SSE, SZSE Issues New Rules to Regulate and Monitor Convertible Bonds

The SSE (Shanghai Stock Exchange) and SZSE (Shenzhen Stock Exchange) have issued new rules aimed at discouraging speculation in the convertible bond market.

Fazzaco to Launch Business Awards 2022

The two exchanges have consecutively released new draft rules for convertible corporate bond trading, which are open for comment until 1 July, as well as notices on suitability management for convertible corporate bond investors, which were implemented from 18 June.

The bourses stated that the rules are intended to regulate and monitor abnormally volatile convertible bonds.

The new rules come after the CSRC (China Securities Regulatory Commission) issued administrative measures in January, aimed at preventing risks and strengthening investor protection in the convertible corporate bond market. 

The measures included requirements for trading venues to improve their trading rules based on the risks and characteristics of convertible bonds, and enhance risk monitoring to prevent and suppress excessive speculation.

The SSE and SZSE's new draft rules will implement daily price limits in convertible corporate bond trading, to be set at 20 percent from the second day after listing.

The rules also strengthen the transaction monitoring and supervision processes by clarifying the procedures firms should take when abnormal fluctuations are detected in convertible bond trades. Such fluctuations should be reported, and issuers will be required to disclose abnormal fluctuations and suspend trading for further checks.

To avoid the risks of intraday price volatility caused by real-time disclosure, the real-time disclosure workflow for negotiated transaction information has been changed to after-hours disclosure.

Meanwhile, the rules on suitability management of convertible corporate bonds state that investors participating in the market should have at least two years of experience in securities trading and hold an average daily capital in their accounts of at least CNY 100,000 (USD 14,920), excluding the funds and securities raised by the investor through margin financing and securities lending.