(Yicai Global) Nov. 7 -- The China Securities Regulatory Commission issued guidelines with immediate effect yesterday that changed the suspension system for listed companies.

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, the guiding opinions mandate. 

An exchange thus has the right to refuse suspension applications for listed company shares just because the stock market experiences unusual changes.

The guidelines seek to shorten the suspension periods to increase market liquidity and dislodge holdouts that have dug in their heels and keep their shares out of play, leaving investors holding the baby. The Shanghai and Shenzhen stock exchanges had 31 companies that had suspended trading for more than 30 days as of yesterday, the Securities Times reported.

Under current rules, firms may suspend their shares for up to three months for 'major asset restructuring,' Bloomberg News reported. Nearly half the market ground to a stop during the 2015 crash, per the report. 

Changes in the stock suspension system are predictable. The Shanghai Stock Exchange publicly stated in August that it would not approve any suspension in principle if major issues in listed companies were directly disclosable. Fewer suspensions year by year will help maintain the liquidity of the A-share market, a study by Jinan, Shandong province-based Zhongtai Securities finds.

The opinions mainly cover four areas.

Basic Right

First, they enshrine the basic principle of listed companies' right to trading suspensions and resumptions to maximally protect trading opportunities. They clearly express a preference for non-suspension, short-term suspensions and intermittent suspensions, while suspensions, long-term suspensions and continuous suspensions are to be exception.

A listed company must disclose the specific circumstances of suspension events in stages based on the principle of timely disclosure once a major occurrence arises. It must not arbitrarily apply for a trade suspension on the grounds of uncertainty of relevant events nor seek to skirt confidentiality obligations to third parties by applying for trade suspensions.

Second, the opinions shorten suspension periods to enhance market liquidity and further curtail the maximum suspension period for major asset reorganizations and make clear that shares are not in principle subject to suspension during bankruptcy reorganization. 

A listed company's shares must, however, stop trading when the CSRC-appointed review board for mergers, acquisitions and restructurings examines them. The exchange must then compel a resumption of trading if the stock does not restart within the prescribed time.

Third, the opinions stiffen requirements for information disclosure related to share suspension and resumption to clarify market expectations. They propose to improve the information disclosure standards at the start of suspension, clearly list items for information disclosure at the key stage of the suspension period, and strictly require listed companies to fulfill their information disclosure obligations in cases of compulsory suspension and resumption.

Finally, the opinions direct that stock exchanges must revise and improve the specific rules for stock suspension and resumption in accordance with the guidelines and conduct good self-disciplinary management and provide sound services related to the suspension and resumption of trading.

Also, stock exchanges must establish a stock suspension time and component stock index elimination mechanism and suspension information disclosure system, regularly announce to the market the listed companies' ranking in suspension frequency and duration and urge them to take other measures to reduce suspensions.

Editor: Ben Armour