Recently, the Shanghai Stock Exchange (SSE) has released the “Notice of Providing Transfer Services for Bonds in Listing Suspension” (the “Notice” for short), in order to maintain and promote the stable development of the bond market, and protect the legal rights and interests of investors. An SSE official answered questions raised by journalists concerning the “Notice”.
Q: Please give us a brief introduction of the backdrop for releasing the “Notice”?
A: Presently, as many bond issuers have suffered continuous losses for recent 2 years, listing and trading of these bonds are sanctioned by the SSE to be suspended, according to Article 6.2 in the "SSE Corporate Bonds Listing Rules". As listing and trading suspension of bonds will last for at least one year, halting the transfer services may restrain reasonable needs of some investors, as well as their rights in freely choosing financial consumptions. In regard to this, the SSE will provide transfer services for bonds in listing suspension through the SSE comprehensive electronic platform of fixed income securities (the platform of fixed income for short), with Shanghai Branch of China Securities Depository & Clearing Corp., Ltd. providing non-guaranteed delivery. As bonds in listing suspension are featured with low liquidity and high risks, the system of investor suitability management will be implemented for transfer of such bonds.
Q: Please briefly introduce the “Notice” to us.
A: There are a total of 10 articles in the “Notice”, which specify an array of issues as follows. First, relevant procedures for bond listing suspension. Second, requirements on relevant procedures in application for the transfer services by a bond issuer and how the SSE decides upon whether to provide such services or not, after the bond listing is suspended. Third, requirements on making announcements by the bond issuer. Fourth, requirements on investor suitability management. Fifth, channels and requirements for investors to participate in the transfer business. Sixth, responsibilities of the SSE’s members on client management. Seventh, punishment measures against breaking the “Notice” or other rules.
Q: Is there any restriction on issuer’s application qualification for the transfer services?
A: All issuers of bonds in listing suspension are eligible to apply for transfer services for their bonds in listing suspension to the SSE. However, the SSE will take into account all-round conditions including information disclosure, contract fulfillment, rating, and the reason for listing suspension, and it will only agree to provide such transfer services for bond issuers with sound creditability and without major law-breaking behaviors.
Q: How to judge “bond issuer’s continuous losses for recent 2 years”?
The main reason for bond listing suspension presently is the bond issuer’s continuous losses for recent 2 years. According to relevant regulations, the SSE decides that, since the day when the “Notice” is issued, the starting point of “continuous losses for recent 2 years” will be calculated from the year when the first annual report is disclosed by the bond issuer after the day when the bonds are first listed. This standard is one of non-retroactivity. This means, from the year the first annual report is disclosed by the bond issuer after the day when the bonds are first listed, if the issuer’s audited net profits belonging to the parent company in the recent 2 fiscal years are negative or remain negative upon retrospective restatement, the regulation on “the company’s continuous losses for recent 2 years” in Item 5 of Article 6.2 in the "SSE Corporate Bonds Listing Rules" will be applicable, and the SSE will decide to suspend listing and trading of the bonds concerned.
Q: What are the requirements for investor suitability management?
A: In order to ward off risks on the bond market, the SSE will implement the system of investor suitability management when providing transfer services for bonds in listing suspension. On one hand, holders of the bonds before listing suspension may participate in the transfer business as the remising party. On the other hand, the receiving party participating in the transfer business for the bonds in listing suspension should meet the requirements for legal persons and other organizations as professional investors as stipulated in the regulations for investor suitability management on the SSE’s bond market.
This means, the receiving party must be professional investors meeting the stipulations in Article 7 and Article 9 in the “SSE Provisional Measures on Investor Suitability Management in Bond Market”. Professional investors here should meet requirements for either of the following 2 situations:
The investors owning or leasing the trading business units set up in the SSE will be counted as professional investors automatically; or
Legal persons or other organizations meeting the following requirements may apply for the qualification as professional investors:
(1) With net assets totaled no less than RMB1 million;
(2) With net assets in securities account totaled no less than RMB0.5 million;
(3) Relevant business personnel equipped with fundamental knowledge for bond investment and having passed relevant tests;
(4) With a record of at least 10 successful bond transactions for the recent 3 years;
(5) Having signed the "Risk Disclosure Statement for Professional Investors on Bond Market" with relevant member and made promises;
(6) With no bad credit records.
Q: What deserves the attention of small and medium-sized investors when participating in such transfer activities?
A: The SSE will provide transfer services for bonds in listing suspension through the SSE’s platform of fixed income. According to relevant regulations, users of this platform should hold the qualification as dealers, which mainly consist of the SSE’s members, as well as fund and insurance companies.
As brokerage clients of the SSE’s members, small and medium-sized investors meeting the requirements of the investor suitability management should entrust the SSE’s members with participating in the transfer business of bonds in trading suspension. The securities companies will submit the application through the platform of fixed income. The methods for application and trading should meet relevant rules on securities transfer through the SSE’s platform of fixed income.
Small and medium-sized investors should fully understand that, bonds in trading suspension are featured with high risks, which may result in defaults in repayment of principals and interests. Although the SSE will provide transfer services for bonds in listing suspension according to relevant circumstances, as the liquidity of such bonds is quite weak, investors may face an array of restrictions on price bargaining, and it may be difficult to find a counter party both meeting the standard for investor suitability management and having the willingness to receive. Considering all this, small and medium-sized investors are warned against blindly buying bonds in listing suspension or with risks of listing suspension for the mere reason of low prices. Instead, investors should pay close attention to relevant information about the bonds, make independent, prudent, and proper investment decisions according to their own abilities in undertaking risks, and assume investment risks independently.
