China’s stock exchanges seek to curb overuse of trading halts amid complaints from foreign investors
- Listed companies seeking major asset revamps can apply for a maximum 10 days of trading halts, according to draft rules from the exchanges
- Suspension linked to ownership changes, general offer and stock incentive plans cannot surpass two days
China’s stock exchanges are seeking to rein in the overuse of trading suspensions among listed companies to improve trading efficiency, a move intended to encourage global index compilers to raise the weighting of the nation’s equities in their benchmarks.
Trading halts for companies that plan stock-for-asset restructuring cannot exceed 10 days and suspension for ownership changes, general offers and equity incentives will be allowed for a maximum of two days, according to draft rules released on Wednesday night by the Shanghai and Shenzhen bourses seeking public comment. Senior executives will face disciplinary action if they are found to misuse or deliberately prolong suspensions, the draft said.
Overuse of trading suspension among mainland-listed companies is one of the factors cited by international index compilers such as MSCI and FTSE Russell for why they are slow to allow Chinese stocks to represent significant weightings in their stock gauges. In the peak of a 2015 market crash that erased US$5 trillion, about 1,500 companies – almost half of the total listings on the two exchanges – had their shares suspended as a way to shield their stocks from escaping the rout.
Overseas investors have been complaining about protracted trading halts. Their buying of Chinese shares is set to hit an all-time high this month after MSCI added the stocks to its gauges in June and FTSE will do likewise next year. MSCI said in September that it is considering quadrupling the representation of Chinese equities in its emerging-markets index from 0.71 per cent currently.
“Some listed companies use trading suspensions at will, and it is mostly up to them to decide on the duration,” said Wu Kan, an investment manager at Soochow Securities in Shanghai. “In the future, they cannot do that any more. That will help to improve the efficiency and continuity of trading. And investors like us, or from overseas, welcome the news.”
The mainland’s exchanges now will crack down on the tricky use of trading halts. In cases of extreme movements on the market, the bourse will suspend the handling of suspension applications based on the decision by the China Securities Regulatory Commission or the actual market condition, they said.
Companies will be forced to resume trading if they are found to not be complying with the suspension rules or are misusing trading halts, according to the draft. The exchanges will also publicise those companies with frequent or lengthy suspensions on the reason, the time length of trading halts and the progress on their information disclosure, it said.
A total of 48 out of the 3,565 companies on the Shanghai and Shenzhen exchanges were in a suspended state from trading on Thursday, according to Bloomberg data.