On May 16, 2022, the Bond Trading Rules of Shenzhen Stock Exchange and three supporting guidelines were officially implemented, with the supporting trading system commissioned. The "stock-bond separation" realized by SZSE in bond trading rules and systems in an all-round way marks a milestone in the SZSE bond trading rule reform and a new stage in the development of Shenzhen bond market.
Under the coordinated guidance of CSRC, SZSE fully cooperated with China Securities Depository and Clearing Corporation Limited and market participants in strictly implementing special supportive arrangements for launching the system, having smoothly completing switching between old and new systems and ensuring normal and orderly bond trading settlements. In the first week of the implementation of the new regulations, the trading system processed 21,300 declarations of spot bonds and 7,184,600 declarations of general pledged repurchases on a cumulative basis, with the trading volume of CNY 44.081 billion and CNY 859.777 billion respectively.
Witnessing stable trading with improvement in the first week
The new regulations have comprehensively optimized the existing bond trading rules of SZSE, with the aim to enhance the trading experience of investors from the aspects of trading mode, mechanism and management. First, trading modes are diversified. Modes of trading by matching, clicking and agreement are formed through optimization of the original auction and block trading, and the modes of trading by enquiry and bidding are added in the new regulations. In the first week, all the five trading modes were covered in the scope of declaration. Particularly, except for the trading by bidding, transactions were concluded in the rest four modes. New modes worked well. Second, trading mechanisms are made more flexible. The new regulations cancel the restriction on the range of declared prices for agreement-based trading, and guide investors to trade rationally by introducing a mechanism for reporting price deviation after the trading. Some risky bonds are successfully traded at reasonable market valuation prices, realizing the efficient market-oriented handling of bond credit risk, and enhancing trading continuity. Third, trading management is securer. In view of market demand, SZSE has established a bond trading account system to facilitate investors to implement counterparty management and other risk control measures. In the first week, investors successfully used the reported information on trading and participated in multiple declarations of trading by clicking, enquiry and bidding onymously or anonymously. The quality and efficiency of counterparty management were continuously improved, and the trading security was further guaranteed.
Optimizing infrastructure construction in the bond market in a service-based approach
Since 2018 when the bond trading mechanism optimization project was launched, SZSE has conducted in-depth research on market demand, and improved infrastructure construction in the bond market, with the focus on solving the "thorny problems" with the market.
First, market participants are expanded and the bond trading participant system is established. The new regulations further facilitate important institutional investors (such as bank, insurance and fund institutions) to directly participate in the exchange-traded bond market, and provide a policy basis for mainstream bond investment institutions to enter the market. Up to now, SZSE has preliminarily established a diverse investor system covering more than 300 bond trading participants (such as securities, fund and insurance companies and banks) and numerous individuals. Second, the liquidity support mechanism is diversified and market making business is unveiled. The market making mechanism is put in place. The first list of benchmark market making bonds is disclosed to guide prospective market making institutions to prepare for business. Third, market trading habits are accommodated. Declaration elements are regulated and the pricing method, trading time, tick size and declared quantity unit of bond trading are further linked with domestic and foreign markets, so as to lay a solid foundation for the optimization of trading mechanisms such as subsequent trading time extension. Fourth, market quote release is upgraded in an all-round way. The information about spot bonds, general pledged repurchase snapshot and tick quote is optimized in a coordinated way based on new bond trading modes, extended trading time and other arrangements. Large-sum order of trades by matching and the trade quotes are specially revealed. Statistical measurement indicators and indexes are further optimized. All these efforts are intended to provide market participants with bond trading information in more prompt, efficient, comprehensive and systematic manner and support investors to make reasonable decisions on investment trading. Fifth, flexible and efficient trading ways are offered. While accomplishing "stock-bond separation" in the backend of the trading system, SZSE has set an independent "zone for fixed-income products at the trading terminal" in the front end. Market participants can access the system through the traditional "electronic interface". They can also choose to use the "zone for fixed-income products at the trading terminal" to carry out bond business, so as to achieve flexible, efficient and direct transaction connection.
Teaming up to ensure steady implementation of new regulations
The optimization of bond trading rules and system involves a wide range of areas and a long chain. In order to help market participants informed of relevant changes, SZSE has given full play to the synergy of various market parties, made detailed preparations, stepped up investor publicity and education through multiple channels, and mobilized the market to ensure the smooth switching of existing businesses and the steady development of new businesses.
First, investor education and publicity were carried out through various channels. SZSE reviewed the major problems of market concern in advance, and carried out investor education and publicity covering more than 60,000 person-times by posting graphic publicity products, issuing the manual of 100 Questions & Answers of Bond Trading Rules of Shenzhen Stock Exchange and organizing online special training. Second, with the emphasis on priorities and key links, SZSE reminded market institutions to make adequate preparations. Through feature notification, online announcement, point-to-point reminder and other ways, SZSE prompted the market to implement the adjustment of pricing methods, account information reporting, brokerage business management and other preparations, so as to ensure full coverage of key business points.
Under the leadership of CSRC, SZSE will cooperate with various parties in the market to further improve the supporting projects related to bond trading, enhance market liquidity and trading convenience, accelerate the establishment of a bond market system with robust infrastructure, efficient market operation, sound price discovery and effective risk control mechanism, and boost the high-quality development of the exchange-traded bond market.