Transformation of the Legal Regulation Mode of Delisting from the STAR Market under the Registration System : Focus on the Proper Protection of Investors

Abstract

Delisting is an important basic system in the capital market. The registration-based IPO reform on the STAR Market provides an unprecedented historical opportunity for the reform of delisting regime. Listing creates the civil legal relationship between the issuer and the Shanghai Stock Exchange (SSE) while delisting eliminates the relationship. Specifically, the legal attribute of voluntary delisting is the termination of agreement, while mandatory delisting is the practice of agreed termination right. Delisting will have two legal effects: On the one hand, the stock of the issuer will lose the possibility of continuing to trade in the STAR Market and therefore the issuer has no subsequent obligations to obey the self-discipline management rules of the SSE; on the other hand, the stock held by investors will lose the high liquidity and tradability in the STAR Market beneficial from the listing. Consequently, investors will suffer a severe economic loss due to the delisting. The current laws and regulations expose serious distortions in the regulatory concept and deviations in the regulatory path, leading to the alienation of investor empowerment regulations in voluntary delisting into an obstructive delisting system, while efficiency-oriented regulations in mandatory delisting makes investors the undertaker of the delisting loss. In order to build a market-oriented, legalized and normalized delisting system under the background of the registration-based system, the concept and path of legal regulations for the delisting in the STAR Market need to be shifted and upgraded. In terms of voluntary delisting, the investor compensation concept can balance the interest conflicts between company autonomy and investor protection as well as satisfy investors’ requirements for being protected in an individually targeted manner. So, a shift from the investor empowerment mode to the investor compensation mode is needed. As for system construction, it is advisable to learn from the experience of Germen law, which paves a specific regulatory path with the mandatory bid rule (MBR). In terms of mandatory delisting, consideration of the fairness concept can handle the relationship between efficiency interests, public interests and private interests. Therefore, it is necessary to promote the transformation of regulatory concept from efficiency-oriented to fairness-oriented. In terms of system construction, it is appropriate to build a conventional and efficient relief system for the damage of delisting investors, which is mainly based on non-litigation procedures such as compensation in advance and order to buy back, supplemented by litigation procedures such as representative litigation. The China Securities Regulatory Commission (CSRC) is expected to take the STAR Market as a pilot to formulate the delisting reform and introduce the reformed regulatory concept and path of the STAR Market in relevant regulations. Accordingly, the SSE should adjust the delisting regime in Rules Governing the Listing of Stocks on the Science and Technology Innovation Board of Shanghai Stock Exchange (Rules). After the transformation of the delisting regulation mode of the STAR Market, the experience should be extended as soon as possible to other sectors of the capital market including the main board.