Shenzhen Stock Exchange adopts new Corporate Bond Listing Agreement

On June 4, Shenzhen Stock Exchange (SZSE) has announced that it has released the Notice on Adopting the SZSE Corporate Bond Listing Agreement and SZSE Asset-backed Security Transfer Service Agreement (hereinafter as the “Notice”).

According to the Notice, the new Corporate Bond Listing Agreement and ABS (Asset-backed Security) Transfer Service Agreement (New Agreements) will be officially adopted since June 18. Before releasing the Notice, SZSE has started signing the new Security Listing Agreement with listed companies. The Notice is another measure taken by SZSE to continue implementing the newly revised Measures on Administration of Securities Exchanges (Administrative Measures), aiming to overcome weaknesses in its system, strengthen regulatory basis, demonstrate the spirit of the contract, and strengthen comprehensive and stringent law-based supervision.

In recent years, SZSE has found in routine regulation that some issuers are unfamiliar with or pay insufficient attention to rules on the SZSE bond market and such unfamiliarity and neglect lead to violations. On January 1, 2018, the newly revised Administrative Measures was officially put into effect, making a series of adjustments to the systems that highlight frontline regulatory functions of stock exchanges. In the Administrative Measures, Article 58 stipulates that stock exchanges and companies that apply for listing should sign listing agreements where rights and obligations of both parties, on-site inspections, and punitive damages are specified; Article 65 further stipulates that stock exchanges shall also, in accordance with relevant regulations, supervise other parties that issue or purchase or sell securities via stock exchanges. To fully carry out frontline supervision in a new era and implement requirements in the Administrative Measures, SZSE initiated the revision of the New Agreements. During the revision process, SZSE widely solicited opinions and suggestions from representatives of corporate bond issuers and asset-backed special plan managers to continually improve the agreements.

Aiming to provide overall optimization and adjustment, the revision covers the following aspects:

First, it strengthens the self-regulatory functions of SZSE by introducing measures such as on-site inspections, punitive damages, and issuance of letters of advice, and allows SZSE to make important decisions for trading suspension and resumption, and listing suspension, resumption and termination.

Second, it adds dimensions to the regulatory basis for information disclosure and standard operation. It states that issuers and managers should act in an honest and trustworthy manner in compliance with laws and regulations, fulfill obligations including repaying principal and interest according to relevant provisions, distributing income, proper handling of funds as agreed, credit risk management while the bond continues to mature, and information disclosure, and that they shall disclose information in a truthful, accurate, complete, timely, and fair manner.

Third, it further demonstrates the contract spirit by clearly specifying relevant laws, regulations and rules that SZSE, issuers and managers should all abide by. SZSE should also provide facilities, consulting services and training programs for the issuance, listing and trading, transfer by listing, trading suspension/resumption of corporate bonds and ABSs, as well as repayment of principal and interest, income distribution, and information disclosure. In addition, the dispute resolution provision is modified in the New Agreements. The previous agreement only provided for arbitration, but the new ones allow the issuer and manager to choose the means to resolve the disputes.

Fourth, it further enhances fairness and transparency in self-regulation. As stipulated in the New Agreements, SZSE shall establish an internal self-regulatory remedy system where issuers and managers are entitled for hearings and review of important self-regulatory decisions made by SZSE.

According to the New Agreements, it is unnecessary to sign a new agreement for newly issued corporate bonds or newly added ABSs if the issuer or manager concerned has corporate bonds or ABSs that continue to mature on SZSE, and listing application documents approved by SZSE can serve as a part of the New Agreements. To minimize signing costs for issuers, the Notice does not require listing agreement re-signing for corporate bonds and ABSs within the duration, while the agreements previously signed will terminate upon the maturity of relevant securities.

Except for adopting the New Agreements, SZSE has systematically reviewed rules and regulations that are subject to revision for fixed income products. It also released the SZSE Listing Rules for Corporate Bonds (2018 Draft) to solicit public opinions. Next, SZSE will further leverage its capital market platform, earnestly fulfill frontline regulatory responsibilities, strive to maintain an open and fair market, develop innovative fixed income instruments, expand corporate financing channels, and effectively promote quality development of the real economy.

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