Since 2008, non financial enterprises have been permitted to issue debt instruments which can be traded on the inter-bank bond market, a primarily self regulated market under the supervision of China’s National Association of Financial Market Institutional Investors (NAFMII).
NAFMII has continued to support this self-regulatory system for the inter-bank bond market through the release of new rules introducing a market-driven appraisal system for NAFMII members underwriting or proposing to underwrite, debt instruments issued by non financial enterprises (Rules of the National Association of Financial Market Institutional Investors on Market Appraisal of Relevant Members for Underwriting of Debt Financing Instruments of Non-financial Enterprises -《中国银行间市场交易商协会非金融企业债务融资工具承销业务相关会员市场评价规则》).
Appraisal results will now be used by NAFMII in evaluating a member's application to become an underwriting member, or lead underwriting member, and in determining eligibility to participate in new products that may be rolled out from time to time in the inter-bank bond market.
Highlights
- Both those NAFMII members that underwrite debt instruments in the inter-bank bond market as lead underwriters or underwriters, as well as members who propose to underwrite (prospective underwriting members), are covered by the new rules.
- Appraisals will reflect three elements (i) quality of the institution and its business, for example its infrastructure, personnel and general market performance; (ii) assessment by investors, issuers and other fellow members on business capabilities, and (iii) assessment by the Secretariat of NAFMII of a member’s compliance with NAFMII’s self-disciplinary rules. Different standards are required of members who are lead underwriters, underwriters and prospective underwriting members.
- Whilst specific details are not given, the rules suggest that those NAFMII members with higher appraisal grades will be looked on more favourably, for example when seeking to upgrade their membership status or may be given priority in new businesses to be rolled out in the inter-bank bond market in the future.
- Appraisals will be conducted on an annual basis and NAFMII has announced that it will be rolling out appraisals for banks who are prospective underwriting members first.
If you would like to discuss anything regarding this Alert please contact Fang Jian (Shanghai), Nicola Mayo (Shanghai), Simon Poh (Shanghai), or Betty Yap (Hong Kong).
