Capital Market " Import " How To Do The Registration System Reform?

With the gradual normalization of the delisting, what changes will the A share delisting and market performance take? The early A share delisting standard is based only on profit and loss indicators.

China's delisting system began in 2001.

In February 23, 2001, the China Securities Regulatory Commission issued the implementation measures for the suspension and listing of the loss companies, and China's delisting system was formally implemented. At this time, the profit index was used to judge the company's delisting criteria.

The former life of the delisting system

The listed companies generally experienced ST, *ST, and suspended listing, but after the compulsory delisting system started, the listed companies could directly announce the stop listing and finally come to the end of the listing.

In accordance with the Listing Rules of Shanghai and Shenzhen stock exchanges, the stock exchange will decide whether to terminate the listing within 15 trading days when the listed company shares meet the criteria for terminating the listing.

After the stock exchange has made the decision to terminate the listing of the listed company, the company's stock has entered the delisting and finishing period since the 5 trading day is full. The stock market will terminate after the expiration of the delisting period of the 30 trading days.

The listed company should do relevant work in time when the stock is terminated, so as to ensure that 45 OTC markets can be pferred to the national OTC market or the qualified Regional OTC market.

The delisting system is legalized to improve the implementation of delisting.

In 2014, the China Securities Regulatory Commission issued a number of opinions on reforming, improving and strictly implementing the delisting system of listed companies, setting up a system of mandatory delisting of major illegal companies and perfecting the delisting system.

The supervision of the new chairman of the SFC is "supervision in accordance with the law, strict supervision and comprehensive supervision". It pays more attention to preventing risks and increasing supervision over the shell speculation. In June, the SFC made public comments on Amending the management measures of major assets reorganization of listed companies, which made it more stringent on the backdoor market, blocking the loopholes in the system related to backdoor arbitrage.

In March 2016, *ST Bo Yuan announced that the company was about to terminate its listing on suspicion of illegal disclosure. It became the first company to be forced to withdraw from the market because of its violation of the letter.

In July, Xin Tai Electric was punished by the securities and Futures Commission for fraud and information disclosure. It became the first company to be forced to withdraw from the market because of fraud, and could not be re listed after it was terminated.

Regulators' tolerance for illegal activities in the capital market has been reduced, and the mandatory delisting will be normalized. Investors should be alert to the risk of delisting and guard against landmines.

The strong retirement system lays the foundation for the implementation of registration system.

In March 15th this year, the SFC emphasized that the registration system was the top-level design for the capital market reform in the third Plenary Session of the 18th CPC Central Committee. The registration system will definitely be implemented, but at present, it does not have the conditions for the introduction.

Registration system slow push the direct heating A shares speculation shell Market, and even induced a large number of stocks to return to A shares.

In May, the market rumors said that "the SFC intends to suspend the stock return to A shares". The securities and Futures Commission immediately said that it is necessary to conduct in-depth analysis of the possible impact of such enterprises on the return of A shares through IPO, merger and reorganization.

The current registration system is the only way to solve these strange phenomena. However, the promotion of registration system requires a strict delisting system as a backing. It is necessary to clear out the capital market from illegal counterfeiting and poorly performing companies, purify the capital market environment, and ensure the smooth export of capital market, so as to better promote the registration system reform as the "entrance" of the capital market.

Take Taiwan as an example, in 1988, the Taiwan area began to implement the delisting system, including full payment, stop trading and termination of listing. In the same year, Taiwan began to introduce registration system, stock issuance examination and approval system and registration system. Until 2006, the Taiwan area revised the securities trading law again, and the stock issue examination and approval system was completely and completely pferred to the registration system.

The strong retirement system is good for curbing irrational speculation.

Because China's delisting system is not perfect, shell companies still sell shell expected to enjoy the shell valuation premium, which results in the high price earnings ratio of small and medium capitalization companies in A shares, while the valuation differentiation of low price earnings ratio of large capitalization companies is a strange phenomenon.

According to the size of the company's market capitalization at the beginning of each year, the stock will be divided into the largest share of 25%, the 25% of the middle and large enterprises, the 25% of the small and medium size, and the minimum 25%, and the performance of the four types of companies will be calculated.

At the beginning of 2007, the company that bought the market with the lowest market value at the beginning of each year changed hands once a year. The combination has risen to 27 times.

On the contrary, if the company that buys the largest market share of the market value is only 2.2 times up to now, and the Shanghai Composite Index has only increased by 36% during the same period, it can be seen that the smaller the market capitalization is, the higher the price of the shell Market, the better the stock price in the two market.

The shell companies with asset restructuring expectations are encouraging, while the blue chips with stable performance are mediocre. In addition, according to the free market capitalization, the A share market accounts for 50.4%, while in the US, the ratio of the S & P 500 index investor structure is only 14.1%, which helps to enhance the market speculation and neglect the long term market.

A shares are difficult to integrate with the international market.

How does the strong retirement system create different delisting?

The level of the delisting rate will be consistent with the change of industrial life cycle.

We define the number of listed companies every year or the number of listed companies at the end of the year as the delisting rate.

Historically, the delisting rate of emerging market stocks is much lower than that of developed countries.

Although A shares have already established a delisting system, there are only 88 delisting companies in A shares, and the overall delisting rate is low.

From 2003 to this year, the average rate of delisting is only 0.36%, while the average annual delisting rate for US stocks is 7.37%.

A shares are mostly "stop but not retreat", which do not conform to the market rule of survival of the fittest.

However, blindly raising the rate of delisting is not desirable. Delisting is more a means to maintain market order rather than a goal. The rate of withdrawal should be in line with the changes in the life cycle of the industry.

Enterprises entering the recession can opt out or realize pformation. For example, in the era of Internet bubble, the emerging technology industry in the United States is attacking traditional industries, and its development space is squeezed, leading to a higher overall delisting rate.

The "13th Five-Year plan" outline put forward that we should deepen the public innovation, vigorously develop the third industry, and realize the pformation and upgrading of the economic structure.

In 2015, the contribution of the third industry to GDP reached 57.4%, an increase of 10 percentage points over the same period in 2014. Under the background of rapid economic upgrading, the development prospects of the listed companies in the recession period are dim and the profitability is weak. The more suitable choice is delisting or pformation.

After all, the most important function of the stock market is financing. The purpose of the delisting system is to eliminate backward production capacity, to finance blood pfusion for the enterprises with the prospect of development, and to avoid the phenomenon of "bad money drives out good money".

Under the mandatory delisting initiative to withdraw the market share will increase.

From the type of delisting, A shares take the initiative to withdraw from the market (such as privatization, suspension of disclosure of information, pfer boards, etc.), because the financial indicators are not up to standard and choose to withdraw from the market can not be strictly referred to as active delisting, the proportion is not high.

From 2001 to now, the proportion of companies that choose privatization and suspend disclosure information to delisting is only 11.8% and 3.5%. Under the strict auditing and issuing system, the high valuation level of A shares is the main reason for lowering the willingness to withdraw.

In the mature international market, the active delisting is even higher.

Data show that between 1998 and 2007, about half of the NASDAQ delisting enterprises in the US were active delisting, while the NYSE took the initiative to withdraw 67% of the market, and from 2001 to 2013, about 70% of the UK's active delisting.

In the final analysis, delisting is a business choice to measure costs and benefits. Delisting is also conducive to reducing business costs and allowing management to focus on long-term development of enterprises, reduce agency costs and reduce disclosure of sensitive information.

With the advance of the legal process of compulsory delisting, the market will no longer give a high premium valuation to companies with delisting risks. When the earnings of listed qualifications are reduced, the initiative to withdraw from the market will be a more sensible choice for more enterprises.

The excess returns of sub shares are getting smaller and smaller, and the backdoor listing sector is hard to get excess returns.

Since the establishment of the "mandatory delisting system of major illegal companies" in October 2014, a total of 8 listed companies in the A share market have been delisted, of which 4 have been re listed through merger and absorption. *ST double and Guo Heng have been delisted for 4 consecutive years of losses. They received the notice of withdrawal from the listing on May 15 and 21, 2015, and were forced to withdraw from the market because of the violation of the letter, and received the notice of exchange in March 21, 2016; Xintai electric was forced to withdraw from the market because of fraud.

In order to consider the short-term impact of the withdrawal of the strong retirement system on the market, we take the three companies listed as the starting point on the announcement of the termination of the listing on the exchange, and take the CSI 500, which represents the medium and small market capitalization, as the reference benchmark, to examine the relative gains performance of the new stock market and the backdoor listing section in the next 3 months.

In the 3 months before the announcement of the listing of the Hong Kong stock exchange, the excess earnings of the new shares and the backdoor listing sector were 165% and 30.8% respectively, and the latter 3 months were 108.8% and -3.7% respectively. In the 3 months prior to the announcement of the Bo Yuan's listing, the excess profits of the new shares and the backdoor listing sector were 96% and 4.3%, respectively, and 3 months after that were 46.5% and -3.2% respectively.

It can be seen that after the delisting incident, the excess earnings of the new shares are less and less, and the backdoor listing sector is hard to get excess returns.

In the final analysis, sub shares are also potential shell companies. Their valuation includes premium on shell resources, resulting in the A share price earnings ratio far higher than that of mature markets such as Europe, America and Japan.

When the strong retreat system opens the delisting gate, the premium valuation of shell resources shrinks, which makes the valuation of the newly issued new shares narrowed and the excess return of the new shares is getting smaller and smaller.

The backdoor listing sector includes listed companies that have borrowed shell and rumors will backdoor. After the delisting event, the enthusiasm of the market for shell companies will decline.

The excess revenue of shell resources companies has shrunk.

In the backdoor listing, the proportion of equity held by the backdoor party depends on the value of the injected assets and the market value of the shell company.

The smaller the market value of general shell companies, the higher the proportion of equity held by the backdoor party after the backdoor reorganization, and the lower the cost of acquisition.

The more decentralized the ownership structure is, the weaker the controlling power of the original majority shareholders is, and the new shareholders will be in a more favorable bargaining position in the process of backdoor borrowing.

The profitability of the shell company is mostly weak, and the company is forced to sell its shell, and the probability of successful backdoor trading is even higher.

From this, we screened the shell resources company through the following criteria: the total market value is less than 5 billion yuan, the ROE for two consecutive years is less than 5%, the largest shareholder's shareholding ratio is less than 50%, and the former ten largest shareholders share less than 60%.

Through this standard, we screened the target of the shell company in the 3 months and the day before the *ST double, Guo Heng and Bo Yuan announced the termination of the listing, so as to calculate the excess returns of the six sets of shell resource targets in the next 3 months, which is 500 relative to that of the central card. Thus, the average excess returns of the shell resources targets were 17.6%, 20.2% and 26.1% within 3 months before the announcement of the listing of the *ST group and the Yuan Heng Yuan.

After the delisting incident, the excess revenue of shell resources companies narrowed significantly.

The strong retirement system will increase the risk and difficulty of shell selling, enhance the execution of the delisting system backed by legalization, and investors' attitude towards shell companies should be more cautious to avoid stepping on landmines.