With the approval of the China Securities Regulatory Commission (CSRC), the Shanghai Stock Exchange (SSE) and China Securities Depository and Clearing Co., Ltd. (CSDC) have revised the “Measures for Trading, Depository and Clearing Businesses of Collateralized Repo of Stocks (for Trial Implementation)” (the “Trial Measures” for short), and issued the “Measures for Trading, Depository and Clearing Businesses of Collateralized Repo of Stocks (Revised in 2018)” (the “Business Measures” for short) on January 12, 2018, which shall come into effect starting on March 12, 2018.
From September 8 to 22, 2017, the SSE and CSDC solicited public comments on the revision of the rules. As of the end of the solicitation period, a total of 82 letters of feedback were received. According to the overall feedback, the market participants generally believe that the relevant amendments will be conducive to further focusing the collateralized repo of stocks on supporting the real economy, preventing and controlling business risks and standardizing the operation of the business, with opinions and suggestions on certain specific clauses also provided. After careful study, the SSE and CSDC adopted some of the views: first of all, it is stipulated that the financed side shall deposit the raised funds in the special accounts opened at the banks designated by the securities companies, thus strengthening the operability in special account management. Secondly, the venture capital funds qualified for certain policy supports are allowed to be the financed side, so as to shore up entrepreneurship and innovation. Thirdly, the statement of some clauses has been improved.
Compared with the Trial Measures, the revised contents in the Business Measures are mainly in the following three aspects: First of all, the orientation toward supporting the real economy has been further highlighted. It is required that the financed side should not be the financial institutions or the products issued by them, the raised funds should be used in production and operation of the real economy and managed in the special accounts, the initial transaction amount of the financed side should not be less than RMB5 million, with the follow-up each transaction not to be lower than RMB500,000, and the funds and the bonds are no longer recognized as the initial underlying collateral. Secondly, the risk management has been further intensified. It is provided that the maximum pledge rate of stocks should not exceed 60%, and as the financing side, a single securities company or a single asset management product should not accept more than 30% or 15% of the shares of a single A stock respectively as collateral, with the overall collateral ratio of a single A stock not to be more than 50% in the market. Thirdly, the business operations have been further standardized. The conditions of qualification for the securities companies to launch the business have been confirmed, requiring that the securities companies should set up the mechanisms for the sustained management of credit risks of the financed side and track management of the funds use.
According to an official, in order to reduce the impact on the existing businesses, the principle of “separating the new from the old” will be applied, as relevant amendments are only applicable to new contracts, and the already existing contracts can have the extension implemented and handled in accordance with the original rules with no need to be settled in advance. Before the formal implementation of the Business Measures, the securities companies should improve internal management systems, amend business agreements, transform technical systems, and make effective efforts in investor education and interpretation of the rules in accordance with the relevant requirements, so as to ensure the smooth enforcement of the rules.