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Stock exchange rules to be tightened

By Cong Mu (Global Times)

08:06, May 21, 2012

The Shanghai and Shenzhen stock markets completed their respective public opinion surveys on drafts of new delisting requirements yesterday, and the exchanges are expected to enforce stricter rules for listed companies in a bid to improve market fairness.

Compared with the existing rules, there will be additional, specific requirements on stock performance of the listed companies, as well as for their financial health, China National Radio reported yesterday.

Shanghai Stock Exchange and Shenzhen Stock Exchange both plan to delist companies that show negative shareholder equity for two consecutive years; or whose operating income is below 10 million yuan ($1.6 million) for four straight years; or whose accumulated transaction volumes over 120 consecutive trading days are under 5 million shares; and whose daily closing price is below 1 yuan per share for 30 consecutive trading days, the report said.

"The new delisting rules aim to improve the quality of listed companies and strengthen protection for investors. But for them to be effective, there should be not only stricter supervision by the regulators, but also more supervision from the public and more involvement by the media," said Li Yongsen, a researcher at the Financial and Securities Institute of Renmin University of China.

There should also be better rules, such as stricter disclosure requirements and laws that make it easier for investors to get compensation when the exchange terminates a company's continued listing as a result of its fraudulent practices, Li said.

There are already 41 listed companies whose shareholder equity is in the red according to their financial statements for the 2011 fiscal year, and the trading of nine of them is already being or about to be suspended, China Securities Journal reported on May 2.

Yunnan Green-Land Biological Technology Co is one of the companies at risk. It was found guilty in December by Kunming Guandu District People's Court of intentionally inflating profits from expected business revenues based on false orders. The company did so to meet the requirements of an IPO in Shenzhen, from which it raised 21 million yuan, according to its prospectus.

The company was fined only 4 million yuan, far less than its IPO proceeds, and none of its executives received any financial punishment, Xinhua News Agency reported in March.

The case was reopened in Kunming Intermediate People's Court with additional charges of counterfeiting financial documents and intentionally destroying accounting records. The trial concluded last week, but without a verdict yet.

Compared with the delisting regulations overseas, the Chinese requirements are still more lax, Li said.

Instead of two consecutive years, NASDAQ requires that a company must keep its shareholder equity above $10 million for any fiscal year to qualify for continued trading.

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