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To further improve the procedures and information disclosure requirements regarding the listing, conversion to shares, redemption and selling back of convertible corporate bonds (hereafter referred to as the convertible bonds), and fully protect the legitimate rights and interests of investors, the Shanghai Stock Exchange (SSE), under the coordination and guidance of the China Securities Regulatory Commission (CSRC), will publicly solicit opinions on the Guidelines No. 12 of the Shanghai Stock Exchange for Self-regulation of Listed Companies — Convertible Corporate Bonds (Draft for Comment) (hereafter referred to as the Guidelines for Convertible Bonds) from today to July 8, 2022.
Based on market-oriented principles and centered on information disclosure, the Guidelines for Convertible Bonds aim to formulate targeted and systematic rules to address new circumstances and emerging problems in practice. To highlight investor protection, the Guidelines for Convertible Bonds specifically introduce the regulations in the following aspects: First, to clarify the expectations of investors. Regarding the issues concerned by investors, for example, the redemption or modification of the conversion price is triggered, but investors do not receive a prompt response from the company, the Guidelines require listed companies to hold a meeting of the Board of Directors on the same day of such triggering events to respond immediately to the issues about redemption and modification of conversion price. To clarify investors' expectations, any failure to timely fulfill the examination procedure or the information disclosure duty will be deemed as not exercising the right of redemption or not modifying the conversion price. Second, to introduce more reasonable periods for redemption and selling back. The Guidelines clarify that the period from when the selling back is triggered to the first day of application for selling back shall not exceed 15 trading days to fully ensure investors' right to sell back and expedite their capital withdrawal, and there shall be enough time from when the redemption is triggered to the release of redeemed funds for the trading and conversion to shares by investors. The Guidelines also stipulate that the trading or transfer of shares is suspended from the third trading day before the release of redeemed funds to encourage early conversion to shares and avoid unnecessary losses. Third, to apply strict supervision on short-swing trading. It is clarified that shareholders, directors, supervisors, and senior management members of a listed company who hold over 5% of shares shall abide by the rules of short-swing trading when subscribing or purchasing, trading or transferring convertible bonds issued by the company, except for conversion to shares, redemption and selling back. Fourth, to make intermediaries fully fulfill their responsibilities. The Guidelines require sponsors and independent financial advisers to express explicit opinions on whether the work concerning convertible bonds is in line with the agreements made in the prospectus or reorganization report and whether they have misled investors or undermined their legitimate rights and interests during the supervision period, so as to make them fulfill their supervision responsibilities continuously and enhance the protection for investors.
As a detailed version of the CSRC's Measures for the Administration of Convertible Corporate Bonds, the Guidelines for Convertible Bonds regulate the full-process business for the duration period of convertible bonds, together with the Detailed Implementing Rules of the Shanghai Stock Exchange for the Trading of Convertible Corporate Bonds, in terms of information disclosure and trading mechanism. The two documents constitute the SSE's self-regulation system for convertible bonds, so as to better protect investors' rights and interests and ensure stable market operation. Next, the SSE will continue to implement the guidelines of "building the system, non-intervention, and zero tolerance", carry out the market-oriented reform based on the rule of law, and further promote the high-quality development of the convertible bonds market under the unified deployment of the CSRC.
