Shanghai Stock Exchange Releases "Notice Of Strengthening Regulation On Abnormal Stock Trading Related To Significant Assets Reorganization Of Listed Companies"

The Shanghai Stock Exchange (SSE) has recently released the "Notice of Strengthening Regulation on Abnormal Stock Trading Related to Significant Assets Reorganization of Listed Companies" (the Notice), which will take effect on December 17, 2012.

According to sources, the Notice was released on the day when the China Securities Regulatory Commission (CSRC) published the "Provisional Rules on Strengthening Regulation on Abnormal Stock Trading Related to Significant Assets Reorganization of Listed Companies" (the Rules) which was designed to toughen the regulation on abnormal stock trading related to significant assets reorganization, prevent and combat insider trading, and safeguard fair order in the capital market. An SSE official said that focusing on the regulation on abnormal stock trading of listed companies before their applications for administrative licensing for significant assets reorganization, the Notice was released with the very aim of promoting the implementation of the Rules and carrying out the requirements in the Rules.

The Notice released by the SSE mainly includes the stipulations as follows.

Firstly, the Notice specifies the SSE's procedures for examination on abnormal stock trading involved in significant assets reorganization to follow the principle that a reorganization-involved listed company will be examined if its stock trading is abnormal, and suspended if it is put on file for investigation, resumed if its suspicious behavior is ruled out, and terminated if it breaks the rule. According to the Notice, if a listed company's stock trading is suspended due to significant assets reorganization, the exchange will start the procedures for examination on the secondary market and urge the listed company to provide the list of insiders of inside information and the memorandum of trading progress. Besides, the exchange will report suspected issues or clues involving insider trading to the inspection bureaus of the CSRC through direct channels and take on continuous regulation on stock trading in the secondary market in all the follow-up periods.

Secondly, the Notice highlights the obligation of reorganization-involved companies for information disclosure. If a listed company is put on file for investigation by the CSRC or judicial authorities for being suspected of insider trading in the reorganization, it shall timely disclose the case filing and the risk alert on suspension or possible termination of the reorganization as well as the resumption or termination of the follow-up reorganization progress. During the suspension of the reorganization, the listed company decides for itself whether to terminate the reorganization or not. Moreover, after the listed company applies for administrative licensing for significant assets reorganization to the CSRC, it shall timely make announcements and risk alerts if the CSRC adopts the measures of refusal on acceptance, resumption of procedures for acceptance, suspension of examination, resumption of examination, and termination of examination for its application for administrative licensing.

Thirdly, the Notice makes clear the arrangements for suspension and resumption of stock trading of reorganization-involved companies. After a listed company enters the procedures for stock trading suspension for significant assets reorganization, its stock trading shall be suspended for not more than 30 days in principle and accumulatively not more than 3 months in principle if it is necessary to postpone the stock trading resumption. Furthermore, if a listed company fails to disclose the scheme or draft of significant assets reorganization on schedule after suspension of its stock trading, it shall promise not to plan and prepare for significant assets reorganization within at least 3 months from the day of stock trading resumption. In addition, to promote the prudent policy-making of listed companies and relevant parties involved in the reorganization and prevent the abuse of the system for postponement of stock trading resumption, the listed company which fails to disclose the scheme or draft for significant assets reorganization after postponement of its stock trading resumption shall promise not to plan and prepare for significant assets reorganization within at least 6 months from the announcement day.

It is learnt that the currently released version of the Notice takes shape after the SSE revises and improves the draft version based on the reasonable opinions and suggestions taken from the market participants.