Shanghai Stock Exchange Launches Classified Bond Management, Trading System

The "SSE Provisional Measures on Investor Suitability Management in Bond Market" is promulgated today (December 24, 2011) and will come into force on February 1, 2012. The release of the Measures is of great significance to protecting legal rights and interests of the investors in the bond market and boosting the steady and sound development of the bond market in the long run. Upon a recent interview, an official of the relevant department of the Shanghai Stock Exchange (SSE) elaborated on the significance of the release of the Measures, the main contents of the Measures and others in the interview.

Q: Could you tell us the backdrop and significance of the release of the Measures?

A: With its rapid growth in recent years, the SSE bond market has seen an expanded size, with 630 kinds of bonds listed. The annual bond trading volume has been sharply increased as well.

In the next few years, the SSE will still attach much importance to the development of the bond market by providing good bond financing services for the development of small and medium-sized businesses and the real economy, offering more fixed income products and hedging instruments to investors as well as creating more opportunities and platforms to increase the public’s property income according to the guideline of "developing the capital market and expanding the proportion of direct financing" issued by the China Securities Regulatory Commission.

Currently, it turns out that the risk of the bond trading is lower than that of the stock trading. Nevertheless, objectively, there are some risks in the bond trading due to the specialty of the bond trading and its vulnerability to the changes in the international financial market. Upon careful study and prudent consideration, the SSE holds that the Measures should be formulated to protect the legal rights and interests of the investors and boost the sound development of the bond market.

Q: What’s the core content of the Measures?

The core content of the Measures is to build a system of bond-investor-based classified management and trading. The SSE bond market will divide investors into professional investors and ordinary ones according to their product familiarity levels and risk tolerance abilities. The former can trade a wider range of bonds, especially the hi-risk bond varieties, while the latter could only trade those with low risks, namely, the spot trading of treasury bonds, local government bonds, hi-credit corporate bonds and enterprise bonds and the collateralized-repo-based securities lending. An investor needs to foster strong risk identification ability, risk management ability and risk tolerance ability to trade the low-credit corporate bonds and enterprise bonds and the targetedly issued bonds as well as conduct the collateralized-repo-based margin trading. So, these products are suitable for professional investors. All this aims to protect the ordinary investors’ legal rights and interest.

Q: How do you organize to implement the Measures?

A: The client management is one of the key duties of the SSE member companies. So, the implementation of the Measures mainly depends on the member companies. The SSE’s major duty is to formulate the measures on the investor suitability management in the bond market and relevant business guidelines, while all the member companies ought to work out specific implementation schemes and relevant working systems, organize their clients to participate in knowledge tests, assess qualifications of their clients, fix the categories of investors and conduct the front control of the investors’ transactions.

Q: Could you tell us the SSE’s supporting regulatory measures on strict implementation of the Measures?

The SSE member companies should promptly file the approved professional investors’ accounts with the SSE for real-time monitoring and check. If the ordinary investors trade any hi-risk bonds, the SSE will ensure the implementation of the Measures by urging its member companies to handle the issue in time.