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Today, the Shanghai Stock Exchange (SSE) issued the Guidelines No. 1 of Shanghai Stock Exchange for Application of Rules for Issuance and Listing Review of Corporate Bonds - Application Documents and Compilation (Revised in 2021) (the Guidelines for Application Documents for short) and the Guidelines No. 1 of Shanghai Stock Exchange for Application of Rules for Self-regulation on Corporate Bonds – Continual Information Disclosure of Corporate Bonds (the Guidelines for Continual Information Disclosure for short). Regarding the drafting and revision of those guidelines, an SSE official in charge of the bond business has answered questions from the press.
Q1: Can you brief us on the background of the release of the relevant guidelines for information disclosure?
A: The Securities Law, revised in March 2020, puts forward higher requirements for deepening the reform of the bond market and strengthening the regulation of information disclosure. The Measures for Administration of Issuance and Trading of Corporate Bonds (the Administrative Measures for Corporate Bonds for short), revised in February 2021 by the China Securities Regulatory Commission (CSRC) has pushed forward the reform of the registration-based corporate bond issuance system with information disclosure as the core and strengthened in-process and ex ante supervision. Moreover, in order to enhance the coordinated regulation of information disclosure in the bond market, the People’s Bank of China, the National Development and Reform Commission, and the CSRC jointly issued in December 2020 the Measures for the Administration of Information Disclosure of Corporate Bonds (the Administrative Measures for Information Disclosure for short) in accordance with the Securities Law and other laws and regulations.
In order to fully implement the relevant requirements of the Administrative Measures for Corporate Bonds and the Administrative Measures for Information Disclosure and guarantee the adjustment and convergence of self-discipline rules, the SSE has, under the guidance of the CSRC, formulated the Guidelines for Continual Information Disclosure and revised the Guidelines for Application Documents after integrating the existing rules and requirements on the basis of regular review and regulatory practices. The draft (revision) aims to fuel the vitality of market participants, prompt the market players to return to their respective positions and fulfill their duties by improving regulatory mechanisms and daily services, so as to give full play to the SSE’s role as a bond market hub and to better serve the development of the real economy and meet the related requirements for the prevention and control of financial risks.
Q2: Can you brief us on the important role of the information disclosure system in the corporate bond market?
A: Unlike indirect financing approaches such as bank credit, the investment and financing sides of bonds exchange information and resources directly in the market. The bond market, a direct financing market, also an important part of capital market, should follow the basic rules of the capital market.
The advantage of the capital market lies in the effective accumulation of capital and the efficient allocation of resources. Past practices and experiences have shown that to fully utilize this advantage, it is necessary for the market to play a decisive role in the allocation of resources. The issuers should truthfully, fully and timely disclose the important matters that influence investors’ investment decisions and value judgments, so that investors could independently make investment judgments and reach market pricing. As a result, information disclosure has become the “underlying logic” for the system design, which runs through the entire process including issuance and listing review, underwriting pricing, and continual regulation. Adequate information disclosure is a necessary condition for building an open and transparent capital market. As a basic market for increasing the proportion of direct financing, the bond market also requires information disclosure to unveil the issuer’s credit qualifications and risk information, facilitate the formation of reasonable pricing of credit risk, and make the capital market more effective in resource allocation.
In terms of the specific dimensions, the information disclosure in the bond market involves the following five aspects: first, the issuers, the number one entity responsible for information disclosure, who should be responsible for the authenticity, accuracy, and completeness of the information disclosed; second, the intermediaries including underwriters and entrusted custodians should verify the information disclosed by the issuer; third, the reviewing institution should focus on whether the disclosed information is adequate, consistent and understandable in the process of review, and urge the issuers and intermediaries to ensure compliance and improve the effectiveness of information disclosure; fourth, investors shall take the risks on their own, as investors should bear their own investment risks after the issuers adequately disclose information; and fifth, the regulators shall investigate and penalize serious violations in information disclosure including fraudulent issuance, purify the market ecosystem and ensure the healthy development of the bond market.
Q3: What are the major additions and revisions in the released guidelines?
A: The two sets of guidelines issued this time clarify the requirements for information disclosure in the issuance and listing review and continual regulation of corporate bonds, which will play an important role in regulating and guiding the conduct of the market entities.
In accordance with the Administrative Measures for Information Disclosure and the Administrative Measures for Corporate Bonds, the revised Guidelines for Application Documents has adjusted the format of the prospectus, focusing on the requirements for the core content of disclosure related to solvency, while the mandatory requirements for bond rating are dropped.
The drafting of the Guidelines for Continual Information Disclosure is an important measure to improve the system of information disclosure rules. It not only further clarifies and elaborates on the existing requirements for ad hoc information disclosure, but also improves self-regulation on the content and formats of periodic reports at the exchange level for the first time on the basis of summarizing the regulatory experience in previous years and under the authorization by the regulations of ministries and commissions. In terms of the content, first, the it establishes the basic principles and requirements for information disclosure, and clarifies the scope of entities responsible for information disclosure and the modes of performing their duties; second, the disclosure focus is on the analysis of solvency, tightening the requirements for disclosing the information on sustained operation and the key financial information of the company in the regular reports; third, the standards for disclosure of major issues are further clarified so that the information disclosure is conducted in a more timely, relevant and effective manner.
Q4: What are the features of the released guidelines for information disclosure?
A: Treating information disclosure as an important basis for the development of and risk prevention for the bond market, the SSE has issued in succession a number of self-regulatory rules to regulate information disclosure. Compared with the previous information disclosure rules, the guidelines issued this time have the following features:
First, the information disclosure requirements are strengthened in the context of deepening the registration-based issuance system. As information disclosure is the core of the registration-based issuance system, the recently revised Administrative Measures for Corporate Bonds specify the content and conditions for the implementation of the registration-based issuance system on the basis of the provisions of the Securities Law. In strict accordance with the spirit of the higher-level law, the guidelines will effectively integrate with the relevant requirements of the registration-based issuance system, and ensure further implementation of the system.
Second, the responsibilities of issuers and professional institutions for information disclosure are clarified. The requirements for formulating and disclosing the administrative system for information disclosure affairs are specified, and the determination and differentiation of responsibilities between responsible entities are detailed. The specific responsibilities of the persons in charge of information disclosure are clarified, and the legal representative's “ultimate” responsibility for information disclosure is stipulated when no person is announced as responsible for information disclosure. The responsibilities of intermediary agencies for checking and early warning are emphasized, the responsibilities and boundaries of different intermediary agencies for information disclosure are distinguished, and the intermediaries are urged to fulfill their duties diligently within the scope of their functions.
Third, the requirements for information disclosure are strengthened to protect the rights and interests of investors. The information disclosure obligations in the cases of bond defaults and the issuer's entry into bankruptcy proceedings are elaborated to protect the investors' right to know. The requirements for information disclosure on sales and transfers, free transfers and external guarantees are strengthened to curb the use of such matters to evade debt obligations. The information disclosure obligations of guarantee institutions are stipulated for higher quality of credit enhancement.
Fourth, a concise and clear system of information disclosure rules is set up. Continuous efforts are made to integrate and consolidate the previous self-regulatory rules according to relationships of rights and obligations. Upon the release of the guidelines, the previous information disclosure rules are abolished. In addition, some adjustments have been made to the format and structure for the convenience of market entities.
Fifth, the elements of information disclosure are unified gradually. In order to implement the relevant requirements of the Administrative Measures for Information Disclosure and meet the demands for cross-market flow of bond elements and the connectivity between bond markets, the guidelines maintain consistency with other markets on major information disclosure issues so as to ease the issuers’ burden.
Q5: After the release of the guidelines, what other measures will the SSE take to strengthen the regulation of corporate bonds?
A: In the earlier stages, the SSE has, in accordance with the market principles and rule of law, focused on information disclosure to make effective efforts in serving and regulating the corporate bond market, with initial results achieved in market development and risk prevention and control. Going forward, under the unified leadership of the CSRC, the SSE will continue to implement the principle of “building the system, non-intervention, and zero tolerance” after the release of the guidelines. The SSE will further improve the efficiency and quality of application review, the prevention and control of market risk, and the system of rules to promote the higher-quality development of the bond market.
First, we will strengthen the training for the parties concerned. Based on the system of information disclosure rules and the market violation cases, we will step up regular training for issuers and intermediaries, encourage market entities to raise funds through the bond market, and improve the information disclosure awareness and competence of relevant entities and their responsible personnel.
Second, we will effectively prompt issuers to improve the quality of information disclosure. Focusing on the review of information disclosure, we will implement categorized review based on the risk characteristics of the companies, continuously enhance the quality of inquiries, and push market entities to fully disclose important information that influences solvency and investors’ decision-making. At the same time, we will gradually set up an on-site supervision mechanism to make sure the responsibilities for information disclosure are fully assumed.
Third, we will continue to fulfill our responsibilities for front-line regulation. We will detail the standards for determining violations of information disclosure, publish and enforce the implementation standards of self-regulation, and increase the transparency of information disclosure regulation. We will strengthen regulatory coordination and request the administrative departments for investigation and punishment of major illegal conduct so as to earnestly maintain a regulated and orderly market environment. We will formulate a plan for categorized regulation of securities companies according to their quality of professional practice, and push the securities companies for improvement.
Fourth, we will guide market entities in using information disclosure to strengthen market constraints. On the basis of standardizing the text of the rules for bond holders’ meetings in the earlier stage, we will continue to study and formulate model texts for the prospectus and the entrusted management agreement. We will encourage the market entities to reach agreement among themselves on the contract terms for investor protection, liability and relief for breach of contract, information disclosure commitment and other issues, so as to consolidate the endogenous credit restraint mechanism for market entities.
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