It is learnt from the Shanghai Stock Exchange (SSE) lately that to implement new delisting regulations in the “Stock Listing Rules” (the “Listing Rules” for short), the SSE has revised and improved three supporting rules for delisting, which are to be issued and put into effect today. The three supporting rules revised this time include the “SSE Measures on Re-listing of Delisted Companies (Revised in 2015)” (the “Measures” for short), the “SSE Detailed Rules on Business in Delisting Arrangement Period (Revised in 2015)” (the “Detailed Rules” for short), and the “SSE Administrative Measures on Stock Trading on Risk Alert Board (Revised in 2015)” (the “Administrative Measures” for short). Previously, the SSE revised the “Listing Rules” in accordance with the “Opinions on Reform, Improvement and Implementation of the Delisting System of Listed Companies” released by the China Securities Regulatory Commission (CSRC), and released it on October 17, 2014.
Differentiated re-listing application procedures for different delisting situations
An official of the SSE introduces that the new “Listing Rules” has perfected the voluntary delisting system for listed companies and added the system of compulsory delisting for listed companies with severe illegal acts. At present, delisting can be categorized into voluntary delisting, compulsory delisting triggered by market trading indicators, compulsory delisting caused by serious violations, and other compulsory delisting situations, and there are significant differences for different delisting situations in intention of delisting, degree of violation, degree of trouble for a company, extent of harm, and other aspects. Considering factors such as respecting and encouraging listed companies to implement voluntary delisting on the basis of their own reasonable demands and intentions and further increasing costs for serious violations, the “Measures” revised by the SSE has made differentiated arrangements in application procedures and documents for re-listing of delisted companies with different delisting situations, which are mainly included in the following three aspects:
First, different intervals are given for re-listing applications according to different delisting situations. A voluntarily-delisted company may submit an application for re-listing at any time after delisting of their stocks; a compulsorily-delisted company caused by market trading indicators shall have an interval of three months before applying for re-listing; a company compulsorily delisted for reasons other than serious violations and market trading indicators shall have an interval of twelve months before applying for re-listing; a company with compulsory delisting for serious violations shall have an interval of an entire fiscal year before applying for re-listing.
Second, a strict prerequisite has been set up for the re-listing applications of delisted companies with serious violations. The “Measures” stipulates that if a delisted company with serious violations fails to simultaneously meet an array of conditions including thoroughly rectifying the serious violations, replacing liable personnel, and making proper arrangements for bearing the compensation for relevant civil liabilities, the SSE shall not accept its re-listing application.
Third, for the re-listing applications of voluntarily-delisted companies and with regard to the listing resumption for delisted companies with wrongly-sentenced serious violations, some simplifications and differentiated arrangements have been made in application documents, review procedure, trading arrangements after re-listing, and other aspects in the “Measures”.
“Preferential Treatment” for re-listing applications of voluntarily-delisted companies
In order to encourage voluntary delisting of listed companies, respect corporate autonomy, and form the flexible market-oriented flow mechanism, the SSE has made several “preferential” measures for re-listing applications of voluntarily-delisted companies, which are mainly reflected in the three aspects of interval for application, application documents, and review procedure. First, with regard to the application interval, a voluntarily-delisted company may submit an application for re-listing at any time after delisting; second, in terms of the application documents, a voluntarily-delisted company may apply to the SSE for exemption from providing relevant application documents that the company thinks are inapplicable; third, regarding the review procedure, the SSE has halved the time for making a decision on whether to approve re-listing or not from the conventional 60 trading days to 30 trading days.
Adding prerequisites for re-listing of delisted companies with serious violations
The official of the SSE also says that the compulsory delisting of listed companies with serious violations features highlighted abruptness, harmful illegal behaviors, and high severity, which will seriously harm the interests of investors and the market development. In order to increase costs for serious violations of listed companies, maintain a sound market environment, and protect legitimate rights and interests of investors, the SSE has set up the prerequisites for accepting re-listing applications of delisted companies with serious violations.
The most important part of the above-mentioned prerequisites is that a delisted company with serious violations has thoroughly corrected the violations. In order to make the standards of the prerequisites clearer, more objective, and more operable in practice, the “Measures” has stipulated four specific conditions for the “thorough correction” as follow:
First, a delisted company with serious violations has thoroughly rectified the serious violations. For example, the company has released a supplementation or modification announcement on the matters related to fraud issuance and serious violations in information disclosure; the company has completed the responsibility investigation for the fraud issuance and the serious violations in information disclosure; and the company-related risks possibly caused by the fraud issuance and the serious violations in information disclosure have been eliminated;
Second, the company has replaced the persons liable for the violations of the fraud issuance and the serious violations in information disclosure, including the persons concerned convicted by the people's courts and the persons concerned with administrative penalties issued by the CSRC;
Third, the company has made proper arrangements for bearing the compensation for relevant civil liabilities. For example, the judgment of the people's courts related to the compensation-related matters has been implemented; with regard to the cases of reaching the settlement without any judgment, the implementation of the settlement agreement has been completed;
Fourth, the sponsor institution and lawyer hired by the company for relisting have checked and verified the cases related to the above-mentioned three conditions, and have issued the special inspection opinions clearly affirming that the company has fully complied with the above-mentioned three conditions.
Setting up self-deciding procedure about whether to enter delisting arrangement period for trading
For a delisted company in the process of major asset reorganization, the “Detailed Rules” stipulates that a company may hold a shareholders’ meeting to decide whether to end the major asset reorganization and enter the delisting arrangement period for trading. According to sources, this stipulation has mainly considered the significant impact of the major asset reorganization on the listed company. If the company’s shares enter the delisting arrangement period for trading, significant volatility in share trading is likely to occur, which is neither conducive to the market stability nor protecting the interests of investors, especially small and medium-sized investors. Therefore, it is necessary to respect the will of the company and its shareholders and allow them to decide whether to enter the delisting arrangement period by performing necessary decision-making procedures.
As for the specific arrangements, the listed company’s directorate should submit one of the following two proposals to the shareholders’ meeting for discussion: the first proposal is that shares in the company enter the delisting arrangement period and major asset reorganization is terminated; and the second is that shares in the company do not enter the delisting arrangement period and major asset reorganization is continuously propelled. The relevant proposals should be approved by no less than 2/3 of all shareholders’ voting rights present at the meeting. The company should make relevant arrangements according to different voting results of the shareholders’ meeting, either not entering the delisting arrangement period for trading and directly terminating listing or entering the delisting arrangement period for trading. Besides, for the special situation of a listed company being in the process of bankruptcy and reorganization, the company’s shares may not enter the delisting arrangement period for trading if the relevant court or the relevant bankruptcy administrator identifies that there will be a conflict between the company’s shares entering the delisting arrangement period for trading and the implementation of the bankruptcy procedure or the company’s reorganization plan approved by the court.
Improving investor suitability arrangement in delisting arrangement period for trading
One of the important purposes of setting up delisting arrangement period is to further release investment risks. Stocks entering the delisting arrangement period for trading will be delisted after the stipulated trading period expires. As there are huge risks for investment in stocks in delisting arrangement period, investors need high awareness of investment risks and high risk tolerance capacities. Thus, to fully protect the interests of investors, especially small and medium-sized investors, the SSE has added the stipulation on investor suitability for trading stocks in delisting arrangement period in the “Administrative Measures”. The “Administrative Measures” stipulates that any individual investor who applies for trading shares in delisting arrangement period shall have 2 years of experience in stock trading or above and hold the assets of RMB0.5 million or above (excluding securities and capital financed through margin trading and securities lending) in the securities accounts and capital accounts opened in his/her own name. Individual investors not meeting the above stipulation can only sell shares held by them in delisting arrangement periods but not buy them.
