China's securities watchdog on Friday released a draft of proposed changes to the delisting regime for Shanghai and Shenzhen listed companies on Friday.

The new rules allow more voluntary delisting and introduce a mandatory delisting mechanism for companies that have broken the law, according to the China Securities Regulatory Commission (CSRC).

Delisting was introduced into China's Company Law in 1993. The revised Securities Law in 2005 gave the right to delist to bourses. Before this, the right belonged to the CSRC.

A total of 78 listed companies have been delisted so far, but few willingly, said CSRC spokesman Deng Ge.

The draft follows a May initiative by the State Council to improve the capital market, and will help to complete the basic functions of a capital market, Deng said.

The draft also highlights protection of the rights of small investors.

Draft delisting rules provide more options

The China Securities Regulatory Commission on Friday released a draft of delisting rules for domestic companies as part of a new round of market reform.

The CSRC said the delisting system is being refined to provide a range of options for companies that are voluntarily seeking to leave the nation's equity markets.

Seven conditions under which companies can voluntarily delist are defined in the draft, and the procedures in these cases are different from those for compulsory delisting.

Companies seeking a voluntary delisting must apply directly to stock exchanges to give up their listings, a requirement intended to protect the interests of minority shareholders.

China will also strictly implement compulsory delistings, the draft said.

Listed companies that have engaged in fraudulent practices should be delisted within a year.

The criteria for delisting procedures will be broadened, taking into account such issues as total equity capital, ownership distribution, trading volume, market capitalization, retained profit and net assets. Stock exchanges can impose more detailed conditions, the CSRC said.

A specific period will be set for companies that are subject to compulsory delisting. In such cases, they can move their shares to the National Equities Exchange and Quotations, an over-the-counter market that is China's third national equity exchange.

Delisted companies can also apply to regain their listings on the Shanghai or Shenzhen stock exchanges, with the requirements and procedures to be announced.

"The delisting system is a basic step for advancing reform in the domestic securities market," said Deng Ge, a CSRC spokesman. Ge said the delisting process should be market-oriented, governed by the law and subject to uniform procedures.

"This is great news for the Chinese capital market. It will become more effective, and the quality of listed companies can be improved," said Li Daxiao, chief economist for Yingda Securities Co Ltd.