Guiding Opinions on the Transfer of Companies Listed on the National Equities and Exchange Quotations for Listing on Other Boards (Mainland China)

Joyce Wen

On June 3, 2020, the China Securities Regulatory Commission (the “CSRC”) promulgated its Guiding Opinions on the Transfer of Companies Listed on the National Equities and Exchange Quotations for Listing on Other Boards (the “Guiding Opinions”).  The Guiding Opinions closely follow four principles, namely, market orientation, comprehensive arrangements, piloting and risk control in the transfer of companies listed on National Equities and Exchange Quotations (the “NEEQ”) for listing on other stock exchanges, and make the following institutional arrangements:

(1) Scope of inbound transfers.  The Guiding Opinions state that during the pilot period, eligible companies listed on the NEEQ may apply to transfer to the Shanghai Stock Exchange’s Science and Technology Innovation Board or the Shenzhen Stock Exchange’s Growth Enterprise Market (GEM) Board for listing.  The Implementation Opinions on the Setup of the Science and Technology Innovation Board and Launching the Pilot Registration System on the Shanghai Stock Exchange further provides clarified that companies accepted by the Science and Technology Innovation Board shall be “scientifically and technologically innovative enterprises which are aligned with national strategic positions, have achieved breakthroughs in key core technologies and enjoy high market recognition.”  In comparison, The GEM Board aims to “promote the development of independent innovative enterprises and other growth-oriented startups.”  Therefore, enterprises applying to be listed on those boards should first meet the requirements of the Science and Technology Innovation Board or the GEM Board.

(2) Conditions for the transfer.  Companies applying to transfer their listing to another board shall have been listed on the NEEQ for at least one year.  For listed companies transferring their listing to another board, they must meet the listing criteria of that board.  The requirements for the transfer are in principle consistent with the requirements for the initial public offering, but the exchange may impose different requirements pursuant to its supervisory needs.  It should be noted here that under the Measures for Stratified Administration of the National Equities and Exchange Quotations, a listed company applying for listing the NEEQ selected layer should meet the following requirements: it has been listed in the innovation layer for 12 continuous months on the National Equities and Exchange Quotations, provided that one of the following conditions shall be met: (1) market capitalization of no less than RMB 200 million and net profits of in no less than RMB 15,000,000 in each of the last two years with a weighted average return on net assets of not less than 8%, or a net profit of no less than RMB 25,000,000 in the most recent year with a weighted average return on net assets of not less 8%; (2) market capitalization of no less than RMB 400 million, an average operating revenue of no less than RMB 100 million for the last two years with at least 30% growth in the most recent year, and a positive net cash flow from operating activities in the most recent year; (iii) market capitalization of no less than RMB 800 million, operating revenue of no less than RMB 200 million in the past year, and having invested in research and development at no less than 8% combined of the operating revenue in the last two years; or (iv) market capitalization of no less than RMB 1.5 billion, and having a total investment of no lower than RMB 50 million in research and development investment in the last two years.

(3) The listing transfer procedure.  Pursuant to the Guiding Opinions, the transfer is a change in the trading venue and does not involve a public offering of shares.  Therefore, it does not have to be approved by or registered with the CSRC and may be reviewed and decided by the Shanghai Stock Exchange and Shenzhen Stock Exchange pursuant to their own listing rules.  This reflects the basic market orientation principles in the Guiding Opinions.

(4) Listing transfer sponsorship.  Under the Guiding Opinions, the sponsor system shall be maintained for listing transfers.  However, in view of the fact that the sponsor institutions reviewed the public offering of companies for listing on the selected layer of the NEEQ and continued to supervise them after becoming listed in the selected layer, the sponsorship requirements and procedures for the listing transfer of those companies can be appropriately adjusted and improved.

(5) Sale restriction arrangements.  The Guiding Opinions provide guidance on the of sale restrictions of the shares of NEEQ-listed companies to be transferred for listing on other boards, in which they are to comply with the laws and regulations and the business rules of the exchanges, and specifically stipulating that the sale restriction while the stock was on the selection layer may in principle be deducted when calculating the sale restriction period.  The Shanghai Stock Exchange and the Shenzhen Stock Exchange have imposed restrictions on the shares held by the controlling shareholders, actual controllers, directors and supervisors of the incoming transfer companies.  However, more specific rules are needed with regards to the sale restriction details.

In addition, the Guiding Opinions also clarify the responsibilities of the stock exchanges, the NEEQ, the intermediaries and other relevant parties, and declare that illegal activities during the transfer will be seriously investigated and sanctioned.