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On January 18, 2019, SZSE and CSDC jointly published the Pilot Measures on Credit Protection Instruments Management of Shenzhen Stock Exchange and China Securities Depository and Clearing Corporation Limited (hereafter the Pilot Measures) under the unified deployment of the CSRC. The Pilot Measures earnestly implements the instructions of the CPC Central Committee and the State Council on providing market-oriented support for private enterprises to raise funds through issuing bonds, so as to enhance the foundation of credit protection instrument systems and alleviate the financing problem bothering the private sector by improving the openness and transparency of the bond market and giving full play to its guidance function.
Since last year, SZSE has been vigorously pushing forward the pilot project of credit protection instruments to facilitate robust development of the private sector. Up to now, SZSE has accomplished 15 transactions under the pilot credit protection business framework, with the amount of involved notional principals totaling CNY170 million. Also, SZSE rolled out the first bond financing support instrument for private enterprises in the market. All pilot transactions adopt a credit protection contract and reference entities are all private enterprises including Suning Appliance Group Co., Ltd., Zhejiang Hengyi Group Co., Ltd. and Guangzhou Zhiguang Electric Co., Ltd. The contracts and bonds of the reference entities are issued in sync, which arouses great interests of investors and cuts the financing cost of the issuer.
The Pilot Measures has drawn on SZSE's experience in preliminary pilot projects of credit protection instruments and taken into account the suggestions of market institutions. It defines the overall business framework of credit protection instruments, the requirements on participants, business models, settlement methods, information disclosure and risk control arrangements. Credit protection instruments include contracts and vouchers. The former consists of the Derivatives Trading Master Agreement for the Chinese Securities and Futures Market (for Credit Protection Contracts Only) (hereafter the Master Agreement), supplementary agreements and other contracts between the trading parties. The Master Agreement has been jointly publicized by the Securities Association of China (SAC), the China Futures Association, the Asset Management Association of China (AMAC) and the Shanghai and Shenzhen stock exchanges. Concluded contracts shall not be transferred but can be terminated prior to maturity upon the mutual consent of trading parties. To ensure smooth business operation, the trading parties shall meet the suitability requirements to invest in protected debts of the reference entities, and the total net selling balance of credit protection instruments of the market participants shall satisfy relevant position control requirements.
Next, under the leadership of the CSRC, SZSE will put credit protection instrument rules into place as soon as possible, push forward market participant education and carry out business training, so as to promote the standardization of credit protection instrument business and expand the coverage of bond financing support instruments for private enterprises.
