Bond underwriting “price war” or usher in strong constraints

Recently, a reporter from the Economic Observer Network learned from insiders of securities firms that the Securities Association of China (hereinafter referred to as the China Securities Association) on June 23 revised the “Measures for the Evaluation of Securities Companies’ Corporate Bond Business Practice Ability” (hereinafter referred to as the “Evaluation Measures”). Soliciting opinions and requesting feedback before June 30.

Bond underwriting "price war" or usher in strong constraints

It is understood that the China Securities Association, in response to the recommendations of the industry and the regulatory authorities, based on the actual situation of the industry, currently intends to “ensure the system and personnel, drive business capabilities, support compliance business capabilities, and take risk control effectiveness as the original method. In order to restrict, and to serve the national strategic ability as an incentive, make relevant adjustments. The direction of the adjustment is mainly to promote the high-quality and sustainable development of corporate bond business, to guide various securities companies to “be better and stronger” through evaluation and to consciously maintain the order of market competition.

In recent years, bond underwriting frequency and ultra-low price competition have continuously attracted industry attention. Previously, the 10,000 yuan underwriting fee in the Jiaxing Bank’s perpetual bond bidding has also caused widespread discussion in the industry. For this reason, the regulatory authorities have repeatedly controlled bond underwriters’ competitive means of using “fracture prices” as a bargaining chip.

On April 7 this year, the Securities Industry Association of China issued the “Guidelines for the Internal Constraints of Corporate Bond Underwriting Quotations”, which further clarified that underwriters should establish an internal constraint system for corporate bond underwriting quotations. If the quotations are below the internal constraint line, the underwriters should perform Internal special approval procedures, and then submit a special explanation to the association within 3 working days.

Two and a half months later, the revised version of the “Appraisal Measures” was officially issued to securities firms to start a solicitation of opinions. It can also be seen that the supervision has attached great importance to the issue of bond “price war”.

The China Securities Association pointed out in the “Evaluation Measures” revision statement that this revision will guide various securities companies to maintain the order of competition in the corporate bond market from both pros and cons. On the one hand, appropriate points will be given to securities companies whose corporate bond underwriting quotations have an internal constraint line above the industry average, in order to provide incentives for the strict control of corporate bond underwriting quotations; Corresponding deductions will be made for the severity of the circumstances to alert the industry to orderly development.

He also said that the recent low-price competition of corporate bonds has been reflected from time to time, which has had a negative impact on market ecology and industry image. The long-term sustainable development of the corporate bond market depends on the maintenance of a healthy competition order. After the new round of adjustments, the overall idea of ​​the evaluation will be guaranteed by the system and personnel, driven by business capabilities, supported by compliance, and driven by wind. Control the actual effect as the constraint, take the maintenance of market order as the foundation, serve the national strategy as the incentive, and take the registration review status as the supervision.

“Price war” strong constraints

As a hot spot in the debt market, the phenomenon of low-price corporate bond competition has always appeared frequently. In addition to the “floor price” of the Jiaxing Bank’s perpetual bonds this year, a single medium-term note project in Hainan also broke out last year. The selected lead underwriter gave an underwriting rate as low as 0.03‰.

To this end, as early as January 12 this year, the China Securities Association, in conjunction with the Bond Department and Institutional Department of the China Securities Regulatory Commission, conducted on-site interviews with 12 securities companies suspected of low-price competition. It is understood that 12 securities companies have participated in China The tender issuance of the railway investment company bond project and the China Nuclear Capital Holding Company bond project. In July last year, eight brokerages, including leading companies such as CITIC Securities and CICC, also initiated a self-discipline investigation by the China Securities Association due to low underwriting fees during the bidding process for China Nuclear Financial Leasing Corporation’s bond issuance.

In order to improve the status quo of the market, in this “evaluation method”, the ability evaluation indicators have been refined from the past five to seven, including the personnel and system guarantees of the securities company’s corporate bond business, business capabilities, compliance development, and risk control. There are seven categories of indicators for effectiveness, market order maintenance, registration review and national strategy service.

Specifically, the full score of the ability evaluation index is still 100 points. The full score of personnel and system guarantee indicators is 20 points, the full score of business capability indicators is 20 points, the full scores of compliance development indicators are 20 points, the effective risk control indicators are full scores of 20 points, the market order maintenance indicators are full scores of 10 points, and the national strategic indicators for serving the country 10 points. The registration audit index is the adjustment sub-item of the total score of the ability evaluation.

At the same time, the China Securities Association particularly emphasized that the market order maintenance indicators mainly reflect the maintenance of market competition order when securities companies conduct corporate bond business, including the internal constraint line indicators of corporate bond underwriting quotations and normative competition indicators.

The China Securities Association further pointed out in the “Evaluation Measures” revision statement that this revision will guide securities companies to maintain the order of competition in the corporate bond market from both pros and cons. On the one hand, appropriate points will be given to securities companies whose corporate bond underwriting quotations have an internal constraint line above the industry average to provide incentives for the strict control of corporate bond underwriting quotations; on the other hand, relevant behaviors involving low-price competition will be considered. Corresponding deductions will be made for the severity of the circumstances to alert the industry to orderly development.

Among them, the “Appraisal Measures” corporate bond underwriting quotation internal constraint line indicator has a full score of 2 points. If the internal constraint line of the corporate bond underwriting quotation is above the industry average, 2 points will be awarded; if it is below the industry average, no points will be awarded.

In addition, the standard competition index for corporate bonds has a full score of 8. If the development of corporate bond business involves low-price competition and is interviewed by regulatory authorities or self-regulatory organizations, or the special description of internal constraints on the reportable corporate bond underwriting quotation is not submitted in time, 1 point will be deducted each time; because the development of corporate bond business involves low-price competition If self-discipline measures are taken, 2 points will be deducted for each item; if administrative supervision measures are taken for conducting corporate bond business involving low-price competition, 4 points will be deducted for each item; administrative penalties and more severe penalties will be imposed for conducting corporate bond business involving low-price competition Yes, 8 points are deducted for each item.

Industry insiders also pointed out that the “price war” can only occupy the market in the short term. In order to maintain market share for a long time in the future, underwriters still need to improve their own strength.

Encourage “stronger” rather than “bigger”

It is worth mentioning that some people believe that one of the reasons for the current “price war” in the bond market is that many brokerages are overly pursuing scale in the bond business in order to obtain a better ranking in the industry.

For this reason, the China Securities Association clearly pointed out in the “Evaluation Measures” that among the aforementioned seven capability evaluation indicators, the business capability indicators mainly reflect the market influence of securities companies in their corporate bond business. The business capability index accounted for 30 points in the original evaluation method. In order to guide the industry to weaken its excessive emphasis on scale, strengthen the industry’s focus on compliance, risk control and long-term sustainable development, and encourage the industry to “strengthen” rather than “large”, this revision deletes the corporate bond underwriting amount indicator. Reduced the score of the index of the number of corporate bond lead underwriting projects.

In the detailed regulations, it can also be understood that the original Article 12 “the corporate bond underwriting amount indicator is based on the sum of the amount of corporate bonds underwritten by the securities company in the previous year. The securities company shall follow its actual commitment and completion in the corporate bond underwriting business The description of “calculating the underwriting amount of “has been deleted.

On the other hand, the “Evaluation Measures” will also add registration review indicators. At present, under the corporate bond registration system, the China Securities Regulatory Commission and the exchange are respectively responsible for project registration and review, and have in-depth knowledge of the project quality and risk status of each securities company. In order to reflect the specific conditions of the projects carried out by various securities companies in the evaluation of practice ability, this revision collects the opinions of bond registration agencies and review agencies. If the corporate bond registration agency or review agency reports in writing that the securities company has relatively poor project quality, 8 points will be deducted from the total ability evaluation score. If the company’s bond registration agency or review agency reports in writing that the company has major and poor project quality, the total score of the ability evaluation will be deducted by 15 points.

In terms of the improvement of the evaluation process, the “Evaluation Measures” also added considerations to matters after the evaluation period. The China Securities Association stated that, in light of the actual situation, considering that individual securities companies may undergo major changes or obvious abnormalities after the evaluation period, this revision will pre-deduct points in the year of evaluation for major circumstances involving deductions. Except for this situation in the next year’s evaluation, there will be no repeated deductions.

It is understood that, according to the performance evaluation scores of securities companies, the evaluation results of corporate bond business practice capabilities will be divided into three categories: A, B, and C. In principle, the securities companies with the top 30% of the evaluation scores are classified as category A, the securities companies with the bottom 20% of the evaluation scores are classified as category C, and the securities companies in the middle part of the ranking are classified as category B. The classification will be adjusted according to the standard and according to the actual situation.

In addition, securities companies that have obtained securities underwriting qualifications for three years but did not carry out corporate bond underwriting and entrusted management businesses in the previous year are classified as category C; it is stated that in the service national strategic capability indicators, the “village revitalization corporate bonds” clear mechanism After the arrangement, it replaces poverty alleviation corporate bonds.

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