To implement relevant requirements on preventing and defusing the shares collateral risks of listed companies given by the Financial Stability and Development Committee under the State Council and encourage and help market participants to defuse risks, upon the approval of the China Securities Regulatory Commission (CSRC), the Shanghai Stock Exchange (SSE) releases the “Notice on Issues Related to Collateralized Repo Trading of Shares” (the Notice for short) on January 18, 2019. The Notice comes into force on the date of release.
The Notice mainly includes the following two aspects. First, it has optimized the extension arrangement for default contracts. When the financed side breaks the contract and needs contract extension to relieve its credit risk, and if the accumulated repo period approaches or reaches 3 years, upon the agreement of the two sides, the accumulated repo period after the contract extension can exceed 3 years and the inventory extension will be adopted to relieve the repayment burden of the financed party. Second, it has made clear the special arrangement for the newly-added trading for default contracts. When the financed capital of the newly-added collateralized repo of shares is entirely used for paying the debts of the default contract, it will not be subject to the articles on the upper limit of the overall collateral ratio of the single financing side and the market, and the asset management plan that cannot be regarded as the restriction and the upper limit of the collateral ratio when the financing side takes part in the collateralized repo of shares involving a promise of business performance in the existing measures for business of collateralized repo of shares. However, the newly-added trading way can be made to relieve the liquidity pressure of the financed party. In addition, the Notice requires that members should carefully evaluate the credit risks and contractual fulfillment capacity of the financed party and well manage the risks of the collateralized repo of shares.
Relevant official said that all parties have actively taken part in defusing the shares collateral risks of listed companies, especially listed private companies. The Notice aims to support the implementation of the bail-out measures of relevant parties, which will play an important role in defusing the risks of collateralized repo of shares. Next, the SSE will continue to offer its support for relieving risks and win a battle in preventing and defusing major risks together with all relevant parties.