To strengthen the credit risk management in corporate bonds duration and earnestly safeguard investor’s legitimate rights and interests, the Shanghai Stock Exchange (SSE) has lately released the “SSE Guidance for Credit Risk Management in Corporate Bonds Duration (Draft for Comment)” (the “Guidance” for short) to solicit public opinions.
An official of the SSE said that the SSE has always adhered to the principle of laying equal emphasis on the market development and the risk control in its bond market. It has greatly intensified the front-line market regulation and effectively prevented and resolved credit risks while striving to serve the overall situation of the real economy and the national economy, and has ensured the steady operation of the market. The SSE has actively promoted the construction and improvement of the fundamental systems of the bond market. The “Guidance” aims at remedying the shortcomings of the bond market’s self-regulatory rules, implementing the entity responsibility of the issuer and the trustee in the bond credit risk management, changing the market ecology of stressing issuance and neglecting aftermath supervision by securities companies in their bond business, setting up a continuous and normalized credit risk management system and advocating prior control of bond credit risk, thus laying a solid foundation for the construction of a high standard bond market.
The “Guidance” mainly includes the following aspects: the first is to implement the entity responsibility of market institutions in bond credit risk management. The issuer and the trustee should, according to the requirements of the “Guidance”, carry out such risk management operations as continuous monitoring and categorizing, investigation and warning, and resolving and disposing, and fulfill corresponding duties of information disclosure. Other institutions, such as credit enhancement institutions, underwriters and credit rating institutions, should perform their own functions and cooperate with the issuer and the trustee to do a better job in risk management. Investors should keep evaluating the credit risks of the bonds invested and make sure to invest rationally and safeguard their legal rights.
The second is to stress the prior and in-process prevention and resolving of credit risk. The trustee and relevant institutions are required to keep monitoring the change of bond credit, judge the risks through risk evaluation, check and other methods, give feedback to the issuer on the risk points that might influence timely repayment, and urge it to actively resolve the relevant risks. The issuer should take pertinent and effective measures to resolve default risks and disclose its implementation.
The third is to center on risk-oriented category management. The “Guidance” classifies corporate bonds into 4 categories – normal, concerned, risky and default according to different credit risk degrees. The trustee should, according to the rules of the “Guidance” and other reasonable standards, implement category management on bonds based on the results of risk monitoring and check. The “Guidance” has made different system arrangements for each risk category in terms of the requirements on risk check, resolving and disposing, and the fulfillment of information disclosure and reporting duties. Besides, it is also required to submit regular and provisional risk management reports to the SSE, which has fully demonstrated the basic rule of risk-oriented category management.
The SSE official said that for the convenience of all market participants, especially the bond issuer and trustee, to better understand and implement the “Guidance”, the SSE will organize publicity and mobilizing activities and business trainings for relevant market institutions after the release of the “Guidance”, so as to guide all market participants to implement relevant requirements of the “Guidance” effectively.
The deadline of the opinion-soliciting for the “Guidance” is February 10, 2017. Next, the SSE will improve the “Guidance” according to the opinions of market participants.
