To meet the increasing demands for the development of corporate bonds market and to prepare for the launch of debentures, the Shanghai Stock Exchange (SSE) has recently amended the "Detailed Rules on Bond Trading".
The amendment falls on three aspects. Firstly, some articles concerning order methods of corporate bonds and treasury bonds are amended, i.e., the contents of "conducting orders in the name of securities accounts" in spot trading of treasury bonds and "conducting orders in the name of seats" in spot trading of corporate bonds are deleted. Besides, the contents of "orders for treasury bonds repos and corporate bonds repos should be conducted in the name of securities accounts and seats, respectively" are also deleted.
Secondly, some articles and regulations concerning corporate bonds repos are replaced by those concerning treasury bonds, i.e., the contents of "repo terms of 1, 3 and 7 days are available for corporate bonds repos" are changed to "repo terms of 1, 2, 3, 4, 7, 14, 28, 91 and 182 days are available for bonds repos".
Thirdly, the detailed rules shall apply to a larger range of bonds, including existing and future bond variety.
It is learnt that considering the market participants' craving for reintroducing corporate bonds repos and enhancing the safety of corporate bonds, the SSE decides to amend the rules to prepare for the launch of debentures. To develop its corporate bonds market, the SSE launched corporate bonds repo business at the end of 2002, which won positive market response embodied in an increasingly enlarged repo scale and more corporate bonds under the SSE's custody. However, due to the outbreak of risks in securities dealers from 2004 to 2005, the repo business of corporate bonds that had been listed since September 2004 was suspended to cooperate in solving the risk. Thanks to the successful risk management, the market risks were under effective control. As the equity division reform contributes to the greatly enhanced progress made on China's capital market, the government and the society are now looking forward to the development of the bonds market, especially the corporate bonds market and the debentures market.
According to an SSE official, thanks to the previous rectification, the safety of the SSE bond market has been apparently improved. The SSE launched the new general collateral repos on May 8, 2006 as scheduled. Since then, the trading volume has been steadily increased and the market has gradually accepted the new general collateral repos. The old and new general collateral repos were formally integrated on June 28, 2007. The SSE draws on the experience of improving the treasury bonds repos and decides to adjust the corporate bonds market according to the market reality. Firstly, the custody of corporate bonds shall be placed in primary accounts instead of seats of securities dealers. Secondly, new general collateral repos, namely, appropriation through transfer of pledged bonds, shall apply to eligible corporate bonds. Besides, preparation should be made for the coming debentures system.
The official also stressed that, to strictly control the repo risks, newly listed corporate bonds eligible for new general collateral repos are limited to credible and high-quality bonds. Specifically, newly listed corporate bonds with one of the following two qualifications can conduct new general collateral repos. One is that corporate bonds issuers should be departments directly under the central government or enterprises directly under the central government with sole state ownership. The other is that corporate bonds should be guaranteed with full-amount, unconditional and irrevocable joint and several liabilities or pledged assets by Industrial and Commercial Bank of China Limited, Bank of China Limited, China Construction Bank Co., Ltd., Agricultural Bank of China Co., Ltd., Bank of Communications Co., Ltd. and China Development Bank.
The official concluded that the old rules will still apply to either spot or repo business of corporate bonds if these bonds are listed before the amendment of the rules. But when these corporate bonds are recorded in accounts, their trading should be bound by the stipulations in the new rules. Moreover, new general collateral repos will apply to eligible corporate bonds.
