Discussion on the Regulation of Reverse Merger in China's Stock Market

In recent years, under the background of China's continuous deepening of market economy reform, the private capital market has developed rapidly, and the financing needs of enterprises in the economic transformation are increasingly urgent. Through listing to direct financing to the public, it has become the first choice to enhance the vitality of the enterprise and enhance the popularity of the enterprise. However, as China's IPO approval standards are more stringent, the examination and approval process is more cumbersome, and the number of enterprises seeking listing continues to soar, the time and opportunity costs required to complete listing financing through IPO are becoming more and more large. It has become the prerogative of very few enterprises. In this environment, reverse merger as an alternative to IPO listing became popular. In practice, reverse merger seems to be an all-out mechanism. On the one hand, the reverse merger has the incomparable efficiency advantage to the enterprises which seek for listing financing but it is difficult to pass the IPO reviewing standard and process, and it is a shortcut to realize the listing financing; On the other hand, for those enterprises that provide “shell” in the process of reverse merger, they are already in poor management and face the risk of being delisted from the market at all times. Although the Reverse Merger has efficiency advantages that can not be ignored, no matter from the practical observation or theoretical analysis, we can see that there are many legal and regulatory risks in the current reverse merger mechanism. These problems are mainly concentrated in three aspects: Disclosure of information of listed companies inadequate, Problems with the delisting system of listed companies, and Judgment criteria for reverse mergers is not clear. This article introduces the current situation of reverse merger in China's securities market through case studies, analyzes the existing problems through the current situation, and puts forward its own relevant improvement suggestions.