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On February 5, SZSE officially released the Notice on the Matters Related to the Program Trading Reporting of Convertible Bonds (hereinafter referred to as “the Notice”), so as to further regulate the program trading management of convertible bonds, maintain the transaction order of the market, protect the legitimate rights and interests of investors, and promote the healthy development of the convertible bond market. SZSE Press Secretary answered the reporters’ questions on the topics of great concerns to market entities.
I. Please give an introduction to the background and significance of the Notice release.
A: In 2020, some convertible bonds saw great price volatility, which drew widespread attention from market entities and media outlets. The program trading was used by a part of convertible bond investors, and the trading volume reached a certain scale. Article 45 of the new Securities Law explicitly provides that program trading shall be reported to the stock exchanges. On 31 December 2020, the China Securities Regulatory Commission (CSRC) released the Convertible Bond Management Measures (hereinafter referred to as the “Measures”). To implement the requirements of the new Securities Law and the Measures, strengthen the program trading management of convertible bonds, maintain the transaction order of the market, and protect the legitimate rights and interests of investors, SZSE formulated and distributed the Notice after an earnest study and soliciting opinions from some of its members. With the establishment of an information reporting system at the core, the Notice is aimed to enhance the compliance awareness of market entities and promote the program trading of convertible bonds towards steady development. The formation of a reporting mechanism for program trading of convertible bonds is a move conducive to improving market transparency and regulatory accuracy. The practice of introducing the program trading reporting mechanism to convertible bonds before any other security is expected to accumulate useful experience for the market-wide implementation of relevant practices in the future.
II. What types of investors are required to do such reporting?
A: The followings investors need to do such reporting: (1) member customers; (2) members, and securities investment fund management companies and insurance institutions that directly use trading units for transactions, and (3) other types of investors specified by SZSE. Of these, member customers shall report to the members who accept their transaction entrustment, while members and other institutions directly report to SZSE.
In specific operations, investors who meet any of the following conditions need to do the reporting. First, those whose order placement is highly automated: program trading investors get core elements of an order such as securities code, trading direction, quantity, and price as well as the time of order, all determined by the computer automatically. Second, those whose orders are placed at a fast rate: program trading investors report over 10 convertible bond transactions per second for more than ten times a day. Third, program trading investors who use self-developed or other customized software. Fourth, other situations shall be reported as identified by the stock exchanges. There reporting may be dispensed for investors who use software provided by members with automated functions to conduct transactions and who meet none of the above conditions.
III. What specific requirements does the Notice have for the reporting timeline? Do the investors who have participated in the program trading of convertible bonds before the implementation of the Notice need to do the reporting?
A: Member customers who conduct program trading for the first time shall report to members to whom they entrust the transaction. Program trading will become available after the reporting. Members shall check the information submitted by their customers and report to SZSE within three trading days upon receipt of the information.
Where members and other institutions conduct the program trading of convertible bonds for the first time, they shall report to SZSE at least three trading days in advance.
The Notice shall take effect from 29 March 2021. Investors who have conducted the program trading of convertible bonds before the implementation of the Notice shall finish the information reporting as prescribed by the Notice within 30 trading days since the implementation of the Notice.
IV. Please give an introduction to the contents of and requirements for the reporting.
A: The report shall include the following aspects: (1) investor identity, securities account, member institution and other information; (2) sources of funds and other information; (3) trading strategy, software name, developer and other information; and (4) liaison and contact information. Members and other institutions may report the information related to the program trading of convertible bonds carried out by their customers and themselves through logging into the official website of SZSE, visiting the “Report Program Trading Account of Convertible Bonds” in “Upload Official Documents and Statements” section of the “Membership Service Column” on the website.
V. If there is a delay in reporting or failure to report as required, what impact will it have on investors?
A: According to the needs of self-regulation, SZSE can supervise and inspect how members and other institutions report their program trading of convertible bonds by both onsite and offsite means. Where there are failures to perform reporting obligations or breaches of the applicable provisions, SZSE may take self-regulatory measures or disciplinary actions in accordance with the Trading Rules of Shenzhen Stock Exchange, the Membership Management Rules of Shenzhen Stock Exchange, the Implementation Measures of Shenzhen Stock Exchange for Self-Regulatory Measures and Disciplinary Actions, and other applicable provisions.
