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China tightens restrictions on listed companies’ trading suspension

Chinese securities regulator plans to reduce the amount of time A-share listed stocks are allowed to stay suspended, addressing a longstanding concern that investors can be left stranded for months, unable to sell.

Under existing rules, companies can suspend their shares for as long as three months for “major asset restructuring,” which sometimes involve little more than shuffling assets from one unit to another.

Index compilers including MSCI made changes to suspension rules a condition for including Chinese stocks in their global benchmarks, to reduce the risk that investors will be unable to trade when they want.

The China Securities Regulatory Commission (CSRC) said, compared to internationally mature markets, trading halts in China are still too frequent and too long.

While the regulator didn’t specify what the new maximum halt length will be, nor when the new rules will be introduced, it did say that shares should not be suspended during a company’s bankruptcy restructuring period.

Stock exchanges may halt processing applications for suspension of listed companies’ shares according to market conditions even if extremely abnormal situations occur in trading, to maintain the continuity of market transactions, according to the guiding released by the CSRC.

In other words, exchanges have the right to refuse suspension applications for listed company shares just because the stock market experiences unusual changes.

Back in April, the Shanghai Stock Exchange publicly stated that it would not approve any suspension in principle if major issues in listed companies were directly disclosable.

A listed company must disclose the specific information about the circumstances of suspension events in stages and it must not arbitrarily apply for a trading suspension on the grounds of uncertainty of relevant events nor seek to skirt confidentiality obligations to third parties by applying for trade suspensions.

The regulator has tightened requirements for information disclosure related to trading suspension and resumption to investors.

Stock exchanges must establish rules on time allowed for stock suspension, elimination of component stocks of indexes and information disclosure system during suspension, according to the CSRC’s announcement.

While Chinese companies have been known to halt trading to buy time with creditors, such suspensions have been rare during the latest selloff. Halted stocks amounted to about 2 percent of the nation’s public companies on Wednesday, compared with 6 percent at the end of last year.

Stocks suspended 50 days or more are rejected or dumped from benchmarks under index providers’ rules. ZTE Corp.and China Hainan Rubber Industry Group Co. were among five suspended stocks excluded from the MSCI China Index in May.

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