Caixin
Aug 13, 2018 05:53 PM
BUSINESS & TECH

Shanghai Gives Listed Firms One Less Excuse for Abusive Trading Halts

Publicly listed companies on the Shanghai Stock Exchange will no longer need to request a trading suspension for the announcement of major news. Photo: VCG
Publicly listed companies on the Shanghai Stock Exchange will no longer need to request a trading suspension for the announcement of major news. Photo: VCG

The Shanghai Stock Exchange will eliminate one of the main reasons listed companies can use to request a trading suspension, seeking to trim the number of share halts that can sometimes run for months and are often abused to avoid sell-offs during volatile periods.

Publicly listed companies will no longer need to request a trading suspension for the announcement of major news, and instead can simply make such disclosures without halting shares, according to a posting by the stock exchange on its website on Friday. Other major markets typically encourage companies to announce such news before and after the trading day begins, with some offering halts occasionally when shares become volatile due to rumors during trading hours.

The abuse of trading halts has become a major obstacle to global acceptance of China’s stock markets, with index compiler MSCI specifically citing such stoppages as a cause for concern in its landmark decision in June to include domestically traded A-shares in its indexes. Such suspensions are often used by companies as an excuse to stop their shares from sliding when bad news hits the market, and can sometimes drag on for months, leaving shareholders in the lurch.

One extreme case saw the publicly traded unit of embattled online video operator LeEco suspend its shares for nine months from April 2017 through January, as the parent company went through a debt crisis caused by an overly aggressive expansion. When trading finally resumed, the stock quickly lost more than two-thirds of its value.

The problem came to a head in 2015, when many companies suspended their shares, often citing reasons like undergoing major reorganizations, during a market meltdown that saw the main Shanghai composite index lose about 30% of its value in four months.

Since then, China’s two main stock exchanges in Shanghai and Shenzhen have taken steps to try to curb the abuse, including the rollout of a new policy in 2016 eliminating most reasons for such requests apart from major reorganizations and private placements. MSCI also said it could kick out individual China-listed A-shares from its indexes if they engage in such abuse.

Since the 2016 reform, the number of suspensions has shrunk considerably to 601 in 2017 in Shanghai, compared with 733 in 2016 and 1,254 during 2015 during the market meltdown, according to the latest Shanghai Stock Exchange posting. It said that on Aug. 3, there were 77 companies whose shares were suspended in Shenzhen, accounting for 3.64% of listed companies. As of Aug. 9, Shanghai companies with suspended shares totaled 45, accounting for 3.1% of listed firms.

Contact reporter Yang Ge (geyang@caixin.com)

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