Bond Issuance by Securities Companies: A New Beginning

(ii) information disclosure obligations of the bond issuer and protection of investors' interests;

(iii) introduction of the qualified investor concept and issuance of bonds to these investors;

(iv) engagement of a creditors' agent for the investors, with the power of attorney (the agent shall supervise the bond issuer on behalf of the bond holders); and

(v) set up of a bondholder's conference per the stipulations of the contract, in order to form collective opinions on matters crucial to bondholder's interests and the protection of their interests.

The Tentative Procedures also specify repayment measures, including that the bond issuer shall open a special repayment account for repayment of the principal and interest. Disclosure issues are also covered, including indication of the capital origins of the account, and other relevant issues concerning the supervision and regulation of the account.

Promoting Business Innovation

The issuance of bonds by securities companies can broaden the scope of their businesses, and establish a collective trading system. Innovation in the issuance of a new product and creation of a new type of security will provide additional choices for investors and make the security market more lively.

Sufficient Protection of Investors' Interests

The Tentative Procedures stipulate that a security company shall meet the CSRC's relevant conditions and will make bond prospectuses, listing announcements, and regular reports, and will offer ongoing information disclosure of all necessary information to investors. The bond issuer and other relevant parties are forbidden from misleading investors by any means. Public announcements via newspapers or Internet websites designated by the CSRC is mandated for all public bond issues. Similarly, proper information disclosure is required for private issues to qualified investors per CSRC guidelines. Direct or indirect public disclosure of the prospectus or other relevant documents for a private issue is prohibited.

Improving Capital Allocation and Providing New Financing Channels

Permitting securities companies to issue bonds can provide needed capital from outside the market, which can bring more steady liquidity to the market. Also, the new regulations offer a method to better explore how to develop the corporate bond market.

For quite some time, a lack of legal methods for financing has obstructed the growth and development of the securities industry. Currently, save for capital increases, public offerings or new share sales, there are only three lawful financing channels: inter-bank offerings, redemption of national debt, and issuance of loans secured by shares. It is hoped that bond issuance by securities companies will become an important means to bridge the capital and currency markets, and will lead to new growth in both markets.

Conclusion

The introduction of the Tentative Procedures is a welcome step in the accelerated development of China's securities companies. Hopefully the new rules will greatly broaden the available financing channels for PRC securities firms and lay a solid foundation for the sustainable development of the industry as a whole. We look forward to commenting further on developments in this area as they occur.