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In recent years, the phenomenon of delisting due to par value has become increasingly prevalent in the A-share market. Amid a sluggish market environment, the risk of stocks being delisted for failing to maintain their par value has escalated rapidly. According to the A-share market rules, a listed company faces the risk of being delisted if its closing price remains below its par value for 20 consecutive trading days. For the majority of A-share companies, the par value of their stocks is set at 1 Chinese yuan, making it a possibility for many low-priced stocks to encounter the threat of delisting.

As the number of delistings based on par value continues to rise, the market may also witness an influx of stocks delisting due to market capitalization criteria. Under the A-share regulations, if a company’s total market capitalization falls below 300 million yuan for 20 consecutive trading days, the company faces delisting risks. A stock with a market cap of less than 300 million yuan is classified as a micro-cap stock in the A-share framework. For instance, as of June 4, the stock of *ST Shentian reported a total market cap of only 293 million yuan, triggering the condition for a closing market cap below the crucial 300 million yuan mark. Should *ST Shentian continue to exhibit a market cap below 300 million yuan for the next 19 trading days, it will indeed face the prospect of being delisted.

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Although it may seem challenging to have a continuous market cap drop below 300 million yuan over 20 trading days, an examination of the market capitalization rankings of A-share listed companies reveals several entities whose total market capitalizations are already below 1 billion yuan. If the market remains sluggish or stock prices continue to decline, companies with market capitalizations under 1 billion yuan may soon approach the risky threshold of 300 million yuan.

Despite the fact that the first half of the year is not yet over, more than 100 companies in the A-share market have already faced risk warnings in 2023. As delisting regulations are being refined, the conditions for delisting have expanded to encompass various scenarios beyond just par value and financial metrics. For example, if a controlling shareholder or affiliated individual non-operationally occupies funds, it may trigger delisting conditions. Moreover, a company entangled in a prolonged dispute over its controlling rights is also at risk of delisting.

This continuous refinement of delisting regulations and the rising delisting rate contribute positively to the efficiency of the A-share market’s survival of the fittest, enhancing overall market vitality. However, it’s essential to recognize that an increasing number of delisted stocks isn't inherently a good outcome. The key to improving the delisting rate lies in enhancing supportive measures in the market, particularly in bolstering investor compensation mechanisms. Companies should not simply “exit” without accountability.

In mature overseas markets, while the delisting rate remains high, a significant portion of it consists of voluntary delistings, such as privatizations. Voluntary delistings typically provide original shareholders with some degree of compensation, often with a premium over the most recent closing prices. In this context, companies opting for voluntary delisting can better compensate their investors, making shareholders more amenable to accepting the terms of premium privatization.

When it comes to severe infractions such as financial fraud or deceptive listings, substantial punitive measures are imposed on both the offending companies and intermediary institutions, paired with the establishment of robust compensation frameworks.

Take the infamous Enron scandal of 2001 as an example: the CEO faced a harsh penalty, including a 24-year prison sentence, while substantial financial reparations were mandated for accountable investment banks and other intermediaries. The accounting firms that provided auditing services during the Enron debacle faced significant fines; consequently, the once "Big Five" accounting firms were reduced to just four major players due to the aftermath of this scandal.

So how does the U.S. stock market handle similar situations concerning delisting for par value?

While the A-share market has provisions for delisting based on par value, the U.S. stock market has a “one-dollar delisting rule.” If a U.S-listed company's stock price remains below one dollar for 30 consecutive trading days, it is issued a delisting warning and is granted a 90-day period to rectify its share price. If the stock price continues to fall below one dollar, delisting proceedings will ensue.

However, in practice, the U.S. stock markets allow companies to execute reverse stock splits as a mechanism to maintain their listing status. Over the years, numerous companies that fell below one dollar have employed this strategy, with some even conducting several reverse stock splits.

Additionally, for companies listed on the New York Stock Exchange, if the number of shareholders drops below 600 or if the number of shareholders with more than 100 shares is fewer than 400, the company also risks delisting. Furthermore, stringent stipulations about total assets, public shareholding, and market capitalization standards exist; failure to meet any of these conditions can trigger delisting.

As for shareholders of companies being delisted, does this imply a total loss of their principal investments? Not necessarily. The U.S. market has provisions in place for this scenario. For instance, delisted companies can trade on the OTC market or opt for a buyback scheme for their shareholders’ stocks, typically priced at a premium during the buyback process.

Enhancing the delisting rate in the stock market can significantly contribute to the efficiency of market discipline, pushing toward a healthier investment environment. However, this improvement must be anchored in robust support measures that enhance investor compensation efficacy. In situations where companies engage in fraudulent listings or financial misconduct, accountability measures must be increased, holding all related intermediaries or stakeholders responsible for their part in the oversight process.