To implement the Measures on Administration of Convertible Corporate Bonds, further guard against the risks in trading convertible corporate bonds ("CBs") and maintain the trading order in the market, Shenzhen Stock Exchange ("SZSE") has drafted the Implementation Rules of Shenzhen Stock Exchange for Convertible Corporate Bond Trading (Exposure Draft) ("Trading Rules") under the overall guidance of CSRC. Solicitation of market opinions started on June 17. Meanwhile, SZSE released the Notice on the Suitability Management of Convertible Corporate Bonds ("Suitability Notice"), with a view to further enhancing the investor suitability management of CBs and protecting their legitimate rights and interests. The Suitability Notice took effect on June 18.
In recent years, CBs have gradually become an important financing instrument for listed companies, especially for small and medium-sized private listed companies, and played a positive role in serving the real economy, increasing the proportion of direct financing, and optimizing financing structure. In the meantime, some problems arose, such as mismatch between rules and product attributes, big fluctuations within the day and failure to adapt to investor suitability management. Thus, improvement is needed. In line with the market-oriented principle, the drafting of the Trading Rules and the Suitability Notice gave equal attention to CB market efficiency and stability and investor protection to prevent excessive speculation and maintain the stability of the CB market. As no adjustment to the primary market financing policy is involved, relevant measures won't affect the proper financing functioning of the CB market or reduce the service and support for the real economy, especially for small and medium-sized private listed companies.
Key contents of the Trading Rules and the Suitability Notice are as follows: First, a 20% limit is set on price increase/decrease from the next day of the listing of CBs to unspecified investors. In response to the adjustment to the increase/decrease magnitude, the standards for abnormal and severely abnormal fluctuations in CB trading are added, and the verification and information disclosure obligations of listed companies under abnormal and severely abnormal fluctuations are clarified. Second, the suitability requirements for CBs to unspecified investors are set forth. On the one hand, the requirements of “2 years of trading experience and assets of CNY 100,000” are imposed on the access of new investors to strengthen protection of them. On the other hand, the principle of applying different policies for previous and new business is implemented, setting out that existing investors may continue without being affected. Third, based on CB trading mechanism characteristics and speculation prevention & control needs, abnormal trading behavior types are added to further prevent speculation. Fourth, “Z” is added in front of the abbreviation of securities on the last CB trading day, aiming to fully reveal risks to investors and effectively protect their interests. Fifth, to properly link with the Bond Trading Rules, the method of applying for CBs beyond price limits is changed to “invalid application” from “temporarily stored in the trading host”. In addition, some expressions are adjusted to keep consistent with other types of bonds.
Solicitation of opinions on the Trading Rules will be ended on 1 July 2022. Your valuable opinions will be highly appreciated. SZSE will make further modification and improvement in light of them. In the next step, SZSE will continue to practice the policy of “system building, non-intervention, and zero tolerance”, and remain committed to market- and law-based reform. According to the unified plan of CSRC, it will consolidate rule foundation, maintain trading order, constantly promote the high-quality development of the CB market and better play the role of the CB market in serving the real economy.
