Q & A on Implementing Registration-based System for Public Issuance of Corporate Bonds
The amended “Securities Law of the People's Republic of China” (the "Securities Law" for short) will come into effect starting from March 1, 2020. In order to carry through the work arrangement of the State Council for enforcing the “Securities Law”, the registration-based system for the public issuance of corporate bonds will be put into practice from March 1, 2020, according to the overall arrangements of the China Securities Regulatory Commission (CSRC). The Shanghai Stock Exchange (SSE) today officially issued the "Notice on Business Arrangements of Shanghai Stock Exchange for Implementing Registration-based System for Public Issuance of Corporate Bonds" (No. 13  of the Shanghai Stock Exchange, hereinafter referred to as the "Notice"). To this end, the relevant SSE official answered the questions about the business arrangements for the implementation of the registration-based system on the corporate bonds.
Q1: Can you brief us on the background and significance of implementing the registration-based system for the public issuance of corporate bonds?
A: The amended "Securities Law"went into effect on March 1. It provides that the registration-based system for the public issuance of securities shall be implemented, and the specific scope and implementation steps of the registration-based system shall be prescribed by the State Council separately. The "Notice of the General Office of the State Council on Work Concerning Implementation of Amended Securities Law" (No. 5  of the General Office of the State Council, hereinafter referred to as the "State Council Notice") requires that the registration-based system should be implemented on the public issuance of corporate bonds starting on March 1. The CSRC today issued the "Notice on Matters Concerning Implementation of Registration-based System for Public Issuance of Corporate Bonds" (No. 14  of the General Office of the CSRC), marking the official implementation of the registration-based system for the public issuance of corporate bonds and a new historical stage of the development of the corporate bond market.
Since 2015, the CSRC has implemented the work arrangements of the Party Central Committee and the State Council, deepened the reform of "streamlining the government, delegating power, and improving government services", and carried out market-oriented reforms for the corporate bond issuance system. Under the leadership of the CSRC, the SSE has adhered to the principles of market-driven reform and rule of law, adapted to the characteristics and development of the bond market, effectively implemented the registration-based system in the review of the corporate bonds, and strived to enhance the bond market's capacity for serving the real economy. In the past 5 years, the SSE has established an issuance regulation system for the public issuance of corporate bonds. with the stock exchange conducting the pre-examination for listing and the CSRC adopting a simplified approval procedure. As a result, the SSE established a relatively mature system of investor suitability and improved the information disclosure system and the investor protection system with solvency at the core. The corporate bond market has achieved rapid development as well as sound operation, and has been widely acknowledged by the whole market. By the end of February 2020, a total of nearly RMB10 trillion of corporate bonds had been issued on the SSE, with an average annual issuance volume of more than RMB2 trillion. It shows that the corporate bond market's ability to implement the national strategies and serve the real economy has significantly improved, and the market-oriented and rule-of-law reforms have achieved encouraging results. In general, the implementation of the registration-based system for corporate bonds has had a relatively mature practical and institutional basis.
Q2: Can you brief us on the major revisions of the laws and regulations regarding the implementation of the registration-based system for the public issuance of corporate bonds?
A: The amended “Securities Law” and the “State Council Notice” provide for the implementation of the registration-based system for public issuance of corporate bonds, and revise the statutory conditions for public offering of corporate bonds. The amendments of the “Securities Law” to the relevant mechanisms for public issuance of corporate bonds have fully reflected the differences between the bond market and the stock market, demonstrated the characteristics and laws of the bond market, showed market consensus and integrated practical experience of all parties. The main amendments include: first of all, the approval-based system is changed to the registration-based system. The public issuance of corporate bonds is subject to review by the stock exchange for issuance and listing, and shall have the listing registered with the CSRC. Second, the conditions for the public issuance of corporate bonds are adjusted; the condition of "having a sound and well-functioning organizational structure" is added, and the conditions of "minimum corporate net assets" and “the cumulative bond balance shall not exceed 40% of the company's net assets” are deleted; at the same time, the "State Council Notice" also prescribes that in addition to meeting the conditions stipulated by the “Securities Law”, in public offering of corporate bonds the issuer shall also have a reasonable asset-liability structure and normal cash flow. Third, the conditions for applying for listing and trading of corporate bonds are adjusted, as the conditions such as "the duration of a corporate bond shall be more than one year" are removed, and the stock exchange is authorized to make specific provisions on the conditions for listing of corporate bonds; fourthly, the requirement for continuous information disclosure are improved, the scope of the obligors for information disclosure is expanded, and the contents of disclosing major events are specifically defined; fifthly, the legal duties of issuers and securities service institutions are tightened, as the fraudulent issuance and other behaviors of the issuer's controlling shareholders and actual controllers are specified, and there are also the provisions on the fault presumption and joint liability of the securities service institutions and their personnel responsible in respect of failing to perform their due duties.
Q3: Can you brief us on the main contents of the "Notice" issued by the SSE?
A: In order to make effective arrangements for the transition to the registration-based system for the public offering of corporate bonds, and carry out the review for the offering and listing of corporate bonds in a steady and orderly manner, the SSE has issued the “Notice” in accordance with the overall arrangements of the CSRC. The main contents are as follows. First of all, it is stated that in the review for offering and listing, the SSE focuses on the offering conditions provided by the “Securities Law” and the “State Council Notice”, the listing conditions required by the SSE and the relevant requirements of the CSRC and the SSE for information disclosure, and urges issuers to improve the contents of the information disclosure. Second, the current provisions shall be implemented in terms of the contents and formats of the documents of application for offering and listing and prospectuses submitted by the issuers, the procedures and time limits for the review, and the offering and listing arrangements. Third, the issuers and the securities service institutions such as underwriters, accounting firms and law firms are required to perform their duties diligently in accordance with the “Securities Law”, the “State Council Notice” and other rules, with the responsibilities of every entity defined. Fourthly, the arrangements are made for the transition, as the projects accepted by the SSE prior to 1 March 2020 shall go through the pre-examination for listing in accordance with the current provisions before being submitted to the CSRC for approval.
Q4: Can you brief us on the supporting measures of the SSE for self-regulation after the implementation of the registration-based system for corporate bonds?
A: Since 2015, in accordance with the market-oriented and rule-of-law principles, the SSE has broadened the access while tightening the supervision, and stepped up the in-process and ex-post regulation of the issuers and securities service institutions, with initial achievements made in market construction. After implementing the registration-based system for corporate bonds, while optimizing the review for issuance and listing, the SSE will continue to adhere to market-oriented development and rule of law, strengthen supervision on issuers and securities service institutions, guide the investors in raising the awareness of taking risks and responsibilities on their own, urge all market participants to perform their duties diligently, promote the judicial relief and protection of investors’ rights and interests in the bond market, and work with all parties concerned to build a sound investment and financing ecosystem for the corporate bond market.
Specifically, first of all, information disclosure will be highlighted, and the offering and listing review system with information disclosure as the core will be further implemented. With the issuer as the first and foremost person responsible for information disclosure, the SSE will pay attention to whether they meet the conditions for offering and listing, and at the same time focus on review of information disclosure to urge them to fully disclose the information necessary for investors to make value judgments and investment decisions. Second, the project will be put under supervision immediately upon application, and the SSE will continue to strengthen the responsibilities of the issuers and securities service institutions. The issuers’ honesty and trustworthiness and the diligence of securities service agencies provide the foundation and guarantee for the registration-based system for corporate bonds. The SSE will urge the securities service institutions to fulfill their obligation for due diligence and responsibility for verification, to effectively act as the "gatekeepers". The SSE will take supervisory measures to deal with the severe violations in information disclosure such as financial fraud in accordance with laws and rules, so as to effectively maintain a regulated and orderly market environment and protect investors' legitimate rights and interests.
Q5: What should the market participants do after the registration-based system for corporate bonds is implemented?
A: The market participants should conduct organized study on the provisions concerning the registration-based system for the public offering of corporate bonds, and make effective efforts in implementation. In accordance with the “Securities Law”, the “State Council Notice” and other requirements, the corporate bond issuers should disclose information truthfully, accurately, and completely, and effectively complete the application for offering and listing of corporate bonds. The issuers should also set up and improve the information disclosure system for corporate bonds, and work efficiently on information disclosure in bond maturity. The securities service institutions should enhance internal management and risk control systems in accordance with the rules, intensify the verification on issuers’ information-disclosure documents, and urge the issuers to perform well in information disclosure. The bond investors should strengthen their learning of bond investment knowledge, and earnestly raise their awareness of taking the risks on their own according to the requirements of the “Securities Law”. Going forward, the SSE will organize trainings for the issuers, securities service institutions, investors and other parties involved in the registration-based system in a timely manner.
Q6: What are the follow-up arrangements of the SSE after the registration-based system for corporate bonds is implemented?
A: To prioritize the most urgent issues, the SSE has announced the relevant arrangements for the implementation of the registration-based system for the corporate bonds by releasing the "Notice". Moving forward, under the unified arrangement of the CSRC, the SSE will revise the supporting rules concerning implementation of the registration-based system for corporate bonds, market organization and service training etc., further improve market transparency and review efficiency, and promote the smooth implementation of the registration-based system for corporate bonds.