CHINA: SZSE Launches Pilot Program of Credit Protection Certificates

Thursday October 29 2020

On 27^th October 2020, the Shenzhen Stock Exchange (SZSE) officially issued the Notice on the Pilot Program of Credit Protection Certificates and launched the pilot program of credit protection certificates. This is another important measure taken by SZSE to implement the decisions and plans of the Party Central Committee and the State Council, and play its role as a platform for serving the real economy and support direct financing of private enterprises via market-oriented methods under the leadership of the China Securities Regulatory Commission (CSRC).

Credit protection tools include credit protection contracts and credit protection certificates. The business of credit protection contracts has been running smoothly and orderly since SZSE launched the pilot program in November 2018. 17 institutions have registered as core contract dealers with SZSE. 67 credit protection contracts have been completed with a total value of CNY 3 billion, providing CNY 18 billion financings to entities. Most of the protected debts belong to private enterprises. The program has enhanced investors’ motivation for subscription, boosted bond issuance for private enterprises, and reduced their financing costs. On that basis, SZSE launched the pilot program of credit protection certificates to encourage more market players to participate in the business of credit protection tools.

Compared with one-to-one, highly personalized credit protection contracts, credit protection certificates have the following features: First, they are tradable and transferable, allowing flexible adjustments for investors as per their risk hedging needs. Second, it is convenient to participate. With relevant terms and conditions specified in the certificate manual, both sides could dispense with a master agreement. Third, the elements are standardized, and there are strict information disclosure requirements for the certificates. Fourth, pricing is market-based with book building and other methods adopted for the issuance to give full play to their price discovery function.

To ensure the orderly development of the credit protection certificate business, SZSE has issued the Pilot Measures of Shenzhen Stock Exchange and China Securities Depository and Clearing Corporation Limited (CSDC) for Credit Protection Tool Business and the Guidelines of Shenzhen Stock Exchange for Credit Protection Tool Business. Next, SZSE will actively guide market participants in applying to register as certificate issuing institutions, steadily advance the pilot program of credit protection certificates on the SZSE market, and further enhance support for direct financing of the real economy.

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