1 – The cases of Recylex and Solutions 30
Two companies listed on Euronext Paris, Recylex and Solutions 30, were suspended from trading in May 2020 and May 2021 respectively.
Shares of struggling company Recylex were suspended on May 13, 2020 at the company’s request for an indefinite period, pending the publication of a press release. The Covid-19 crisis had, among other things, generated a deterioration in the company’s cash flow as well as a number of operational difficulties. On June 30, 2020, the company announced that the trading suspension for Recylex shares would remain in place until the company was able to report reliably on its ability to continue in business. However, since 2020, trading in its securities has never resumed.
The SBF 120 Solutions 30 company, for its part, requested and obtained from Euronext Paris the suspension of the listing of its shares without giving the public the slightest reason to request this suspension.. Three weeks later, Ernst & Young, the auditor of Solutions 30, publicly announced its inability to certify the company’s accounts, which impossibility had justified the suspension of listing from the outset. Solutions 30 has finally announced, after a two-week suspension, that trading of its shares will resume and that it plans to request the delisting of its shares. Since then, however, the company has remained listed on Euronext, although it never obtained certification for its 2020 financial statements.
2 – The objectives of the suspension of listing
These two cases, which involved particularly long (and even indefinite in the case of Recylex) suspension of listing measures, raise the question of the circumstances in which this type of measure can be justified. Trading halts can be extremely detrimental to both issuer and investors for two main reasons: they prevent the market from playing its role of evaluating companies through the interplay of supply and demand and prohibit investors from trading their shares, therefore from benefiting from a liquidity solution.
For this reason, trading suspensions should only be decided when the market no longer properly fulfills its function of evaluating companies in circumstances serious enough to justify depriving investors of a liquidity solution for their shares. . This is typically the case in the presence of false information or rumors about the issuer are widely disseminatedwhich lead to a misvaluation of the issuer’s shares or a substantial increase in the volatility of the share price, or even when certain investors or the issuer itself knowingly engage in market manipulation.
In these situations, a suspension of trading may be decided by Euronext Paris or the AMF (on the issuer’s initiative or not) while waiting for the issuer and its management to clarify the truth or falsity of the information and the actual situation of the company. These very specific cases in which the integrity of the market is at stake must not, however, be confused with circumstances where information on the issuer is simply absent: in these cases, the game of supply and demand remains the most effective way to assess the issuer, and listing should not be suspended.
3 – The Solutions 30 and Recylex cases
In the case of Solutions 30, the absence of publication of audited financial statements clearly did not justify a suspension of trading. Although this lack of publication prevented investors from accessing all the information to which the applicable regulations entitle them, this lack of information, which cannot be considered as false information, hindering the valuation role played by the market, in no way justified the suspension of the listing of Solutions 30.
Recylex’s suspension of trading is even more debatable. The financial difficulties of a company are in no way a valid reason to suspend its listing – at least in the absence of false information or market rumors that should be clarified by the management of the society. This suspension is all the less justified as it has now been going on for more than a year and a half, thereby depriving investors of a liquidity solution for an extremely long period of time without any benefit for them. , nor for society.
To avoid this type of situation, market operators should be required to systematically explain how the trading suspensions they impose are justified by a specific context. In particular, they should be able to demonstrate that there is a significant risk of mispricing of the issuer’s shares due to prevailing market conditions.. Besides, the trading suspension should never last more than a few hours, even one or two days in extreme cases. Beyond this period, even significant volatility or a high risk of misvaluation does not seem to justify the liquidity cost of the suspension of trading.
Paul Oudin and Pierre Petitcolas, Vermilion & Co