China’s securities regulator has applied stricter rules to the suspension of listed firms from the nation’s stock markets – with figures showing that the current number of suspensions stands at its highest level for a year.
According to the China Securities Regulatory Commission (CSRC), large corporations and their smaller counterparts have both been responsible for the spike.
On 28 July, the regulator announced via spokesman Chang Depeng that its new rules would “continue to improve trading suspension management to maintain market order and protect investors’ rights”.
Chang provided no details on exactly which remedies the new rules encapsulate.
Nonetheless, he pointed out that in 2016, the average daily number of trading suspensions by mainland-listed firms saw a year-on-year drop of about 20%.
In addition, he noted, suspensions shortened, with more than 90% of pauses for major asset-restructuring efforts lasting no more than three months.
Those figures, he said, indicate that China is already doing better on the issue.
However, just three days after Chang’s announcement, a statement from major indexing operator MSCI suggested that the CSRC has not been as effective on trading suspensions as it says it has.
The organisation said that it would pull from its index any Chinese firm whose shares are suspended for more than 50 days – with reinstatement blocked for at least the following 12 months.
Under its new rules, companies from every territory except China will be able to appeal for earlier reinstatement via a special review procedure.
MSCI’s head of research for the Asia-Pacific region, Chia Chin Ping, explained that the organisation had adopted this dual-treatment policy because “the trading suspension of China companies is more widespread and lengthy in duration compared to other markets”.
Chia noted: “This suspension issue in China is highly unique, both in number and frequency. The issue is that, in a freely accessible market, investors want to be able to get in and get out.
“If a market falls, they still want to be able to get out. But if you suspend, and investors cannot get out, that will be a problem.”
He added: “The 12-month rule is applied to ensure that the index maintains a high level of investability and minimises the impact of suspension on global investors’ portfolios.
“We hope it will also help send a signal to companies so they realise there is a cost associated with prolonged suspension.”