Industry Experts Gather to Discuss the Bond Market Registration & Depository Systemfrom A Legal Perspective
——CCDC Successfully Held the First Serial (International) Academic Seminar “Pujiang Salon” in 2019
On March 7, China Central Depository & Clearing Co., Ltd. (CCDC) successfully held the first Serial (International) Academic Seminar “Pujiang Salon” in Shanghai, under the themed “The Registration & Depository System from A Legal Perspective.” The seminar was graced by more than 40 representatives from nearly 20 organizations, including officials from the People's Bank of China (PBOC) Shanghai Head Office, professors from the academia, partners of reputed law firms, delegates from China Securities Depository and Clearing Corporation Limited (CSDC), as well as legal and product management experts from global custodians and local bond settlement agents (BSAs).
The “Global Connect”（CIBM settlement agency model）is the main channel to access the China bond market. By the end of February 2019, more than 800 accounts have been opened with CCDC by overseas investors, who currently hold about RMB1.43 trillion (approx. USD213.91 billion) of bond assets, accounting for about 90% of CIBM bonds held by overseas investors. The “Global Connect” enables overseas investors directly participate in CIBM by adopting the “direct holding + settlement agency” mechanism has been proved to be more effective.
With the accelerated opening-up of China's capital market, especially the CIBM, the attention and investment of overseas investors in the Chinese bond market is also expanding. On the one hand, overseas investors are more concerned about the safety of their assets in CIBM, and put forward higher and finer requirements for cross-border products and services. On the other hand, there exist confusion or even misconception on the nature and legal relations of depository services among market participants. Therefore, the theme of this salon was thus warmly accepted by experts and practitioners, which fully reflects that discussions on this topic are imperative.
The same-name keynote speech started with the basic core concepts of “direct holding” and “indirect holding”. The historical path of the development of custody services overseas was first reviewed. It explained the reasons behind the advent of “indirect holding mode” as well as its supporting legal system that has been gradually perfected over the years. Then, the changes to the securities holding mode in the electronic era was introduced. Taking China's inter-bank bond market (CIBM) as an example, the short process of making bonds to scripless and establishing its electronic registration & depository system, has realized the “direct holding mode” under the Chinese legal framework. The centralized registration of investors’ bonds by central securities depositories (CSDs), solidly protects the ownership rights of end investors. Further, the focus moved onto conflicts across legal jurisdictions and differences between legal arrangements of “indirect holding mode”. The problem will be inevitable under cross-border business and failures will be encountered in protecting the rights of investors. The last not the least, the major legal conflicts between “direct holding” and “indirect holding” under cross-border scenario and the global trend of “see-through” regulation was left for deep thinking and discussion by salon attendees.
During the follow-up discussion and ideas-sharing session, the professor from East China University of Politics and Law, legal experts from Clifford Chance law firm, Baker&McKenzie law practice, and bankers from ICBC and BOC expressed their standpoints, about the protection of investors’ securities cross-borderly, the development of value-added services under direct-holding structure, and the triangular relationship between investors, global custodians and local custodians. The professor from East China University of Politics and Law stated that it is necessary to consider the demand for customization and innovation of the bond market under different security-holding modes. Direct holding mode manages to better support investor rights protection and the settlement of transactions with the development of financial technology, thus making itself a more prospective approach in the interconnected bond markets. The representatives of lawyers and bond settlement agents also agreed on the professor’s notion, believing that lack of practical experience in the domestic judiciary condition on exercising the investors’ interest may lead to significant uncertainty under the indirect holding mode, if applied blindly. In general, indirect holding mode is not the best choice for both investors and regulatory authorities.
Participants spoke favorably of the event and said that they had benefited greatly from the exchanges and discussions. They not only gained a deeper understanding of the origins and status-quo of different systems, but also realized that the “direct holding mode” will not prevent intermediaries from providing incremental services to domestic and foreign investors. Therefore, what should be focused on is how to bring into play the initiative of CSDs, custodian banks and BSAs under the existing legal system, continuously enriching and innovating value-added products and services. Furthermore, in response to the suggestions of the participating experts, CCDC will join hands with correspondent banks and other market intermediaries in the follow-up salons to jointly explore cross-border products & services innovation and optimization, and create a new pattern of bond market by adhering to the concept of “leave things to professional institutions” based on the market demands, as well as the difficulties and hard nuts encountered by market participants.
The Serial (International) Academic Seminar “Pujiang Salon” is one of the moves made by CCDC in efforts to press ahead with its internationalization strategy this year. The salon, with a focus on the demand analysis, program design and marketing of cross-border products, aims to provide a platform for in-depth exchanges among practitioners in the bond markets at home and abroad, and inspire the industry to make deep discussions on topics of concern to foreign investors and cutting-edge issues of the market.