On 27 January 2022, SZSE officially released the Bond Trading Rules of Shenzhen Stock Exchange and three supporting guidelines. With the issuance, SZSE has completed the initial shape of the bond trading regulations framework with three clear layers of “rules, guidelines and guides”, further detailed the arrangements for optimizing the bond trading mechanism, and wrapped up the upgrading of the technical system for the bond market, marking another important step toward the high-quality development of the SZSE bond market.
Building the “1+3” bond trading rules system
SZSE attaches great importance to and has continuously promoted the building of a bond market system featuring complete infrastructure, efficient market operation, excellent price discovery, and effective risk control. The issuance of the Bond Trading Rules and its supporting guidelines is an important measure of SZSE to earnestly implement the requirements of higher laws. It is also a move to, under the arrangements and guidance of China Securities Regulatory Commission (“CSRC”) and following investor demand and the objective law of the bond market, speed up the decoupling process between stock and bond trading rules and systems, improve basic rules and regulations of the market, and strengthen the service capability of bond trading infrastructure.
The Bond Trading Rules and its three supporting guidelines on management of participants in bond trade, general bond pledged repo, and bond market making respectively have separated bond trading rules from the exchange’s trading rules and built a “1+3” trading rules system that is relatively independent, parallel, simple, clear and user-friendly, making it easy for market investors to understand and use them. The Bond Trading Rules is the basic business rules on trading in the bond market and provides a fundamental rules framework for bond trading. The three guidelines, as detailed and supplementary provisions to the Bond Trading Rules, require developing management regulations on participants in bond trading and bond marketmakers and systematically summed up the previous rules on bond pledged repo that are scattered and fragmented, further improving the pertinence, applicability and operability of the rules and making sure the rules can be steadily implemented.
Optimizing the bond trading mechanism in all respects
Based on market demand and regulatory practice, the Bond Trading Rules and its supporting guidelines have made multi-level, comprehensive arrangements for optimization of bond trading at SZSE.
First, expanding the coverage of participants and strengthening classified management to optimize the bond market ecosystem. The Bond Trading Rules has established and improved the regulations on participants in bond trading, to make it more convenient for important institutional investors such as banking, insurance and fund institutions to directly participate in the exchange-traded bond market, thus enhancing the echelon building of buyers. In the meantime, on the basis of the regulations on participants, it has specified regulations on bond marketmakers. Specifically, it has set the layered architecture of major marketmakers and general marketmakers and established evaluation and incentive mechanisms, further improving the liquidity and stability of the bond market and refining the price discovery function.
Second, enriching trading arrangements, improving the flexible allocation, and actively adapting to the trading needs of bond investors. In terms of the mode of trading, the Bond Trading Rules has made improvements on the basis of auction trading and block trading in original rules and formed match-based trading, click trading, and negotiation-based trading, and added mainstream modes of trading in domestic and overseas bond markets such as inquiry trading and bid trading, improving the efficiency of trading. In terms of flexibility, bond investors that meet specified conditions may choose a settlement method and settlement cycle themselves. For click trading, inquiry trading and negotiation-based trading that meet relevant conditions, the transaction cancellation mechanism has been introduced, giving investors more initiative in negotiation-based trading. In terms of reference price, the transaction price mechanism has been adjusted and optimized and the transaction results with different modes of trading are included in opening (closing) prices for calculation, enhancing the market reference value of transaction prices.
Third, standardizing transaction declaration elements and considering basic market arrangements as a whole to create conditions for coordination and connection of trading infrastructure. To adapt to the mainstream trading habits of investors and facilitate connection between domestic and foreign markets, the Bond Trading Rules has standardized trading elements. It has adjusted the unit of amount of declaration to “face value” and raised the threshold of amount of spot trading bonds for declaration to CNY 100,000 in face value (except in negotiation-based transaction); it has unified the minimum price change unit as CNY 0.0001 (except in match-based transaction); it has defined the pricing method of declared value, stating that unless otherwise specified by SZSE, the value of spot trading bonds shall be declared by net price; and it has lengthened trading hours by stages, extending the trading hours of match-based transactions to 15:30. Meanwhile, it has left room for further expansion.
Fourth, optimizing the risk management mechanism and systematically regulating general repo arrangements to maintain the stable and healthy development of the bond market. The Bond Trading Rules has further strengthened risk management in bond trading from the perspective of regulation of participants and trading behaviors. It has defined abnormal trading behaviors and abnormal price and volume changes and established the reporting policy for deviation in transaction prices, to facilitate the stable operation of the market. The supporting guidelines have systematically laid down provisions on operation relating to general bond pledged repo that cover all procedures including transaction declaration, management of pledged bonds, in-and-out-of-storage management and risk control, and further improved relevant arrangements.
Steadily realizing stock-bond decoupling and upgrading of the technical system
Adhering to seeking progress while maintaining stability, SZSE has made rules and technology preparations simultaneously. We have further optimized and adjusted the trading system platform architecture, promoted in depth the stock-bond decoupling and upgrading of the trading system, and achieved “four strengtheneds” in the system. Flexibility and convenience have been strengthened. We have synchronously launched the “trading system electronic interface + trading terminal fixed-income zone” multi-access channel, to make it easier for investors to participate in bond trading at SZSE flexibly. Business integration capability has been strengthened. We have planned the building of the system as a whole and integrated the functions of spot trading, bond repo trading, put-back business, integrated trading information display, etc., to meet investors’ diversified trading needs. Professional service capability has been strengthened. By taking into full account users’ personalized needs, we have created a wholly new fixed-income bonds zone that offers a complete range of services, has a friendly interface, and is easy to operate and highly compatible. Scalability has been strengthened. With a focus on functions necessary for putting in place the bond trading rules, we have intensified the guarantee measures for the safe operation of the market, and reserved room for realizing interconnection of bond markets and implementing reform and innovation tasks in future.
Next, SZSE will continue to follow the leadership of CSRC and adhere to the principle of giving priority to stability and seek progress while maintaining stability. We will coordinate market participants to take solid steps to implement every detail of work, strengthen market training and investor education, organize market participants to promote development, upgrading and testing of technologies in a steady and orderly manner, to ensure the stable transition and safe operation of the system. Meanwhile, we will continue to refine the bond trading rules system and relevant infrastructure, do a good job in the transition to the supporting rules on bond trading, and continuously improve the carrying capacity of the technical platform of the SZSE bond market, thus further promoting the high-quality development of the exchange-traded bond market.