Recently SZSE and China Securities Depository and Clearing Co., Ltd. (CSDC) released the Notice on Providing Transfer and Settlement Services for Specific Listed Corporate Bonds and the Notice on Providing Transfer and Settlement Services for Specific Listed Private Placement Corporate Bonds (together as the Notice). With reference to the background and major content of the Notice, SZSE spokesman took from reporters questions of interest to the market.
Q1: would you brief us on the background and idea for releasing the Notice?
A: The changes in domestic and overseas economic environment have given rise to credit risk issues in recent years. Most were timely handled and diffused, hence the stable operation of the market overall. As the market grows accustomed to the market- and law-based treatment of bond defaults, the time is ripe for creating a special transfer mechanism for risky and defaulted bonds. Optimizing and adjusting the suspension and delisting mechanism for existing risky and defaulted bonds shall help increase the liquidity of bond trading and transfer. A better market-based pricing mechanism will also be beneficial to the resolution, disposal or discharge of risks. Therefore, CSRC has made unified arrangements with SZSE and SSE to build a special transfer mechanism for a trial run, releasing and implementing the Notice to provide transfer and settlement service for risky and defaulted bonds in consideration of their features. That meets the expectation of the market and shall enhance bond credit risk management, maintain the stable operation of the bond market and protect the legitimate rights and interests of investors.
Based on the result of previous credit risk treatment, the Notice focuses on the liquidity of risky and defaulted bonds. The overall idea is to base on the current institutional rules framework and existing bond and transaction settlement systems, while taking into account the actual needs of market transactions. The particularity of specific bonds is at the core and differentiated arrangements are made for transfer settlement.
Q2: What are the specific bonds included in the Notice?
A: The Notice is mainly applicable to corporate bonds or private placement corporate bonds listed in the SZSE market provided that (1) the issuer fails to perform the obligation to pay the principal and interest as agreed, or (2) the issuer fails to perform the obligation to pay the principal and interest for other bonds or debt financing instruments as agreed, or (3) in other circumstances determined by SZSE for the protection of the legitimate rights and interests of investors.
In addition, the Notice may also be referred to for the transfer of bonds with significant cashing uncertainties or which is risky as clearly indicated in the issuer's or trustee's announcements, or for asset-backed securities on which earnings could not be distributed as agreed.
Q3: What are the special arrangements for the transfer and settlement services of specific bonds?
A: The abbreviation of a specific bond will be marked with a special "H" for investors' easy identification. The transfer will be at full price. Declaration by intention, by given prices or by closed deals is allowed. The transfer threshold is set to CNY100 par value or its integral multiple, and the transfer price declaration has no price fluctuation limit, which is conducive to increasing the risk pricing flexibility. In terms of registration and settlement, CSDC will clear and settle specific bonds in full amount, transaction by transaction and on a non-guaranteed basis.
Considering the risk particularity of the specific bonds, participants are limited to qualified institutional investors, and they are more suitable for qualified institutional investors with higher-risk preference, more tolerance for risks and certain bond risk disposal experience. A transferee participating in a specific bond transfer should sign an acknowledgement of risks, fully understanding the risks associated with a specific bond.
In addition, given the diversified repayment arrangements for specific bonds, such as debt-to-equity swaps, non-monetary payment and payment on a discounting basis, certain flexibility in bond repayment is maintained in the Notice. As entrusted by issuers, CSDC may pay relevant funds and cancel the bond shares on behalf of issuers according to the Notice, but the legal responsibility is borne by the applicant.
Q4: Is the information disclosure of the specific bonds different from that of common bonds?
A: In principle, for specific bonds, there must be periodic report disclosure in accordance with current relevant regulations or agreements, and the trustee should also disclose the annual management report in accordance with relevant regulations. Meanwhile, according to the risk characteristics of specific bonds, the Notice requires that the issuer should fulfill relevant information disclosure obligations at important timings of specific bond risk disposal such as the initiation of specific bond credit risk resolution and disposal, conclusion of agreement on asset disposal or debt restructuring, and entry into bankruptcy procedures and credit risk resolution and disposal. Information disclosure shall follows that of SZSE's fixed income business or be conducted in other means approved by SZSE.
Q5: After the publishing of the Notice, what will SZSE do next as a self-regulator?
A: The Notice specifies the regulatory requirements for specific bond transfer. Next, SZSE will actively and steadily push forward the implementation of the Notice to play its due system function. In terms of services, the focus is on the training, policy consultation, and rule guidance pertaining to the Notice, so that issuers and investors can be familiar with the Notice as soon as possible. In terms of supervision, SZSE will implement the adjustment of the transfer mechanism for specific bonds (except for those that are not suitable for transfer) in accordance with the provisions of the Notice, and strictly urge relevant parties to comply with the requirements of the Notice to ensure its orderly implementation.
