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Journalist from the China Securities Journal learnt that, based on issued Guidelines on Major Assets Restructuring Information Disclosure and Trading Suspension & Resumption of Listed Companies and Notice on Further Standardize Trading Suspension & Resumption and Related Information Disclosure of Listed Companies (exposure draft), newly revised rules on trading suspension & resumption are likely to issue next week at the soonest. “Cheating restructuring” problems concerned by the market will be strictly controlled. Meanwhile, new rules will restrict the random trading suspension & resumption or long-term suspension in the A-share market, which is regarded as a move to sweep out the obstacles for A shares to be included in the MSCI index.
Detailed disclosure in different phases
“In January and November 2015, Shanghai Stock Exchange (SSE) respectively issued Guidelines on Major Assets Restructuring Information Disclosure and Trading Suspension & Resumption of Listed Companies and Notice on Further Standardize Trading Suspension & Resumption and Related Information Disclosure of Listed Companies (exposure draft), which were revised last week, and new ones will be issued in next one or two weeks. Shenzhen Stock Exchange will simultaneously do so,” said related officer in the SSE recently.
It learnt that, in the coming new rules, “cheating restructuring” problems closely concerned by the market will be strictly controlled. Since 2013, domestic merging & acquisition market has been extremely active, and at the meantime, the number of failures sharply surged. There were many “cheating restructuring” cases with a purpose of pushing high stock price. Market insider told the journalist that “trading suspension and resumption have already been abused by listed companies. Stock price of some companies greatly increases after they announced restructuring pre-scheme and resumed the trading, and substantial shareholders and related parties decrease the shareholdings. Then, these companies announced failure in restructurings. Some even do so repeatedly to cover the arbitrage behaviors of their substantial shareholders and related parties. Such behaviors disturb the normal market order, but also bring in insider trading risk”.
“Cheating restructuring” also becomes the highlighted target under regulatory supervision. Taking SSE for example, among the three major supervision situations in 2015, besides “unfair or untimely information disclosure, misleading statement, and abuse of direct channel or performance forecast”, “delinquent placard acquisition or shareholding decrease, buying and selling of directors, supervisors and senior managers, related trading, capital utilization”, regulators will keep an close eye on “incautious trading suspension and cheating restructuring”.
For this, new trading suspension & resumption rules will introduce strict control measures, including detailing the disclosure in different phases. “If listed company suspends the trading due to major assets restructuring, it should disclose the industrial type of restructuring target in the first month. The company should further disclose the target’s detail information, if it will continue to do so in the second and third months. If the company change the restructuring target after trading resumption, we should recall whether the information on major assets restructuring process previously disclosed by the company is correct and whether it has been actually implemented or not. The regulators will carry out corresponding supervision or even inspection measures, if problems existed in the said process. Meanwhile, in terms of proactive supervision, we may also propose corresponding supervision requirements on shareholder alternation before trading suspension and restructuring, and information on the four largest shareholders,” said the SSE officer.
Clearing up obstacles for A shares included in MSCI
The coming new rules are preparation made for A shares to enter in the MSCI, according to the market. “In terms of that Shenzhen-Hong Kong Stock Connect program will be launched at any time, it is expected that the MSCI will announce including A shares in its index in June.” Sun Xianbing, analyst of Citigroup Inc., pointed out in a research report on May 16 that MSCI will announce including the A shares on 5AM of June 16 (Hong Kong Time), which will be implemented in the middle of 2017.
However, on the way to MSCI, A shares still have to sweep away some obstacles, and the problem related to trading suspension & resumption is one of them. “Random trading suspension & resumption and suspension for a long time are always the problems widely concerned in the A-share market. Especially in the stock market crash last year, over 1,000 stocks suspended the trading, seriously not meeting the international and market conventions. We know that many overseas institutions pay much attention on liquidity, and the mentioned behaviors disturb the normal market trading, but also have great impact on liquidity of the market and individual stocks. After the launch of Shanghai-Hong Kong Stock Connect program, these contradictions become increasingly serious,” said the market insider.
The issuance of new rules will clear up a major obstacle for A shares to be included in the MSCI merging markets index. Huatai Securities pointed out that it has taken nearly three years since the MSCI initiated the corresponding assessment. On June 12, 2013, MSCI started the deliberation and consultation work about whether to include A shares in MSCI emerging markets index, and began to carry out the first assessment on China’s A shares. The MSCI announced the detailed measure to include A shares and the preliminary weight on March 11, 2014. China launched the Shanghai-Hong Kong Stock Connect program in April 2014, and formally operated it in November 2014. During the annual market classification deliberation of 2014, the MSCI decided not to include A shares in the said index temporarily, but still kept it in its review list.
Entering 2015, China launched Shenzhen-Hong Kong Stock Connect program in March, but the MSCI still kept A shares in the review list in the annual deliberation in June of the same year, which needed further assessment. MSCI also proposed three problems to be improved, such as capital control, quota allocation procedure, devision on earnings right and etc. In April 2016, MSCI again searched for assessment opinions about China’s A shares, and based on the said three requirements, it further pointed out various problems, including random trading suspension of A-share listed companies and restriction on A-share derivatives in overseas market.
(XINHUA FINANCE)
