Regulations regarding compulsory delisting of stocks and notes for investors
04-09-2024

Regulations regarding compulsory delisting of stocks on the securities market when necessary are extremely important, contributing to creating a fair and transparent investment environment. A thorough understanding of these regulations empowers investors to make more accurate investment decisions.

 

Regulations on compulsory delisting of stock in Vietnam

The compulsory delisting regulation is crucial, contributing to creating a fair and transparent investment environment. Accordingly, only enterprises with effective business activities, complying with legal regulations maintain long-term listings on the Vietnamese stock market.

According to the provisions of Clause 1, Article 120 of Decree No. 155/2020/ND-CP issued on December 31, 2020 of the Government detailing the implementation of a number of articles of the Securities Law (Decree No. 155/2020/ND-CP), stock of a public company will be compulsorily delisted when:

    • The listed organization revokes its public company status according to the announcement of the State Securities Commission (SSC);
    • The listed organization stops or has its main production and business activities suspended for 01 year or more;
    • The listed organization has its Business Registration Certificate or Specialized business license revoked;
    • The stock are not traded on the stock exchange (SE) within 12 months;
    • The stock are not put into trading within 90 days from the date the SE approves the listing registration;
    • The production and business results incur for 03 consecutive years or the total accumulated losses exceed the actual contributed capital or negative equity in the audited financial statements (FS) of the most recent year before the time of review;
    • The listed organization ceases to exist due to reorganization, dissolution or bankruptcy;
    • The auditing organization does not accept to conduct the audit or has a adverse or disclaimer audit opinion on the most recent annual financial statements or has qualified audit opinion on the annual financial statements for 3 consecutive years;
    • The listed organization violates the late submission of the annual financial statements for 3 consecutive years;
    • The SSC and the SE discover that the company has falsified the listing dossier;
    • The listed organization is handled for violations of the prohibited acts specified in Clauses 1, 2, 3, 7, Article 12 of the Securities Law;
    • The listed organization is suspended from operations or prohibited from operating in its main business lines or activities;
    • Failure to meet listing conditions due to mergers, separations of enterprises and enterprise restructuring; or after completing operations but failing to carry out listing registration procedures, requesting a review of listing conditions or changes in listing registration within the prescribed time limit;
    • The listed organization seriously violates its information disclosure obligations, fails to fulfill its financial obligations to the SE and other cases where the SE or the SSC deems it necessary to delist to protect the investors’ interests.

Regulations on early warning for investors before stocks are delisted

In order to warn investors early about potential risks that may lead to delisting of stocks, the Listing and Trading Regulations issued under Decision No. 17/QD-HDTV of the Board of Members of the Vietnam Stock Exchange have provided regulations on cases where stocks are subject to warnings, controlling, restrictions or suspension of trading. For example, stock of a listed company will be delisted when “business results are loss for 03 consecutive years”. Previously, the Stock Exchange would put stock of a listed company on the warning list when “Undistributed profit after tax in the audited financial statements of the company is negative” or under control when “Profit after tax in the audited financial statements of the company in the last 02 years is negative”. The decisions to put stocks under warning, control, restriction, suspension, or trading suspension by the Stock Exchange are widely publicized, allowing investors to fully grasp information about which stocks are potentially delisted in the future.

Trading regulations for post-compulsorily delisted stock

After the stock of a public company are delisted but still meet the conditions for being a public company, according to the provisions of Clause 2, Article 120 of Decree No. 155/2020/ND-CP, the public company must register for trading on the UPCoM trading platform. Therefore, in these cases, investors can still trade stocks on the UPCoM exchange. In addition, according to the provisions of Article 122 of Decree No. 155/2020/ND-CP, an organization whose stocks are compulsorily or voluntarily delisted can re-register for listing on the Stock Exchange after at least two years of trading on the UPCoM system if it fully meets the listing conditions.

Experience of some countries on compulsory delisting of stocks

International experience also shows that most developed stock markets in the world have review criteria for delisting weak enterprises that no longer meet the conditions for listing. In the stock markets of Korea, Thailand or Japan, in addition to enterprises being delisted due to dissolution or bankruptcy, there are also delisting criteria related to: revenue, market capitalization, opinions of auditors, trading volume, violations of information disclosure, violations of corporate governance, etc.

Korean Stock Market

Criteria for delisting KOSPI Market
Revenue Less than KRW 5 billion for 2 consecutive fiscal years
Capital impairment
    • Capital impairment at the end of all fiscal years.
    • Capital impairment ratio exceeding 50% for 2 consecutive fiscal years.
Stock price Not meeting the requirement that the stock price must be higher than 20% of the par value for 10 consecutive days from the date of being placed on monitoring.
Market capitalization Not meeting the market capitalization requirement of more than KRW 5 billion for 10 consecutive days from the date of being placed on watchlist.
Auditor’s opinion
    • The auditor’s opinion is adverse or disclaimer.
    • The auditor’s opinion is qualified for 2 consecutive fiscal years.
Minority shareholder holdings
    • The number of minority shareholders has decreased to less than 200 shareholders since the stock was placed on list.
    • The minority shareholder’s holdings have decreased to less than 5% since the stock was placed on list.
Trading volume The average monthly trading volume fell below 1% of the outstanding volume in the first half of the year, and this situation continued until the end of the second half of the year.
Violations of information disclosure
    • Penalty points for dishonest disclosure are more than 15 points within the last 1 year from the time the stock was put on list.
    • Dishonest disclosure seriously affects corporate governance.
    • Failure to submit quarterly reports, semi-annual reports and annual reports twice in a row.
    • Failure to submit annual reports within 10 days from the deadline.
Violation of corporate governance Not having enough non-executive member or not establishing a supervisory board for 2 consecutive years.
Bankruptcy Bankruptcy or suspension of transactions at the bank
Other criteria
    • Being dissolved according to the law;
    • Restricted on transferring shares;
    • Being merged;
    • Violating regulations on back-door listing.

Japanese stock market

Criteria for delisting Applicable to markets
No longer meets the listing criteria The listed organization will be delisted after 1 year from the time it no longer meets the listing criteria and must submit a plan within 3 months from the time it no longer meets the listing criteria, stating the plan to continue to comply with the listing criteria within 01 year.
Late submission of financial statements Late submission of annual or quarterly audited financial statements by more than 01 month from the due
Dishonest financial report or has adverse audit opinion
    • The enterprise’s report contains false information;
    • The audit opinion is adverse or disclaimer.
Stocks with special warning The corporate governance system is not fully implemented;
Violation of listing agreement
    • The listed company seriously violates the listing agreement and commitment issues related to the initial listing registration dossier;
    • No longer meets the initial listing criteria and fails to pass the initial listing eligibility test within 01 year.
Other criteria
    • Suspension of banking transactions, bankruptcy, merger, corporate restructuring resulting in change of controlling shareholders, acquisition of all shares…
    • Delisting for the benefit of the majority of investors.

Thailand Stock Exchange

Criteria for delisting SET Market
Performance
    • Operations are completely or almost completely suspended;
    • Negative equity on the most recent audited financial statements;
    • Revenue is less than 100 million Baht on the financial statements for 3 consecutive years.
Auditor’s opinion The auditor has disclaimer of opinion the financial statements for 3 consecutive years.
Financial situation The listed organization’s assets are only in the form of cash or short-term securities for more than 6 months from the date SET received the financial report.
Violation of SET regulations The listed organization has violated or failed to comply with SET regulations, which may cause serious damage to the interests of shareholders or change the price of securities.
Violations of information disclosure The listed organization discloses incorrect or non-disclosed material information that could seriously harm the interests of shareholders or change the price of securities.
Dissolution The listed organization is dissolved or is being taken over by court order.
Inappropriate business activities The nature of the company’s business activities is not suitable for continuing as a listed organization.
Change in share ownership There is a change in the ownership ratio of the listed organization in subsidiaries or associates and such change has a serious and adverse impact on the listed enterprise.
Companies that have been warned but continue to violate
    • Failure to maintain the free float ratio after 01 year from the date of warning;
    • Violating SET regulations within 2 years from the date of warning (e.g: Failure to establish a Supervisory Board, etc.)

Notes for investors

To avoid the risk of losing investment capital when stocks are forced to delist, investors need to clearly understand the regulations related to compulsory delisting of stocks and some notes when participating in the stock market as follows:

    • Firstly, investors need to equip themselves with knowledge and understanding of the stock market, financial basis, reputation and prospects of listed enterprises;
    • Secondly, investors need to be careful in stock of listed enterprises, need to consider the ability to comply with legal regulations in general, securities law regulations in particular of that enterprise, the compliance with the law of the enterprise’s executives (Board of Directors, Executive Board, etc.), evaluate the reputation and corporate governance ability of the enterprise;
    • Thirdly, investors also need to constantly updating all information about stocks and financial statements of enterprises, thereby being able to quickly grasp, evaluate the quality of stocks and make investment decisions more accurately./.

                                                                                             Source: State Securities Commission

– JAPAN SECURITIES CO., LTD. –

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