U.S. President Donald Trump issued an executive order last November (2020) banning American investment firms from investing funds in Chinese companies located on the New York Stock Exchange (NYSE) and working with the People’s Liberation Army (PLA), forced on December 31, the NYSE to announce that it would remove (delist) the Chinese companies China Telecom, China Mobile and China Unicom (telecom industry) from its ranks.
by Thanos S. Chonthrogiannis
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On the other hand, The Chinese Regulators have found the rules-criteria that should be applied to delist from Chinese Stock Exchanges companies that the trading of their shares can pose trap-risks to investors, while discrediting the prestige of their Stock Exchanges by turning them into sound temples of effective capital placement.
By initially defining what stock exchange delisting is, we can say that it is that necessary mechanism to get companies out of the Stock Exchange that are unsuitable for investors before these companies are led on their own to obsolescence and entrap investors by losing their money in turn. It is basically a prevention mechanism.
Those companies that are candidates for delisting are those that show exceptionally low market value.
On the Chinese Stock Exchange, all listed companies are approaching a number close to 4027. However, this number of listed companies was first achieved in the past decade, when many Chinese companies were desperately seeking capital to develop their activities.
The rules for listing on China’s stock exchanges were then very lax, with the result that every type of company was listed on the stock exchange, often ignoring any rules by the relevant Chinese regulators.
Today, however, China shows that it has reached a point of maturation in terms of the size of listed companies and is looking for that regulatory framework that will give it primarily prestige on its stock exchanges.
This forces the relevant Chinese regulators to create a new more stringent regulatory framework. Those listed companies on the stock exchanges with financial problems are classified as “special treatment” abbreviated to ST before their ticket name to warn off investors.
Essentially, however, abbreviation ST acts as a signal to investors to take money from these shares. The new rules-criteria introduced therefore stipulate that:
1) If a listed company has a share price of less than 1 yuan ($0.15) for twenty consecutive days will now face automatic delisting.
2) Any companies that conceal actual data on their profits by presenting notifiable high profits for three consecutive years are classified in the same category.
It is certain that the process of delisting a company will now be faster than in the past, but doubts remain as to whether the number of companies that will be delisting will increase each year.
Certainly, the Chinese Regulators will not want to be strict since several listed Chinese companies are over-indebted and with many problems in their activities, and which are looking for buyers to be rescued.
If the number of companies delisting is large there is a risk that the size of the stock exchanges in terms of the number of participating listed companies will decrease drastically (regardless of whether this means it will be healthier), which will hurt the prestige of the Chinese Stock Exchanges relative to the American Stock Exchanges.
