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China: Shenzhen Stock Exchange Rules

(Oct. 1, 2009) On September 15, 2009, the Shenzhen Stock Exchange issued the “Implementing Rules on Listing and Trading of Shares with Sale Restrictions of Listed Companies on the Small and Medium-Sized Enterprise Board (Amended in 2009)” (ISINOLAW Reference ID 10063503 [in Chinese],
(online subscription database, last visited Sept. 25, 2009).) The purpose of the new rules, which apply specifically to companies listed on the Small and Medium-Sized Enterprise Board, is to regulate how shares of some companies with sale restrictions are listed and traded. The provisions are effective as of the day of promulgation. (The Shenzhen Stock Exchange Issuing the Latest Rules on Listing and Trading of Shares with Sale Restrictions Listed on the Small and Medium-Sized Enterprise Board, 34 SINOLAW WEEKLY (Sept. 14-20, 2009), via email from [email protected])

The rules apply to:

  • shares issued before the initial public offering by the company;
  • original, non-tradable shares, subject to provisions on the period of sale restrictions of a listed company that has gone through equity division reform; and
  • shares of a listed company that are not publicly offered. (SINOLAW WEEKLY, supra.)

Under the new rules, in order to list and trade shares for which sale restrictions are in effect, a shareholder must apply to the Shenzhen Stock Exchange five business days in advance. The application must include a statement on the listing and trading an alert announcement about the planned transaction, and other documents as required by the Exchange. (Id.) The statement itself must contain:

(1) a description of the shareholding of the relevant shareholder and information about custody;

(2) information about the fulfillment of commitments by the relevant shareholder;

(3) a statement on whether the relevant shareholder holds the funds of the listed company for non-operating purposes, and whether the listed company has any illegal guarantee for it; and

(4) the total number of the shares for which the lifting of the sale restrictions is sought, the number of the shares held by various shareholders for which restrictions on sales may be ended, and the proposed timing for listing and trading of the shares concerned. (Id.)

Once the application has been made, the company must promptly complete the relevant securities registration formalities and issue the alert announcement within three trading days. The rules detail the information to be included in this announcement, such as the total number of shares subject to the lifting of sale restrictions, and the time the listing and trading will occur. (Id.)

In addition, any owner of shares that were originally non-tradable who holds more than five percent of the total shares in a company listed with the Exchange must, if the amount that owner plans to sell is one percent of the total shares of the company involved, make a public announcement within the two trading days following the sale. In addition, for each five-percent reduction of an owner's holdings in a company, the shareholder must submit a written report to the China Securities Regulatory Commission and the Shenzhen Stock Exchange, with a copy to the branch of the Regulatory Commission in the place where the company does business. This report must be sent within three days of the decrease in holdings. (Id.)

The Shenzhen Stock Exchange can impose certain sanctions on listed companies and their shareholders that violate these new rules. The sanctions include, among other possible actions, written warnings, trading restrictions, circulated notices of criticism, and open condemnations. (Id.)