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Major Illegal Delisting: A Zero Tolerance "Hard Battle" of the Times

Date: 2021-12-03
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The 'new year' of the first year of the implementation of the new delisting regulations is coming, and the listed companies with poor operation and facing the pressure of shell preservation enter the tense period again. Last week, the shell preservation actions of * ST Chinese capital and * ST Xinyi companies in Shanghai may be 'eliminated' by the newly introduced revenue deduction rules. However, this tension not only comes from the urgency of time, the tightening of rules and strict supervision, but also affects the sensitive nerves of the market again because of major illegal delisting. Last weekend, * ST Xinyi, * ST Jitang and * ST Vajra also prompted the risk of major illegal delisting. If the forecast becomes a reality, there will be three major illegal forced delisting cases in 2021.

The 'three cases a year' seen by the market is by no means accidental in the public eye. It means that securities regulatory law enforcement will polish the sword of 'zero tolerance' with the hard bone of major illegal delisting. The tide of deepening the reform of the capital market under the registration system is unstoppable, and the sediment it arouses is destined to be brought to the exit of delisting by the ocean current of survival of the fittest.

To: from three cases in five years to three cases in one year

Since the alarm of major illegal delisting was sounded for the first time in late October, * ST Jitang and * ST Xinyi immediately opened the continuous limit falling mode, * ST Jitang once entered the RMB 1 delisting window period. Even if the stock price rebounds subsequently, it is difficult to escape the 'label' of the cheapest A shares in the two cities: as of press time, * ST Jitang and * ST Xinyi closed at 1.14 yuan and 1.41 yuan respectively, ranking first and third in the lowest A shares in the two cities.

If you don't get out, you'll hit it. As the most deterrent delisting indicator, this 'attack' of major illegal delisting coincides with a new opportunity: the first year of the implementation of a new round of delisting system.

In the early stage of the birth of the major illegal delisting mechanism, there is always a period of time difference from the establishment of standards to the emergence of cases. The delisting system reform in 2014 added the concept of major illegal delisting for the first time, including fraudulent issuance and major illegal information disclosure. However, it was not until the emergence of Boyuan investment in Shanghai stock market in 2016 that the first major illegal delisting company of a shares was realized. Until the next year, Xintai Electric's delisting filled the 'vacancy' of fraudulent listing. In 2018, the delisting standards for major violations were improved again, which defined four major violations of securities under the following four circumstances: fraudulent issuance of listed shares, fraudulent issuance of restructured listed shares, annual report fraud to avoid delisting and other circumstances recognized by the exchange, and added major violations of social and public safety. In 2019, Changsheng biology was delisted due to endangering the safety and interests of the public. From 2014 to 2019, major illegal delisting gradually opened up the operation of the rules from paper to reality with 'three cases in five years'.

Since then, the securities law enforcement and investigation efforts have been continuously upgraded. Jinya technology, Qianshan pharmaceutical machinery and other companies have successively sounded the 'alarm' of major illegal delisting. Kangdexin and * ST Sitai have also been delisted after being investigated and dealt with, but they have finally been delisted when the listing has been suspended, and the moment when the companies with serious fraud are quickly cleared has not been seen, It is a pity to crack down on securities violations and purify the market ecology.

The implementation of a new round of delisting system has made the major illegal delisting mechanism in the quiet water for many years surge again. In terms of standards, the 'quantitative index for delisting of major financial fraud' is newly added. Together with the previous four situations, multiple dimensions 'lock' major illegal securities companies. What is more striking is that the time from 'uncovering the cover' to delisting has been greatly compressed. Once the company receives the administrative punishment decision or the effective judgment of the court, the trading of the company's shares on that day will be suspended and 'frozen' immediately, waiting for the exchange to make a decision to terminate the listing within 15 trading days. The backward movement of the suspension time point ensures the trading opportunity for investors to 'vote with their feet'. Because the suspension of listing and resumption of listing are no longer set, the process of withdrawing from the market after obtaining the 'trial' is greatly simplified, and the serious illegal companies are prevented from 'staying' in the capital market for a long time.

For a time, all companies filed for investigation for violating securities laws and regulations felt the chill of 'zero tolerance', especially for companies with serious violations and 'registered' in the regulatory office for many years, their major illegal delisting was a 'big alarm'. Therefore, only in the first year of the implementation of the new delisting regulations in 2021, three companies that have been filed for investigation * ST King Kong, * ST Xinyi and * ST Jitang have successively issued the advance notice of administrative punishment of the CSRC. The facts identified are likely to trigger the conditions of 'Annual Report fraud delisting', and the major illegal delisting in the first year of the new round of delisting system reform may arise from these three companies.

From three cases in five years to three cases in one year, with a new round of revision of delisting rules, major illegal delisting has also accelerated into a new policy window period and ushered in a new breakthrough in the implementation stage.

Shi Cheng: we should 'diversify the entrance' and 'smooth the exit'

*ST company is not only facing the opportunity of policy reform. The modification of delisting policy alone is not enough to accelerate the gear engagement of major illegal delisting. If we only trace back the evolution of major illegal delisting mechanism, we can not explain why the major illegal delisting launched in 2014 did not accelerate until nearly two years. Major and important cases were repeatedly seized, and misdeeds companies were frequently 'uncovered'.

It can be found that the timeline of a number of major cases in recent years is highly coincident with the reform of the registration system. The effectiveness of 'diversified imports' makes 'smooth exports' increasingly urgent. The capital market can not only have the registration system of 'only entering but not leaving'. It is also the common voice of the industry to increase the clearance of listed companies with serious violations.

Among them, the most intuitive is the rapid progress in the speed and strength of securities inspection and law enforcement, which provides strong support for major illegal delisting. In 2020, the CSRC investigated 59 illegal acts such as financial fraud of listed companies, accounting for 23% of information disclosure cases, and transferred 21 suspected criminal cases to the public security organs. In 2021, the momentum of strict, rapid and heavy investigation was even more obvious: in the first half of 2021 alone, the CSRC has transferred 119 suspected criminal cases and clues to the public security organs, and 266 subjects involved, an increase of more than double over the same period last year. Meanwhile, the CSRC also promptly copied 17 major cases to the procuratorial organs. Supervision and law enforcement is like a watchman who will never be absent. Violations of information disclosure are always in sight.

In a broader dimension, cracking down on major securities violations is a 'hard provision' and 'hard fist' of legislation and law enforcement. The opinions on strictly cracking down on illegal securities activities in accordance with the law, issued in July this year, as a special document on cracking down on illegal securities activities jointly issued in the name of the central office and the State Office for the first time in the history of the capital market, has become the 'supreme declaration' of 'zero tolerance' for illegal securities crimes. In October this year, the Supreme People's Procuratorate, the CSRC and the Ministry of Public Security issued a circular on the special law enforcement action against securities violations and crimes, which spread all over the market. There were 19 major typical cases deployed for investigation and handling, and among the seven cases handled by the procuratorial organs, there were two cases of financial fraud.

From top-level design to micro cases, from the securities system to all sectors of society, it has become the most widespread consensus to crack down on major securities violations. The potential energy accumulated by this force makes 'major illegal companies should retreat' a joint force.

Promising: dare to fight a 'hard battle' in a frontal confrontation

When the situation becomes, we should work hard for it. Every step of the major illegal delisting mechanism aimed at the 'most difficult to withdraw' groups also needs the active role of regulators to promote it, and grind out the 'hardness' of strict law enforcement with the 'difficulty' of major illegal delisting.

Recently, * ST Xinyi, who tried to test the bottom line of revenue deduction rules with '0 yuan acquisition', undoubtedly reflects a layer of difficulty: the groups 'targeted' by major illegal delisting are 'hiding dirt and accepting dirt', and a number of bad companies have rich 'struggle experience', which brings confrontation and resistance to the promotion of major illegal delisting. Many households with delisting difficulties have experienced the manipulation and abandonment of the capital system, and have no strength and capital to revitalize their main business, nor capital to seek industrial cooperation and introduce war investment. For example, * ST Xinyi has not been taken off since 2014, becoming the most 'old' St. Since its bankruptcy reorganization in 2014, due to the inconsistency and vagueness of information disclosure, regulatory inquiries are like 'routine', which is undoubtedly the listed company that received the most inquiry letters in the same period.

Another difficulty is that the market has not completely given 'poor companies poor prices'. Although the market-oriented method of 'face value delisting' eliminated a number of ST companies, due to the 'inertia' of the market for concept speculation, the price mechanism transmission of inferior companies 'abandoned' by the market is not obvious. Face value delisting will not work for every order, and it is more necessary to 'face to face' with the company in case of major illegal delisting. If unwarranted information disclosure is illegal, *ST Tiancheng, the company's fund raising funds occupy illegal security guarantee, the Commission's investigation and management risks are all in one. In May and August, the price of Baijiu liquor must rise. Until mid October this year, the controlling shareholder and actual controller were transferred by the public security department to the procuratorate for examination and prosecution, and the company's share price was 'beaten back to its original shape'.

There is another layer of 'difficulty' because the motivation to avoid delisting is strong and the means are more and more hidden. In the era of 'rare goods' of shell resources, it is a conventional operation to 'turn a sparrow into a phoenix' or avoid delisting by means of backdoor, major asset acquisition and structural transactions. Now, the means tend to be more hidden, and it is difficult to find until the time of 'uncovering the cover'.

For example, when * ST Jitang backdoor hops, the market value of the shell company has reached billions of yuan. The high backdoor cost has pushed up the transaction valuation and opened the 'Pandora' box of financial fraud and false disclosure. From 2017 to 2019, the company falsely increased its net profit by means of fictitious sales and procurement business by RMB 701 million, RMB 608 million and RMB 299 million, accounting for 120.65%, 107.61% and 226.52% of the net profit disclosed in the current period respectively. Companies that seem to have fulfilled their performance commitments have actually fictitious businesses in key links such as procurement and sales for three consecutive years, which can be said to be typical of systematic and whole chain fraud.

Although the positive contest is a 'hard battle', the pace of delisting reform will never and will never stop. The alarm of major illegal delisting has undoubtedly announced such a determination: the 'zero tolerance' sword of securities supervision is waving to those long-term confused accounts, protracted plans, complex bureaus and networks of concealment, uprooting the past of those who should quit but do not quit, Together with the nostalgia for the capital market and unrealistic thoughts, they will all be taken away.

 


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