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In order to implement China Securities Regulatory Commission’s (“CSRC”) Decision on the Amendment to the Opinions on Reforming, Improving and Strictly Enforcing the Delisting System for Public Company (hereinafter referred to as the Decision), improve the capital market function, upgrade the quality of public companies, and safeguard the rights and interests of investors, the SZSE formulated Implementation Measures on Forced Delisting of Public Companies Due to Major Violation of Law (hereinafter referred to as the Measures), and solicited public opinions thereof.
As the basic system of capital market, delisting system for public companies plays a significant role in optimizing the resource allocation, promoting the survival of the fittest and improving market mechanism. In 2014, CSRC released Opinions on Reforming and Improving and Strictly Enforcing of the Delisting System for Public Company, and implemented forced delisting of public companies due to major violation of law. These played a positive role in punishing seriously unlawful actions and safeguarding the capital market order. In 2017, abiding by the relevant laws, the SZSE terminated the listing status of XTEC and set up compensation fund to offset the loss of entitled investors. XTEC is the first public company forced delisted due to the fraud issuance. The SZSE’s action has attracted public attention from the markets and set up a good example for the following-up deepening reform. New Management Measures on Stock Exchange has made a series of adjustment to strengthening the supervision function of stock exchange. The Decision has further strengthened the major responsibility of stock exchange in making decision on forced delisted of public company. In order to further cater the market trend, and to follow the deployment of CSRS, the SZSE formulated Implementation Measures on Forced Delisting of Public Companies Due to Major Violation of Law, so as to improve the implantation standard and procedures of forced delisting of public company due to major violation of law, improve the operability of rules and further form the market mechanism of survival of the fittest.
Specify the scenario for forced delisting due to major violation of law
Strictly pursuant to the administrative penalty decision made by CSRC or facts and results of judicial adjudication made by the People’s court, the Measures closely circled the crucial core of whether the action of violation of law affect the continuing listing status of the listed company, highly focus on two kinds of law-violated actions such as fraud issuance, major information disclosure , specify the scenario for forced delisting of public companies due to major violation of law, and curb down the law-violation action of the public companies.
It is provided in the Measure that the public companies will be terminated listing in the occurrence of the following major violation of law: First, false record, misleading statement or omission of important information found in a listed company’s IPO application files or disclosed papers, and fraud IPO identified by penalty administration of CSRC or found guilty by the people’s court in pursuant to the Article 160 of the Criminal Law. Second, false record, misleading statement or omission of important information found in asset purchase via share offering by the listed company, and fraud share offering identified by penalty administration of CSRC. Third, false record, misleading statement or omission of important information found in a listed company’s disclosed annual report, and the audited financial indicators of the listed company in consecutive accounting years has touched upon the standard of termination of delisting that provided in the Rules on Listing of Company in according to the facts of identified by the penalty administration of CSRC. Fourth, there are false records, misleading statements or major omissions in the application or disclosure documents provided by the listed company, who have been found guilty by the People's Court pursuant to Article 161 of the Criminal Law. Fifth, the listed company has received three or more administrative penalties pursuant to Article 193 of the Securities Law by the CSRC within the last 60 months. Sixth, other scenarios that are determined by the SZSE as illegal activities based on facts, nature, circumstances, and societal impact.
Strict enforcement of forced delisting
The Measures strictly implements comprehensive and strict supervision in accordance with law, strengthens delisting of companies that commit major violation of law, clears companies in accordance with laws and regulations, and fully stimulates the vitality of the stock market by getting rid of the old and bringing in new. The Measures focuses on optimizing procedures for delisting due to major illegal in the following areas so as to improve efficiency. First, the period of suspension for listing has been shortened from 12 to 6 months in the case of major law violations. Second, strictly control the resumption of listing of illegal companies. Having been suspended from listing, any rectification, compensation, and other options for relisting are ruled out. After six months, the company shall be directly terminated from listing. Third, tighten re-listing terms for delisted companies. Companies that have been delisted due to fraud shall never apply for re-listing; as for other cases, they shall wait for five years before they can reapply for listing instead of one year previously. In order to ensure delisting to be fair, just and open, the Measures also establishes defense, hearing and review procedures to safeguard the legitimate rights of listed companies.
Smooth transitioning between the old and new regulations
In order to ensure smooth implementation of the new rules, Shenzhen Stock Exchange made corresponding arrangements to deal with issues that may occur during the transitioning period. Specifically, if a listed company has been found guilty of major default or has been transferred to the police and delisted before the new Measures come out, the original provisions shall apply. If the listed company receives administrative penalties or is found guilty by the judicial referee after the Measures are implemented, the new regulations shall apply regardless of the time when the illegal activity occurs. In other words, even if a listed company commits an illegal act before the new regulations are issued, as long as the listed company is subject to administrative penalties by the CSRC or found guilty by the People's Court after the issuance of the new regulation due to violation of the law and the Measures, the company’s stock shall be delisted.
According to the relevant principal of the SZSE, improving the mechanism of major and compulsory delisting represents a significant measure to implement the spirit of the 19th Party Congress and the National Conference on Financial Work, strengthen capacity building of financial entities to serve the real economy, prevent and control financial risks so as to ensure long-term health of the capital market. The SZSE strictly upholds Xi Jinping’s socialist ideology of Chinese characteristics, follows the overall guidance of the CSRC, strictly perform front-line supervision duties, assume the major responsibility for delisting, and lay a solid ground for building capital market infrastructure. Meanwhile, the SZSE strictly controls the delisting mechanism, follows the principle of “zero tolerance for any companies that should be delisted”, purifies market environment, maintains market order, so as to promote the long-term health of the multi-level capital market in Shenzhen.
