.jpg)
To earnestly implement the Opinions of the State Council on Further Improving the Quality of Listed Companies and the Implementation Plan for Refining the Delisting Mechanism of Listed Companies and further deepen the reform of the delisting system, SZSE has revised relevant business rules including the Rules Governing Share Listing on SZSE, Rules Governing the Listing of Shares on the ChiNext Market of SZSE, Trading Rules of SZSE and Implementation Measures of SZSE for the Re-listing of Delisted Companies, and has solicited public opinions. SZSE spokesperson has answered questions of market concern from reporters.
1.What is the main background for the revision of relevant business rules on delisting?
A: The delisting system is an important basic system of the capital market. Deepening the reform of the delisting system is a key link in strengthening the construction of basic systems of the capital market and also an important means to improve the market ecosystem where companies can both be listed and desisted and only the fittest survives. It is of great significance to further improving the quality of listed companies and promoting virtuous circulation of the capital market.
SZSE has always been attaching great importance to the construction of the delisting system, by continuously advancing the reform of the delisting system. Under the unified deployment of China Securities Regulatory Commission (CSRC), SZSE launched three reforms in 2012, 2014 and 2018 respectively, during which SZSE has established four mandatory delisting indicator systems related to finance, trading, regulation and major violations. Since 2019, 18 SZSE-listed companies have been delisted mandatorily. The delisting reform gradually shows results. However, because the delisting of a listed company involves many interested parties, some delisting standards no longer meets the requirements of the new Securities Law. Such problems as prolonged delisting procedures and difficulty in delisting are prominent.
The Central Committee for Deepening Overall Reform recently deliberated and adopted the Implementation Plan for Refining the Delisting Mechanism of Listed Companies. The Opinions of the State Council on Further Improving the Quality of Listed Companies clearly states that it’s necessary to refine the delisting mechanism for listed companies. SZSE has conscientiously carried out the decisions and plans of the CPC Central Committee and the State Council. Under the leadership of CSRC, SZSE has actively put in place relevant arrangements and requirements by improving delisting standards, simplifying delisting procedures and intensifying delisting regulation, summed up experiences and strengthened areas of weakness. In combination with the ongoing systematic check of the self-disciplinary rules, SZSE has comprehensively revised and improved relevant business rules concerning delisting.
2.In recent years, SZSE has been taking stock of and optimizing the system of self-disciplinary rules and speeding up the building of a transparent, efficient, clear, and easy-to-implement system of rules. In the revision, what optimizations and improvements has SZSE made in the system of self-disciplinary rules?
A: SZSE has sorted out and optimized the system of self-disciplinary rules according to the general plan of CSRC on carrying out systematic check of securities and futures rules and regulations. SZSE adopts a classified implementation policy upon overall planning, and optimized both the contents and forms of rules. We established new rules, and revised and abolished existing ones simultaneously, earnestly implementing the requirements of the new Securities Law to strengthen the construction of basic systems of the capital market.
The idea of “transparency” and “simplicity” underlined the whole process of the revision of delisting rules. First, we have fully integrated the Implementation Measures on Mandatory Delisting of Listed Companies with Major Violations of Law and the Special Business Rules for Delisting Transitional Period into the listing rules. We have included in the Trading Rules of SZSE the provisions on price change limit in the Notice on Arrangements for Stock Trading of ChiNext Board-listed Stocks with a Risk Warning and ChiNext Board-listed Stocks in the Delisting Transitional Period, applying the same rules to issues of the same category, so the system is more streamlined and easier to use. Second, referring to the IPO review mechanism, we have specified situations where application for review will not be accepted, review will be suspended and review will be terminated in the Implementation Measures of SZSE for the Re-listing of Delisted Companies, making the procedures more transparent and expectations more stable. Third, for the Main Board (including the SME Board), by drawing on the practice of the ChiNext Board, we have systematically optimized the style and layout of the chapter on delisting in the Rules Governing Share Listing, dividing the chapter into sections based on four situations for mandatory delisting, namely, trading related, finance related, standard related and major violation related. The specific delisting indicators and delisting procedures corresponding to each situation are completely presented in that section, so the layout is more reasonable and the content clearer.
3.What are the main revisions of the Rules Governing Share Listing (Exposure Draft)? What’s the desired effect?
A: The Rules Governing Share Listing is applicable to companies listed on the Main Board (including the SME Board) of SZSE. In the revision, we have drawn on the experience of the reform of the ChiNext Board and the pilot project of the registration-based IPO system and have further refined and optimized delisting indicators, delisting procedures, risk warnings and relevant trading arrangements for delistings, which mainly involve the following three aspects:
First, optimizing delisting standards and clearing exit channels. We have added new delisting indicators such as the lower one of net profit before and after deducting non-recurring gains and losses being negative and operating income being lower than CNY 100 million, market capitalization being lower than CNY 300 million, major defects in information disclosure or standard operation, more than half of directors being unable to ensure authenticity, accuracy or completeness of annual reports or semiannual reports, major violations of law, financial frauds, and issuance of a qualified audit report to stocks with a delisting risk warning. We have improved relevant description of the face value delisting indicator, and comprehensively optimized the existing four mandatory delisting indicator systems, namely, trading related, finance related, standard related and major violation related. We have especially emphasized cross applicability of finance related indicators, and speeded up the clearing of shell companies and zombie companies that have lost the ability to operate as a going concern.
Second, simplifying delisting procedures and improving delisting efficiency. We have canceled listing suspension and listing resumption, which has shortened the delisting process significantly. We have moved the start time of continuous trading suspension for mandatory delisting due to major violations of law from “when the company is informed of the advance notice on administrative punishment or the people’s court issues a judicial judgment” to “when the company receives the decision of administrative punishment or the people’s court’s judicial judgment becomes effective”. In the meantime, we have simplified the review procedures of the listing committee. We have cut the delisting transitional period from 30 trading days to 15, and canceled the delisting transitional period for trading related delistings, while lifting the first day price limit, to mitigate speculation. In addition, in the revision, considering that convertible bonds also have the attributes of stocks, we have synchronously canceled listing suspension for convertible bonds without specifying conditions for their delisting. We make it clear that when a company’s stock is delisted, its convertible bonds will be delisted simultaneously.
Third, strengthening risk warning and guiding rational investment. We have added the situation in which a finance related delisting risk warning (*ST) is given as described in the decision of administrative punishment and two other situations in which a special risk warning (ST) is given, namely, situations where there are doubts about the company’s ability to operate as a going concern and where the internal audit report or verification report is issued with disclaimer of opinion or adverse opinion. We have tightened the quantitative criteria of special risk warning relating to illegal guarantee, and expanded the scope of subjects of fund occupation that incurs a special risk warning. We have set up the risk warning board that includes stocks with a risk warning and stocks undergoing delisting transition. Meanwhile, we have optimized the suitability management and trading arrangements of stocks with a risk warning, and stepped up efforts in risk exposure and investor protection.
4.Compared to the reform of the ChiNext Board delisting system this June, what are the new changes in delisting indicators and procedures in the Rules Governing the Listing of Shares on the ChiNext Market (Exposure Draft)?
A: The previous reform of the ChiNext Board listing system has basically put in place the overall thinking of this round of reform, while this revision has further refined and added relevant delisting indicators and optimized the delisting procedures.
Regarding delisting indicators, first, we have added a finance related delisting risk warning as determined in the decision of administrative punishment, and further optimized the recognition and deduction mechanisms of operating income. Second, we have added the criteria for the major violation of financial fraud to determine whether a company triggers a delisting for major violations from the perspectives of net profit, total profit and assets. Third, we have added the standard related delisting indicator that more than half of directors are unable to ensure the authenticity of annual reports or half-year reports, and further defined major defects in information disclosure or standard operation including that the company has lost contact channels for information disclosure, that the company refuses to disclose important information as required and that the company has severely disturbed information disclosure order, and other situations deemed by SZSE as major defects in information disclosure or standard operation. Forth, we have improved relevant description of the face value delisting indicator.
Regarding delisting procedures, we have adjusted the two reviews by the listing committee for delisting due to major violations of law to one review, that is, SZSE judges whether a company’s stock triggers mandatory delisting due to major violations of law based on the decision of administrative punishment and the judicial judgment and sends an advance notice to the company, then the listing committee reviews whether the company’s stock meets the standard for delisting due to major violations of law, and SZSE makes a decision based on the committee’s review opinions. The delisting transitional period has been cut down to 15 trading days. We have included stocks with a risk warning and stocks undergoing delisting transition in the risk warning board for trading.
After the reform is completed, arrangements for the key delisting indicators and delisting procedures for the ChiNext Board and the Main Board (including the SME Board) will be basically the same.
5.What’s the purpose of establishing the risk warning section and what are the considerations?
A: Compared to stocks that are traded normally, stocks that are given a risk warning have delisting risk or other risks and their market capitalization is generally low and their prices often fluctuate and are susceptible to speculation. Based on that, we have set up the risk warning section to specify the trading mechanism for stocks with a risk warning and suitability management requirements while improving the trading mechanism of stocks undergoing delisting transition. First, enhancing the risk awareness that buyers assume sole responsibility for profit or loss. In terms of investor suitability management, we have added the requirement that ordinary investors shall sign the risk disclosure statement when buying stocks with a risk warning for the first time. Second, curbing over-speculation. In terms of trading mechanism, we have set the upper limit of trading volume of stocks with a risk warning, allowing investors to buy no more than 500,000 shares of a single stock with a risk warning in a day through centralized bidding, bulk trading and after-hours pricing and trading.
6.The new rules will be enforced from the date of release. What are SZSE’s arrangements for existing companies suspended for listing and companies with a risk warning in the transitional period?
A: To ensure steady progress of the reform of the delisting system and maintain stable market operation, we have made transitional period arrangements for companies whose stocks have been suspended for listing and those that have been given a delisting risk warning or other risk warning before the new rules take effect:
Regarding a company whose stock has been suspended for listing, after its 2020 annual report is disclosed, its stock will still be evaluated according to the Rules Governing Share Listing (Revised in November 2018) and the Rules Governing the Listing of Shares on the ChiNext of Shenzhen Stock Exchange (Revised in November 2018) to see whether it meets the standards for resuming or terminating listing procedures, and will be listed or not listed according to the procedures specified in the foregoing rules.
Regarding a Main Board or SME Board listed company whose stock has been given a delisting risk warning or other risk warning, before its 2020 annual report is disclosed, the delisting risk warning or other risk warning continues. Based on the information disclosed in its 2020 annual report, there are four ways to handle such kind of company: first, if a situation in which a delisting risk warning or other risk warning is given is triggered according to the new rules, the stock will be given the same. Second, if a situation in which a delisting risk warning is given is not triggered according to the new rules but the criteria for suspended listing as specified in the Rules Governing Share Listing (Revised in November 2018) are met, the stock will not be suspended for listing but given other risk warning and be subject to the new rules after disclosure of its 2021 annual report; if a situation in which other risk warning is given is not triggered according to the new rules, the other risk warning will be canceled. Third, if a situation in which a delisting risk warning is given is not triggered according to the new rules and the criteria for suspended listing as specified in the Rules Governing Share Listing (Revised in November 2018) are not met, the delisting risk warning will be canceled. Fourth, if a situation in which other risk warning is given is not triggered according to the new rules, the other risk warning will be canceled.
7.The situations in which a finance related delisting risk warning is given, delisting indicators and newly added major violation related delisting indicators are all taking 2020 as the starting year. How should we understand that?
A: For situations in which a finance related delisting risk warning is given and delisting indicators are assessed since 2020, we judge whether a company’s stock triggers delisting risk warning based on its 2020 annual report or its violations in 2020 as described in the decision of administrative punishment. For example, if a company’s 2020 annual report shows that the audit opinion to its financial statements is disclaimer, its stock will be given a delisting risk warning. For another example, the decision of administrative punishment received by a company in January 2022 indicates that there are false records in its 2020 annual report. Its net assets were actually negative in 2020. After the company discloses the decision of administrative punishment, its stock will be given a delisting risk warning. After its 2021 annual report is disclosed, SZSE will judge whether to cancel the delisting risk warning or delist the stock.
Regarding major violation related delisting indicators, we have added the “fraud amount+fraud proportion” quantitative indicator. The monitoring period of the indicator is three years, with 2020 as start of the three consecutive years. For example, if a company reaches the “fraud amount+fraud proportion” quantitative standard for 2020, 2021 and 2022 straight, its stock will be subject to mandatory delisting due to major violations of law.
8.If a company’s disclosed 2020 annual report triggers the two new situations in which other risk warning is given that are newly added in the revision, its stock will be given other risk warning. How do we understand it?
A: The two new situations in which other risk warning is given are that “the company is given an internal audit report or assurance report with disclaimer of opinion or adverse opinion in the last year” and that “the lower one of the company’s net profit before and after deducting non-recurring gains and losses in the last three accounting years is negative and its audit report of the latest year shows that there is uncertainty in its ability to operate as a going concern”. The two situations are applicable after the 2020 annual report is disclosed, that is, 2020 is the “last year” in the first situation, and is the third year of the “last three accounting years” in the second situation.
For example, if a company’s 2020 internal control audit report is provided with disclaimer opinion, its stock will be given other risk warning. For another example, if the lower one of a company’s net profit before and after deducting non-recurring gains and losses in 2018, 2019 and 2020 is negative and its 2020 audit report shows that there is uncertainty in its ability to operate as a going concern, its stock will be given other risk warning.
9.Regarding companies that receive an advance notice on administrative punishment or a decision of administrative punishment before the new rules are enforced and that may trigger the situations for mandatory delisting due to major violations of law, how are relevant rules applied?
A: Regarding companies that receive an advance notice on administrative punishment or a decision of administrative punishment before the new rules are enforced, we will judge whether they trigger the situations for mandatory delisting due to major violations of law according to the provisions set out in SZSE’s Implementation Measures on Mandatory Delisting of Listed Companies due to Major Violations of Law and Rules Governing Share Listing (Revised in November 2018), and execute relevant procedures according to the foregoing rules.
10.Regarding companies that receive an advance notice on administrative punishment after the new rules are enforced and that may trigger the situations for mandatory delisting due to major violations of law, how are relevant rules applied?
A: Regarding companies that receive an advance notice on administrative punishment after the new rules are enforced, we will judge whether they trigger the situations for mandatory delisting due to major violations of law between 2015 and 2020 according to the provisions set out in SZSE’s Implementation Measures on Mandatory Delisting of Listed Companies due to Major Violations of Law, Rules Governing Share Listing (Revised in November 2018)and Rules Governing the Listing of Shares on the ChiNext of Shenzhen Stock Exchange (Revised in November 2018), and judge whether they trigger the situations for mandatory delisting due to major violations of law in 2020 and the years after according to the new rules.
For example, after the new rules are enforced, a Main Board-listed company receives an advance notice on administrative punishment and a decision of administrative punishment that show the company had been losing money for four years straight from 2016 to 2019. Then we judge it has triggered the situations for mandatory delisting due to major violations of law according to the provisions set out in SZSE’s Implementation Measures on Mandatory Delisting of Listed Companies due to Major Violations of Law and Rules Governing Share Listing (Revised in November 2018). For another example, after the new rules are enforced, a company receives an advance notice on administrative punishment and a decision of administrative punishment that show the company’s net assets in 2021 and 2022 are negative. Then we judge it has triggered the situations for mandatory delisting due to major violations of law according to the new rules.
11.What main content has been revised in the Implementation Measures on the Re-listing of Delisted Companies?
A: In the revision of the Implementation Measures on the Re-listing of Delisted Companies, we have optimized re-listing conditions based on the issue conditions specified in the new Securities Law, and we have deleted that “the ChiNext Board does not accept companies’ applications for re-listing of stocks” and added that companies who meet the re-listing conditions specified in the Measures may apply to SZSE for re-listing. Moreover, in the revision, we have used the ChiNext IPO review mechanism for reference, and laid out situations in which re-listing applications are not accepted, review is suspended and review is ended.
12.What’s SZSE’s next plans and arrangements for the reform of the delisting system and delisting regulation?
A: We will follow the unified deployment of CSRC, stick to the market-, rule-of-law-based direction, and accelerate improving the regular delisting mechanism. We will vigorously strengthen the construction of basic market systems, earnestly fulfill the responsibilities as the implementer of delisting, and do a better job in frontline regulation. We will strive to build a group of listed companies that reflect high-quality development requirements and better serve overall economic and social development. First, to focus on the main line of “system building”. After the exposure drafts are issued, we will listen to opinions from all sides through seminar, etc., and work faster to revise and improve delisting rules. Using the implementation of the new Securities Law as an opportunity, we will continue to improve the system of self-disciplinary rules, and step up efforts to build more mature basic systems. Second, to practice the concept of “non-intervention”. We will give full play to the market function of resources allocation and support listed companies in realizing market-based clearing through M&A and restructuring, bankruptcy reorganization, etc. to defuse stock risk. Third, to stick to the bottom line of “zero tolerance”. We will fulfill delisting duties according to law, strictly implement the delisting system, crack down on acts in violation of law such as financial fraud, and resolutely delist companies that trigger delisting criteria. Fourth, to further leverage synergy. We will maintain close communication and cooperation with local governments, CSRC offices, etc., strengthen information sharing and joint risk handling, and give play to synergy in regulation to build a good ecosystem to maintain healthy and stable development of the capital market.
