Shanghai Stock Exchange Innovates For Developing Bond Market

From this year, under the leadership of the China Securities Regulatory Commission (CSRC), the Shanghai Stock Exchange (SSE), adhering to the basic objective of developing the bond market to serve the real economy and centering on the innovation in products and services, has steadily pushed forward the innovations in the bond market, including the SMEs private placement bonds, the repurchase of convertible bonds and the investor suitability management, which have achieved good market results and facilitated the development of the bond market.

Firstly, the SSE renewed its efforts on the innovation in products in the bond market by promoting SMEs private placement bonds. As Chinese SMEs have always found themselves difficult and costly to finance, the SSE, following the requirements of the State Council and the CSRC for supporting the development of SMEs and serving the real economy, started to study SMEs private placement bonds for providing SMEs with financing channels in the bond market at the end of last year. In January 2012, the SSE set about drafting the rules and regulations about SMEs private placement bonds. After having solicited opinions from securities companies and other market participants for several times, the SSE published the "SSE's Tentative Measures for SMEs Private Placement Bonds" and relevant business guidelines in May 2012. Besides, the SSE propelled the preliminary work for SMEs private placement bonds with the cooperation of the departments concerned of the local governments in Beijing, Tianjin, Shanghai, Jiangsu Province, Zhejiang Province and Guangdong Province upon contacts, and meanwhile mobilized the brokers in these regions to make preparations at various symposia. So far, 18 enterprises have submitted to the SSE the filing application materials for the issuance of SMEs private placement bonds, among which 14 have received the "Notice on Acceptance of Filing" and 5 have completed the bond issuance.

Secondly, the SSE improved its services for investors by including convertible bonds in the repurchase pledge bank. Convertible bonds could only be used for spot trading but not for repurchase trading like enterprises bonds and corporate bonds on the exchanges. Through market research, the SSE found that investors had large demands for financing with convertible bonds, so it began to study the feasibility of including convertible bonds in the repurchase pledge bank last year. Before long, the SSE reached a consensus on the business innovation with China Securities Depository and Clearing Corp. Ltd. Through business and technical preparations for over half a year, convertible bonds were successfully included in the repurchase pledge bank from May 21, 2012 when the convertible bonds valued about RMB21 billion were transferred to the bank. By taking advantage of the repurchase market on the SSE, the business innovation of including convertible bonds in the repurchase pledge bank effectively solved the financing problem of investors of convertible bonds and perfected the services for investors of bonds.

Thirdly, the SSE pushed forward the innovation in the way of management on investors of bonds by ushering in the investor suitability management. With the expanding of the bond market and the continuous innovation in products, the SSE strengthened the protection of investors in the bond market. It published the "SSE Provisional Measures on Investor Suitability Management in Bond Market" and the "SSE Guidance for Investor Suitability Management in Bond Market" respectively at the end of 2011 and the beginning of 2012, taking the initiative to establish the investor suitability system in the bond market and classifying the market investors into professional investors and ordinary ones according to their product familiarity and risk tolerance. On that basis, the SSE conducted the classified management on investors in the bond market and allowed ordinary investors to only invest in bond varieties with low risks for protecting legal rights and interests of investors. Currently, all the brokers have submitted relevant implementation schemes and work systems and conducted the classified management on bond trading with the aid of relevant technologies. Thus, the investor suitability management in the bond market proceeds on a regular basis.

Fourthly, the SSE released the bond valuation data for perfecting the infrastructure in the bond market. Bond valuation is an important part of the infrastructure in the bond market, which is of great significance to accounting especially for bond varieties inactive in trading. Traditionally the closing price has always been taken as the benchmark price on the exchanges and no bond valuation system has been established. However, to improve the infrastructure in the bond market, the SSE exerted itself to establish a valuation system in the bond market this year. From February 20, 2012 onwards, the SSE released to the market the CSI bond valuation data through bond.sse.com.cn and unidirectional satellites. Thus, the bond valuation system in the SSE's bond market has taken shape, making up for a deficiency in the infrastructure in the bond market.

Finally, the SSE propelled the innovation in market promotion for improving the market services. It publicized the bond market and bond financing channels through seminars, trainings and other ways. Besides, it held the promotion meetings at Shanghai, Beijing, Changsha, Xi'an, Wuhan, Chengdu and other regions, in which over 100 listed companies across the country participated, achieving good market effects. By the end of May, 723 kinds of bonds had been listed on the SSE, up by 91 kinds of bonds, or 14.4% compared with those at the end of 2011. Moreover, the value of bonds for custody had amounted to RMB813.2 billion, with an increase of RMB80 billion or 10.9% compared with that at the end of 2011. The total turnover of bonds traded on the SSE from January to May 2012 reached RMB12,574.6 billion (accounting for 60.4% of the total turnover of securities traded on the SSE in the same period), with a year-on-year increase of RMB6,785.9 billion or 117%.

In the coming years, the Chinese bond market will be confronted with great development opportunities. According to sources, the SSE is making relevant schemes for the innovation in pre-issuance of treasury bonds, assets securitization and other varieties to further enrich the varieties traded on the exchanged-based bond market. Furthermore, in line with the principles of unifying market-entry conditions, information disclosure, credit assessment requirements, investor suitability systems and investor protection systems, the SSE will propel the interflow between on-floor and over-the-counter markets to promote the great development of the exchange-based bond market.