The release of new regulations to allow the delisting of companies on the growth enterprise board in Shenzhen starting May 1 dealt a heavy blow to the NASDAQ-style stock market, which nosedived more than 5 percent on April 23.
The newly revised ChiNext listing rules include 11 conditions for suspended listing and 23 conditions for delisting. These measures are quite necessary, but how to implement them is more important.
China's capital markets have some delisting regulations and some companies have been delisted from the main board of Shanghai or Shenzhen stock market. But because of inefficient implementation, the request of improving the delisting mechanism remains strong. Some listed companies have been financially bankrupted and cannot be invested in, but they still exist in the market and some even become targets for hyped speculation. A direct, thorough and clear-cut delisting system that the ChiNext spearheads should depend on strict implementation.
The delisting system should focus more on rules violations and less on the listed companies' market performance. That's to say, even if a listed company is operating at losses, it can be understood by investors as long as its disclosed information is in line with the actual condition. Poor performance should never be the primary condition for delisting while the more important premise should be violation of laws and regulations, such as violation through financial operation, failure to fulfill their duties in dividend distribution and negligence of small and medium-sized shareholders' interests. Also, regulatory bodies should examine carefully whether listed companies have taken advantage of their information to conspire with other bodies or manipulate the market.
The responsibility of disclosing information should first be shouldered by listed companies, said Guo Shuqing, Chairman of the China Securities Regulatory Commission. Intermediary agencies, including securities companies, accounting firms and law firms, should also assume corresponding responsibilities. According to the new delisting regulations, there should also be clauses on how to account responsibilities of the above-mentioned intermediary agencies.
Another highlight of the delisting regulations is a listed company that has received public denunciation from the stock exchange three times over the past 36 months will be required to be delisted. With this clause, stock exchanges have another weapon to deal with illegal corporate operations and listed companies will face more pressure from supervisory bodies.
The new delisting rules will also curb the utilizations of "shell resources," and the hyped speculations on backdoor listings in particular. A new atmosphere should be formed among listed companies that they should be proud of disclosing their real performance and be discouraged from seeking loopholes through financial operations and government fiscal subsidies.
Improving the delisting mechanism should include intensifying implementation of the new rules. In the past, companies that should have been delisted were allowed to remain because of local governments' protection.
Now, the delisting system has been improved but it may be hard to carry out. Hence, supervision reform requires administrative forces away from the listing and delisting of companies. In this way a balanced capital market can be built that companies can enter and exit in time.
This is an edited excerpt of an article published in Securities Daily
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