Q: Recently, the market has paid close attention to stock trading suspension and resumption of listed companies. We notice that the Shanghai Stock Exchange (SSE) has achieved evident results in consistently strengthening regulation in this aspect. Could you share with us more details in this regard?
A: In recent years, the SSE has attached great importance to strict regulation of stock trading suspension and resumption, both in rules arrangement and daily regulatory practice. Problems focused by the market and investors, such as premature suspensions, excessive suspensions and prolonged suspensions, have gradually been relieved.
1. The number of stock trading suspensions in the SSE market remains at a low level.
Investors pay close attention to trading suspension and resumption because such situations are relevant to whether stocks of listed companies can be traded or not. In particular, during the recent market correction, the market was concerned that there might be concentrated trading halts by listed companies to avoid a price fall. In this regard, the SSE took corresponding regulatory measures immediately in accordance with the laws and regulations, and the number of trading suspensions in the SSE market has remained at a low level. As of 9 August 2018, in the SSE market, the number of listed companies in trading suspension had been reduced to 45, taking up only 3.1% of SSE listed companies. This number has come close to the average level of oversea markets. Such an improvement has been recognized by the market and investors. As a matter of fact, the SSE has embarked on regulating trading suspension and resumption before the recent market correction. As early as in 2014, under the guidance of China Securities Regulatory Commission (CSRC), the SSE issued specific regulatory rules on trading suspension and resumption, which were further amended in 2016. In terms of mechanism design, the major goals are to reduce reasons for trading suspension, shorten the length of suspension and strengthen requirements of information disclosure. As a result of regulation over the past years, the daily average numbers of listed companies that suspended trading in 2016 and in 2017 were 74 and 69 respectively, and that of YTD 2018 was 73. Over the past three years, the suspension number has remained stable and at a low level for a long period. In particular, large cap blue chips rarely suspended trading. Over the past three years, among companies that suspended trading for over 10 trading days, only 6 companies were valued over RMB 50 billion and 2 companies valued over RMB 100 billion.
2. The SSE persists in removing unnecessary functions assumed by trading suspension and resumption while upholding the principle of phase-by-phase disclosure.
In the process of strengthening regulation on trading suspension and resumption in recent years, the SSE followed the requirement of “comprehensive and stringent regulation in accordance with the laws”, mainly upholding two principles: 1) Unnecessary functions assumed by trading suspension should be removed gradually. Basic functions assumed by trading suspension, such as to ensure fair information disclosure and to warn against material risks, should be preserved. At the same time, trading efficiency should be taken into account and legitimate trading rights of investors should be protected. Trading suspension and resumption should not take excessive functions, such as to keep information confidential, to prevent and control insider trading and to lock in trading prices. 2) The phase-by-phase disclosure mechanism for material matters should be enhanced. It is required that for long-term material matters, companies should disclose the progress at important points. The following principles should be gradually formed: “no suspension as a principle, suspension as the exception”, “short-term suspension as a principle, long-term suspension as the exception” and “intermittent suspension as a principle, continuous suspension as the exception”. In the meantime, the SSE enhances risk disclosure, guides and urges listed companies to fully disclose specific details of material matters, reveals risks in uncertainty and helps investors to understand and identify actual impacts and potential risks of material matters.
3. Achievements in reforming trading suspension and resumption can be attributed to concerted efforts by market participants.
In addressing problems such as premature suspensions and prolonged suspensions, endeavors from the regulatory authority will not be sufficient. Specifically, current reform achievements can be credited to three factors. The first factor is the understanding and support by listed companies. Trading suspension and resumption are responsibilities of listed companies themselves and in principle the application should be managed by a listed company per se. However, since trading suspension affects the trading rights of investors, it should be constrained and shall not be abused. In practice, the majority of listed companies are increasingly prudent when it comes to carrying out trading suspension and they actively maintain the trading order of the companies’ stocks. This helps improve the situation of trading suspension and resumption in the SSE market. The second factor is the consensus among market participants. Value investing has gained recognition in recent years. Market participants’ perceptions of trading suspension and resumption are converging. It is widely acknowledged that short-term and intermittent suspension should be the norm, and long-term and continuous trading suspension should be strictly limited. Such consensus provides conducive conditions for the implementation of the regulatory philosophies of trading suspension and resumption. The third factor is the improvement of market order. Trading suspensions were largely used to prevent conducts detrimental to the interests of investors, such as insider trading, speculation on themed stocks and fraudulent asset reorganization. In recent years, under the general deployment of the CSRC, as a result of consistent “comprehensive and stringent regulation in accordance with the laws”, the market order has been evidently improved; information disclosure of listed companies has been increasingly in line with the rules; investor behaviors are increasingly rational; and speculation on themed stocks has declined sharply. This lays a conducive market foundation for phase-by-phase disclosure of material matters and reduction of trading suspensions.
4. Some major challenging issues should be addressed to regulate trading suspension and resumption.
Currently, regulation of trading suspension and resumption of listed companies has reached a new stage with acknowledged achievements. Yet it should be noted that some outstanding issues and major challenges still exist. Such problems include how to deal with time-consuming issues, such as the approval of material matters, planning of asset reorganization and the disposal of substantial corporate risks. The SSE will further analyze and learn from previous regulatory practices, move forward to remove unnecessary functions assumed by trading suspension and resumption, focus on related trading suspension problems, and guide trading suspension of listed companies back to the ultimate of basic functions. The main approach is: Based on strengthening confidentiality obligations by subjects with disclosure obligations and stepping up efforts in preventing and controlling insider trading, relevant regulatory rules will be optimized in accordance with the phase-by-phase disclosure principle. For those material matters on which listed companies can make direct disclosure, trading suspension should be avoided in principle. At the same time, for matters that necessitate trading suspension, for example, highly sensitive matters that need short-term suspension, the market situation should be taken into consideration, the reasonable demand of the listed company should be fully respected and trading suspension should be conducted in accordance with the laws and regulations.
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