China's securities watchdog released a guideline on Friday to tighten delisting rules in a bid to oust unqualified companies from the equity market.
Companies will be removed from the two stock exchanges in Shanghai and Shenzhen for major legal violations, according to the guideline issued by the China Securities Regulatory Commission (CSRC).
Share trading of a company will be suspended after it is caught cheating in share issuance or information disclosure by the CSRC.
The bourses should, in principle, delist such companies within one year after the suspension.
Those who release false information can resume share trading after taking remedial actions. But those who commit fraud in share issuance will not be exempt.
The CSRC also encouraged voluntary delisting and promised to protect the interests of small and medium share holders after delisting.
The new rules will come into effect on November 17.
Under the current scheme, delisting focuses mainly on financial performance. Those that report losses for three consecutive years face suspension. Stocks may be delisted if trading volume is too low or the share price falls below one yuan (about 16 U.S. cents).