Multi-dimensional regulation of bond issuance The central bank solicits public comments on the “Administrative Rules for the Issuance of Bonds in the Interbank Bond Market”
The Zhitong Finance App learned that on October 16, the People's Bank of China publicly solicited comments on the “Administrative Rules for Issuing Bonds in the Interbank Bond Market”. The “Rules” consist of 28 articles, which strengthen regulations on the issuance of bonds from the three dimensions of issuers, underwriters, and investors. Regulate issuers' issuance and pricing practices, including prohibiting issuers from subscribing and disguising subscriptions for bonds issued by themselves, and stipulating that no one may directly or indirectly assist issuers to subscribe or disguise subscriptions for bonds issued by themselves; prohibiting issuers from interfering with investors' subscription decisions or interfering with pricing by means of rebates; clarifying the pricing requirements of different bond issuance methods; and promoting issuers to optimize the selection and recruitment criteria of underwriters to improve the quality of bond underwriting services.
Regulate the underwriting behavior of underwriters. These include prohibiting underwriting at low prices, stipulating that underwriting fees must not be significantly lower than the fair level of the industry; prohibiting prior promises of bond bidding prices or issuance prices (interest rates); regulating acts such as underwriting, proxy investment and payment; strengthening internal control requirements such as conflicts of interest and information isolation of underwriters; and strengthening market-based restraint mechanisms such as information disclosure.
Regulate investors' subscription behavior. These include prohibiting investors from making false bids; prohibiting deliberate mass declarations and cancellations to disrupt bond issuance prices (interest rates) and placements; and not to interfere with prices; and the bid price is clearly lower than the fair market price. The Rules also clearly prohibit acts such as insider trading and transfer of benefits.
Standardize issuance processes such as bookkeeping and filing. Bookkeeping establishments are required to be able to record all inquiries, adjustments, and pricing decision information records throughout the process, and form immutable records for subsequent verification.
Strengthen supervision and management of the issuance and pricing process. Clarify that the People's Bank of China supervises and manages the issuance of bonds in the interbank bond market; establish a closed-loop management mechanism for first-line monitoring, self-regulatory management, administrative supervision, and unified enforcement; clarify that the People's Bank of China and its branches can take supervisory measures such as ordering rectification, supervisory conversations, etc., and administratively punish illegal acts in accordance with the law; strengthen execution links, and refer suspected criminal acts to the judicial authorities for criminal liability in accordance with the law.
The original text is as follows:
Rules for the Administration of Issuance of Bonds in the Interbank Bond Market (Draft for Comments)
Article 1. These rules are formulated in accordance with the “People's Bank of China Law” and other laws and regulations to regulate the issuance of bonds in the interbank bond market, maintain market order, and promote the healthy development of the market.
Article 2. These rules apply to marketable securities (hereinafter referred to as bonds) issued by domestic and foreign issuers in the interbank bond market that agree to repay debt and interest on time.
Units and individuals participating in the issuance of bonds in the interbank bond market shall abide by these rules.
Article 3. The issuance of bonds shall follow the principles of marketization, legalization, fairness, honesty and credit. The issuance price, interest rate, and commission fees involved in the issuance process of bonds shall be determined in a market-based manner.
No unit or individual may affect the fair pricing of bonds, violate fair competition, transfer benefits, seek improper benefits, harm investors' rights and interests, or disrupt market order.
Article 4 The People's Bank of China shall supervise and administer the issuance of bonds in the interbank bond market in accordance with law. The China Interbank Market Dealers Association (hereinafter referred to as the Association of Dealers) performs self-regulatory management duties on the issuance of bonds in the interbank bond market.
The People's Bank of China can send observers to monitor bond issuance on site to maintain the fairness, impartiality, and orderly issuance process.
Article 5 Issuers shall strictly abide by the laws and regulations of the interbank bond market, maintain market order, and protect investors' rights and interests. The issuer can flexibly adjust the distribution scale according to market conditions.
Issuers may not subscribe or disguise subscriptions for bonds issued by themselves. Shareholders holding more than 5% of the issuer's shares and other related parties that directly or indirectly subscribe to the issuer's bonds shall promptly disclose information.
Article 6. On the basis of legal compliance, issuers may choose to underwrite distribution or issue directly to investors. Where underwriting is chosen, the issuer can independently choose whether to form an underwriting group.
Where issuers choose to issue directly to investors, they shall guarantee the fairness and impartiality of bond issuance and bear their own obligation to disclose information and protect investors.
Article 7. Issuers shall establish a multi-dimensional underwriting agency selection and recruitment mechanism, comprehensively consider the market pricing capabilities, distribution plan design capabilities, sales capabilities, etc., and select and hire underwriters in accordance with the principles of fairness and impartiality.
Issuers should reasonably set principles for underwriting fee allocation, and encourage issuers to allocate underwriting fees in accordance with the division of responsibilities of underwriting agencies, introduction of order quality, etc.
Article 8 Underwriting agencies, securities service agencies, etc. shall use the principle of marketization to reasonably determine the costs of various services involved in issuing bonds, shall not make quotations that are clearly below the fair level of the industry, and shall not obtain customers through unfair competition such as underwriting at low prices or disguised underwriting.
No unit or individual may interfere with the independent conduct of business by underwriters or securities service agencies in accordance with law.
Article 9. Issuers shall take effective measures to ensure that their non-public information is not misdisclosed or used.
Bond underwriting agencies shall formulate and strictly implement risk management and internal control systems for underwriting operations, effectively isolate and prevent conflicts of interest, and ensure the fairness and impartiality of the bond underwriting process. The team responsible for undertaking bonds should keep necessary information separate from the team responsible for bond sales. The bond underwriting business should maintain relative independence from bond investment transactions, deposit and loan business, and interbank business.
Underwriters are encouraged to provide market making services for newly issued bonds to promote active trading in the secondary bond market.
Article 10. In the process of issuing bonds, issuers, underwriters, and securities service agencies shall guarantee the fairness and impartiality of bond issuance, ensure the timeliness, authenticity, and consistency of information obtained by investors, and must mislead or induce investors by conveying pricing, subscription or bidding information.
In the process of issuing bonds, underwriters should identify the appropriateness of investors and understand the investor's situation. Where an underwriting group is formed, members of the underwriting team shall provide the lead underwriter with a working paper to identify the suitability of investors.
Article 11. Prices for bond issuance may be determined by means of tenders, bookkeeping, filing, quotations, agreements, etc. Issuers that use quotations and agreements to determine prices should themselves have professional pricing capabilities and be familiar with the issuance and pricing mechanisms of the interbank bond market.
Article 12. The bond issuance price (interest rate) range shall be set reasonably. The bond tender or bookkeeping price (interest rate) range shall include the fair price (interest/yield) of comparable bonds. If issued by means of quotation or agreement, the bond price (interest rate) shall refer to the fair price (interest/yield) of comparable bonds.
Article 13 Where pricing is used by means of tendering, issuers, bid participants and other relevant parties shall abide by the relevant regulations on tendering and issuance in the interbank bond market, and prohibit acts that damage fair competition, such as insider trading, fraud, and collusion.
Article 14 Where pricing is made using bookkeeping and filing methods, the issuer may independently choose the underwriting agency's own bookkeeping filing site or a centralized bookkeeping filing site provided by a third party. Bookkeeping and filing offices should maintain the safety and efficiency of systems related to bond issuance to ensure the smooth operation of bond issuance. The bookkeeping and filing site shall meet the following conditions:
(1) It has a department dedicated to bookkeeping and filing business and is staffed with qualified full-time personnel;
(2) It has an independent physical location and is equipped with a secure and stable bookkeeping and filing system, which can record the subscription information of bookkeeping documents and decision-making processes such as price range adjustment changes, pricing, placement, etc. in a true, accurate, complete and timely manner, and form immutable electronic records;
(3) Have a complete bookkeeping and filing site management system, which clearly stipulates the use of bookkeeping and filing sites, personnel responsibilities, operating procedures, emergency treatment, etc.
Those responsible for providing bookkeeping and filing services shall reserve the case with the provincial branch of the People's Bank of China where the bookkeeping and filing place is located.
Article 15. The bond underwriting business shall adopt the method of consignment or underwriting.
Where an underwriting agency carries out balance underwriting, it shall be carried out after the end of the bond underwriting period, and shall not crowd out the effective subscription scale in the market. The underwritten bonds must not be pre-purchased and kept until the underwriting period is over. Where bookkeeping is used, in principle, the bond balance underwriting subscription interest rate shall be determined according to the upper limit of the bond interest rate range.
Article 16 The principles of bond placement (including marginal placement) shall be clearly agreed upon in bond issuance documents, and the placement principles shall be clear and transparent. The bond placement and distribution process shall be carried out in strict accordance with the agreement.
Article 17. Investors carrying out bond purchases shall make independent and prudent quotations and purchase decisions based on their actual financial situation and investment strategies.
Where pricing is based on bookkeeping and filing, where the underwriting agency accepts the commissioned investment, the client information shall be clearly indicated on the investment order.
Article 18 The issuer or underwriter shall promise that the bond issuance process is legal and compliant, and promptly disclose the issuance results.
Where an underwriting agency underwrites or an underwriting agency related party subscribes, the relevant circumstances shall be promptly disclosed.
Article 19. Participants such as issuers, bookkeeping managers, underwriting agencies, investors, and places that organize the issuance of bonds shall do a good job of storing, managing, and managing the security of bond issuance work files. Retained content shall be standardized, complete, and traceable, and fully reflect the entire issuance and pricing process of bond inquiries, bond price (interest rate) range setting, determination and placement, including but not limited to inquiry process information, subscription order records, pricing process instructions, audio and video data, communication records, final placement results, etc.
Where instant messengers are used to communicate, relevant communication information should also be promptly marked and retained.
Except as otherwise provided by laws and regulations, the retention records shall continue to be kept for five years after the debt is repaid.
Article 20 Where market participants commit any of the following acts, the People's Bank of China and its branches may adopt supervisory measures such as supervisory conversations, issue reminders or warning letters, order public explanations, and order rectification.
(1) Forcing to reduce underwriting costs, or directly or indirectly linking the selection and employment of underwriters to the bond issuance price (interest rate) or subscription scale;
(2) The underwriting agency has failed to establish effective internal control mechanisms such as risk prevention and control and conflict of interest in accordance with the requirements of these Rules;
(3) Underwriters solicit business through improper means, such as being significantly below the fair level of the industry;
(4) The underwriting agency accepts the commissioned investment and fails to indicate the client information in accordance with these rules;
(5) Market participants fail to manage, transmit, disclose or retain information in accordance with the provisions of these Rules;
(6) Places that organize the issuance of bonds do not meet the requirements of Article 14 of these Rules.
Article 21 If a market participant commits any of the following acts, the People's Bank of China may punish them in accordance with the provisions of the People's Bank of China Law. Those suspected of committing a crime are referred to the judicial authorities for criminal liability in accordance with law:
(1) Interfering with bond issuance pricing by returning underwriting fees, directly or indirectly providing financial support to investors, or compensating investment losses;
(2) Improperly interfering with investors' subscription decisions, forcing underwriters, investors to subscribe for underwriting, etc.;
(3) Issuers subscribe or disguise subscriptions for bonds issued by themselves;
(4) Directly or indirectly assist issuers to subscribe or disguise bonds issued by themselves;
(5) Shareholders and other related parties holding more than 5% of the issuer's shares carry out price manipulation and transfer of benefits by directly or indirectly subscribing to the issuer's bonds;
(6) Pre-purchased underwritten bonds before the end of the underwriting period and underwriting or disguised underwriting for the purpose of price or volume manipulation;
(6) Promise the bid price or issue price (interest rate) of the bond in advance;
(7) Providing false information or uncertain important information to mislead or induce investors;
(8) Manipulate issuance prices or quantities alone or through collusion, collusion, etc.;
(9) Fictitious bid scale or purchase intention to make false bids;
(10) Intentional mass declarations and cancellation of declared prices or quantities to disrupt bond issuance prices (interest rates) and placement;
(11) For the purpose of deliberately interfering with pricing, the bid price was significantly lower than the fair market price;
(12) Manipulating the bond market price and issuance scale in an improper manner;
(13) Using non-public information to conduct insider trading;
(14) Seek improper benefits or transfer benefits to other entities by means of proxy holding or investing on behalf of others;
(15) Other acts that violate these rules, violate fair competition, and disrupt market order.
Where illegal acts involve unified enforcement matters in the bond market, they are dealt with in accordance with the unified enforcement mechanism.
Article 22 All provinces, autonomous regions, municipalities directly under the Central Government and planned separate municipal branches of the People's Bank of China shall strengthen monitoring of bond issuance and pricing within their jurisdiction. Where bond pricing clearly deviates from fair value, they can promptly understand the situation with the relevant agencies through measures such as letters, inquiries, interviews, etc., and request relevant units to provide explanations and pricing grounds. If clues of illegal violations are discovered, they should be promptly reported to the People's Bank of China and notified to the Dealers Association, and actively cooperate with the head office to complete the law enforcement inspection work. Relevant units and individuals shall cooperate to provide relevant documents and information truthfully, and must not refuse, obstruct or conceal them.
Article 23. National interbank lending centers and interbank bond market registration, escrow and settlement agencies shall actively play a first-line monitoring role, strengthen monitoring of the issuance and pricing process involved in the business, and promptly report to the People's Bank of China and relevant financial supervisory authorities after discovering major violations of laws and regulations by financial institutions.
If market participants discover illegal acts in bond issuance, they can complain and report them according to law and regulations.
Article 24. Dealers associations shall formulate self-regulatory management rules in accordance with these Rules. After discovering or receiving clues about acts in violation of self-regulation rules, the Association of Dealers shall promptly initiate a self-regulatory investigation procedure, form an opinion on how to deal with it, and report it to the People's Bank of China.
Dealers associations should establish and improve market-based evaluation mechanisms linking underwriting agencies' pricing capabilities to underwriting agencies' evaluation results, and strengthen market-based restrictions on underwriting agencies' behavior.
Article 25 Where an enterprise, underwriting agency, securities service agency and related personnel fail to fulfill the obligation to disclose information in accordance with the relevant regulations of the interbank bond market or contains false records, misleading statements or material omissions in the documents disclosed, the People's Bank of China shall deal with illegal acts of information disclosure in accordance with the relevant regulations; matters involving unified enforcement of the bond market shall be dealt with in accordance with the unified enforcement mechanism.
Article 26 Asset-backed securities in the interbank bond market shall be implemented with reference to these Rules.
Article 27: The People's Bank of China is responsible for interpreting these rules.
Article 28: These rules take effect on this month.
This article was selected from the official website of the “Central Bank”. Zhitong Finance Editor: Jiang Yuanhua.