revise the provisions of the shareholders general meeting and adjust the qualification requirements for sponsors of listing resumption, so as to fully protect the legitimate rights and interests of small and medium investors.
9. Q: In recent years, SZSE has continued to intensify delisting implementation. It has taken initiatives to act and speak up. How will SZSE continue to strengthen delisting supervision next?
A: SZSE will earnestly implement the guidelines and policies of the CPC Central Committee and the State Council on economic and financial work. In accordance with CSRC's unified arrangements, we will conscientiously perform our frontline supervision duties, actively prevent and resolve market risks, resolutely assume the entity responsibility for delisting, optimize the rule system for delisting, consolidate the basic system construction of the capital market, and continuously improve our ability to serve the real economy.
In 2017, SZSE decided to delist the shares of Dandong Xintai Electric in accordance with the law and successfully implemented compensation in advance. Xintai Electric became the first company in China to be forced to delist due to fraudulent issuance. Since 2018, we initiated the forced delisting procedures according to law against Geeya and *ST Yabaite which were transferred to the public security organ by CSRC due to suspected crimes. Besides, we made the follow-up arrangements for *ST Huaze, which was under listing suspension due to its being transferred to the public security organ by CSRC. Next, SZSE will continue to strictly enforce the delisting system. For companies that should be delisted, we will resolutely delist them to purify the market environment, maintain market order, and form a market of "orderly entry and exit and survival of the fittest", so as to promote the long-term stable and healthy development of the multi-tiered capital market.
