On The Risk Prevention Of Distressed Bond Transactions

The distressed bond transaction is a new type of bond transaction that uses default bonds or bonds that are at risk of default as the transaction object.Because this type of transaction has high risks,it is necessary to use a hierarchical system to prevent risks.The development of China’s bond market has experienced a process of wandering between marketization and non-marketization,and it is mainly reflected in whether bonds are allowed to default.In the early stage of the development of the bond market,due to lack of legal system and insufficient supervision experience,the initial issuance of enterprise bonds failed to properly prevent market risks,resulting in large-scale defaults and even triggering financial mass incidents.Since then,the regulators have promoted the development of the bond market and diversified investment varieties while endorsing government credit as the main issuer for the purpose of avoiding risks.This has led to a long-term "zero default" non-marketization phenomenon.After the 14-year super Chao Ri credit bond incident,the market inertia of "rigid payment" was gradually broken.The bond market gradually showed a trend of "normalization of default",and market players have gradually adapted to market changes and stopped unreasonable expectations of the government.Since 18 years until now,the “new normal” of bond defaults has surpassed those of previous years in terms of quantity and scale,and the forms of defaults have become increasingly diversified.The basis for the operation of the bond market is the risk pricing mechanism,and default is a normal phenomenon in the market.As the default bond balance continues to accumulate,the question of how to deal with the default bond arises.The incomplete infrastructure of China’s bond market and the rigidity of relevant systems have led to the subsequent disposal of default bonds,and the risk has also accumulated over time.Based on these premises,the transfer of distressed bonds has emerged at the right time.Previously,although there was no explicit prohibition of distressed bond transactions at the legal level,due to the absence of the distressed bond suspension system of the two major exchanges and the lack of supporting trading systems,such transactions have been restricted.The default bond transaction is different from other default disposal methods.It is a means to eliminate risks in the market.It not only enables the original bond holders who want to conduct risk management to process bonds in time,but also gives risk appetite investors market participation.channel.The distressed bond transaction is a kind of transaction that appears after the system reform conforms to the financial innovation theory,contains the root carving theory,the ice lolly theory,and is also a product driven by the optimization decision theory.The distressed bond has the "debt" and "bond" of ordinary bonds,is a standardized commercial contract with liquidity,and has some characteristics of stocks and high risks that are different from the characteristics of ordinary bonds.The distressed bond transaction is part of the highyield bond market.The “fallen angels” in US high-yield bonds market are homogenous with distressed bonds,and are all “fall-out” bonds.Therefore,the discussion of the distressed bond system can draw on high-yield bonds.Distressed bond trading is of great significance to the construction of a multi-level bond market,and it can also promote the nationalization of the bond market.Distressed bonds contain general risks.Credit risk is the most common nonsystemic risk,which cannot be completely eliminated but can manage the risk and diversify the risk.The distressed bond has a high credit risk because its trading subject is itself a risky asset.For investors who are prepared to hold bonds to maturity,the price risk is not a concern,but for investors who intend to sell the bonds before they mature,the price risk may bring great losses.Like other bonds,distressed bonds have an inverse correlation with interest rates.The price of distressed bonds is less sensitive to changes in interest rates than other bonds,but much more sensitive to changes in the creditworthiness of the issuer.Liquidity risk is the risk that investors cannot sell bonds at a reasonable price and in a relatively short period of time when needed.The distressed bond trading market is limited to scale and customary trading models.This risk may arise.Because distressed bonds generally have longer maturities and higher coupons,the reinvestment risk of such bonds is relatively high.The subject of distressed bond trading has a high risk and is prone to secondary risks.This kind of risk is a new kind of risk caused by trying to deal with it.It is the risk of being contagious due to risk spillover.Improper response may become the prototype of systemic risk.Distressed bonds have the characteristics of equity bonds,and the price is determined by the company’s fundamental factors.They are much higher than the interest rate level and have liquidity comparable to stocks.Regulating insider trading is of great significance to distressed bonds.Some scholars believe that insider trading can be used as a disclosure mechanism to publish valuable information in the market and alleviate agency cost issues,thus improving transaction efficiency.In fact,only when the market confirms the inside information will the price change accordingly,and the way to confirm the news is generally to wait for the announcement or find that the price has unusual fluctuations.Allowing insiders to profit from insider trading will in disguise encourage them to try high-risk projects in the company’s operations,and the company may suffer losses as a result.In addition,the regulation of insider trading by fair market theory,embezzlement theory or trust obligation theory is quite controversial in practice.False statements need to consider the significance,openness of information and the causal relationship with investors ’losses.Distressed bonds are more sensitive to market information than ordinary bonds.False statements are not only likely to affect transaction efficiency,but may also be the driving force for other violations.The contractual style of the distressed bond transaction has a systemic character.Both parties to the transaction must first stand out from their own competition in order to obtain contracting opportunities and form a contracting behavior relevance.Various market entities,such as transaction entities,transaction entities and fund providers,form communities through financial contracts and are closely related.Risk prevention should not only focus on micro-risks but also focus on market risks.Prevention of distressed bond transaction risks requires proper supervision of market risks.Financial risk supervision is based on market failure and public interest theory.The market can play a fundamental role in resource allocation,but it does not mean that relying solely on market mechanisms can continue to promote economic development.The public interest theory is to suppress the incomplete defects of the market and protect the public interest,and to replace part of the market competition through government supervision in a fair position to ensure market efficiency.The limitations of the law itself determine its incompleteness,and then it is necessary to solve the problem of the distribution of remaining legislative power and law enforcement power.The standard of consideration is the degree of standardization and the size of the expected damage.Supervision also comes at a cost.The high standardization and strong externalities in the financial field determine that it is appropriate to obtain the remaining legislative power and law enforcement power in this field,that is,the introduction of supervision can cover the costs incurred.However,there are also views that the premise of the public interest theory is that the supervisor is neutral,moral and capable and does not hold.The supervisory layer is not a completely neutral "rational man",but an "economic man" will be captured by certain groups and become representatives of interests.The supervisory rules will also serve these people,not just for the public interest and market efficiency.Traditional risk management theories focus on identifying and typifying risks,and then actively avoiding or dealing with risks.The financial risk theory is aimed at achieving greater returns when the risks are small or the risks are relatively minimal under certain conditions,and coexist with the risks peacefully when the risks are recognized.Proper management of financial risks requires timely identification of risks,accurate calculation of risks,objective evaluation of risks and management of risks in a diversified manner.The role of risk prevention legal standardization is fundamental,but it does not mean that all risk prevention problems need to be solved by "legislative theory".Legal interpretation is the process of making paper words sound,and legislation also has a cost.Therefore,the risk prevention norms should be referred to legislation for resolution under the premise that legal interpretation cannot solve the problem.The core of risk prevention legal standardization is to principleize risk prevention,and the specific path to achieve is to build a multi-level risk prevention standard system.The newly revised “Securities Law” has established specific rules for bonds,which is a worthy progress.However,it still hasn’t got rid of the dilemma that the “Securities Law” is actually a “Stock Law” and bonds still depend on the stock rules..The marginal status of bond rules has led to the inability to meet the needs of preventing bond market risks in terms of system supply.The provisions in the Securities Law fail to reflect the characteristics of bonds and reflect the logic of bond governance.Whether the amount of risk prevention rules is "quantity","Quality" or "targeted" are lacking.The special provisions on the prevention of distressed bond transaction risk are only a few words that exist in the market trading rules and cannot meet the actual market demand.At the same time,the administrative precautions of the risk prevention methods in China’s bond market are quite strong,and the most common way to deal with default risks is the government.Mainly by means of regulatory risk prevention measures,by passively avoiding risks by restricting the behavior of market players,it will eventually lead to rigidity of the economic system and financial repression.Especially for transactions that rely on risk mechanisms such as distressed bond transactions,once such risk prevention measures are adopted,the transaction will not be able to operate.The bond risk prevention rule system is chaotic and the higher-level law is missing,and the differentiated rules are obvious.The inter-bank bond market and the exchange bond market use different rules and standards.Corporate bonds,enterprise bonds,and debt financing instruments of non-financial enterprises use three sets of different systems.The regulatory competition between the regulatory agencies makes the various bond systems differentiate and risk Failure to unify the prevention system will cause chaos in application and leave a vacuum of rules.Intermediaries should assume the role of "gatekeepers" in the market,should play their professional characteristics,play a role in enhancing market transparency,alleviating information asymmetry between the two parties to the transaction,and sharing market risks,and play an important role in the risk prevention system of the bond market.However,in practice,intermediaries failed to reflect the needs of the trading entities on the basis of market reality,but took the requirements of the administrative supervision department as the highest order,did not fully consider their market positioning,over-exploited their rational economic human nature,and implemented utilitarianism.And ignore its institutional responsibility for market risk.Supervisors in the US high-yield bond market believe that although distressed bonds have high risks,they are still a type of bond,and there is no need for separate legislation.The idea of risk prevention for distressed bonds should continue the securities market’s consistent information disclosure system as the core,rather than substantive judgment by the supervisory authority.Both the United States and the European Union have formed comprehensive,comprehensive and well-defined legal regulations,and have established a benign regulatory system.The TRACE system is a mandatory reporting system that improves price transparency by fully collecting OTC market transaction data,which in turn enhances the overall market transparency.It can not only improve investors’ access to market information,but also enhance the supervision effect of regulatory agencies on bond market activities.Increasing market transparency is not all praise,but there are also views that this is meaningless and reduces the operating efficiency of the high-yield bond market.By analyzing the changes in market insider trading risk data before and after the application of TRACE,it can be concluded that increasing market transparency does indeed help regulate market behavior and prevent risks.The composition of participants in US distressed bond transactions has undergone significant changes with the revision of regulations.Regarding whether or not to set the entry threshold,opponents believe that junk debt is not the only high-risk investment that financial institutions can invest in.High-risk,high-return securities can be appropriately allocated in the institutional investment portfolio.Supporters believe that they should be set up based on the fact that high-risk bonds have a long life and are greatly affected by economic fluctuations.Information disclosure is the core of the risk prevention system,and continuous disclosure,financial disclosure and continuous reporting obligations are the key points of information disclosure on distressed bond transactions.After undergoing several changes in the status of rating agencies,it has become a market intermediary agency that assumes the role of "quasi-regulatory".The city rating agencies have serious conflicts of interest,insufficient self-information disclosure,and rely on empirical judgment to predict financial innovation products.Distressed bonds have their own risk-generating characteristics,and rating agencies have targeted rating rules.Risk management tools can alleviate distressed bond risks and manage risks more proactively,but care must be taken to avoid risks becoming pure speculative tools and proper supervision.The prevention of distressed bond transaction risk must adhere to the fundamental path of marketization and legalization.The market-based risk prevention mechanism is a system that conforms to economic laws and market laws and acts on risks in a marketbased manner according to the bond market risk mechanism.Legalization is to determine the market rules and other regulations that restrict the parties to the transaction in a legal form,so that they can have generally applicable effects and coercive guarantees,and then regulate market behavior to maintain market order.The concepts of marketization and legalization are not separated,they interact in the risk prevention mechanism,and there is a close relationship between the two.Marketization is the premise and foundation of legalization.Only benign rules can promote market development while preventing risks.The distressed bond is a kind of bond,which has "debt nature" and "bond nature" and needs to be applied in combination with unity norms and stakeholder norms.The unity norms are the basis for preventing distressed bond risks,and the stakeholder norms focus on preventing market-wide risks.At the same time,the risk prevention system should be a combination of targeted norms and uniform norms.The bond market risk prevention system should be unified,and unified norms mean that the relationship between standardized uniformity and regulatory uniformity should be rationalized.Not only can there be only one regulatory agency and a set of systems,but it should be properly coordinated,and homogeneous bonds should be applied Uniform standards.The distressed bond does not break through the essential nature of the bond and the risk prevention thinking is the same as that of ordinary bonds.Therefore,it should be included in the overall risk prevention system of the bond market and respond to the risk characteristics of distressed bond transactions through targeted regulations.In addition,it is necessary to balance the concepts of financial security and efficiency.If only for the purpose of preventing risks,prohibiting transactions can directly eliminate the source of risk,and without transactions,naturally,no risks will be brought.The bond market is a risk market,and risk prevention can coexist with the principle of market efficiency.The security concept is the basic concept of the distressed bond transaction risk prevention system.The reason for preventing risks is to ensure the safe operation of the market.The concept of safety and efficiency should be considered in an integrated manner,and strive to be coordinated.It is necessary to build a multi-level distressed bond transaction risk prevention system.At the overall level of the market,a unified distressed bond trading market should be constructed,and homogeneous bonds should be placed in a unified market for trading.The market’s ability to absorb risks is stronger than that of a split trading market,and it has superior liquidity.To improve investors’ access to information and improve market transparency with a sound regulatory system and a centralized and effective information centralization system can identify risks in a timely manner,analyze risks,and properly manage risks.To build a market risk early warning mechanism,the value orientation of maintaining financial stability and protecting investors should be properly divided between the government and the market,and a layered early warning mechanism should be constructed.At the market regulation level,a multi-level regulation system is the basis of the distressed bond transaction risk prevention system.Each level of rules has its own unique role.At this stage,it is a realistic way to focus on improving self-regulation rules.At the level of the judicial system,the uniform application of legal standards for bonds of the same type is an embodiment of the principle of legal fairness and can bridge the risks brought by the difference between supervision and rules and standards.Give full play to the extended function of trial to realize diversified risk prevention.At the level of market regulation,the unification of regulation is not for formalism but hopes to alleviate problems such as regulatory vacuums and regulatory failures.A more realistic approach is to increase cooperation and coordination between supervisions,unify supervision standards,and reduce duplication of supervision.The supervision and enforcement of the bond market should be improved,adhering to the principle of appropriate enforcement,not only to maintain a certain degree of humility,but also to intervene in time and enforce the law in a proper manner to avoid the generation or spread of risks.For the effect of law enforcement and supervision,it is also necessary to enhance the transparency of bond regulatory agencies and improve the accountability system for bond supervision.Only when there are restrictions,can institutions be properly discharged.At the level of market intermediaries,the credit rating system should be improved to improve the quality of the rating,and to improve the special rules of distressed bonds by preventing conflicts of interest and refining the tracking rating and other regulations.Due to the long-term "zero default" market,the risk management market is underdeveloped,and the rules should be improved to focus on the implementation of information disclosure rules to provide market-based tools for risk management.The Securities Law and Minutes of Bond Disputes have made system responses to the problems exposed by the trustee system.At the level of market entities,the distressed bond information disclosure system needs to reflect both price signals and solvency,and specific regulations should be made in the time dimension and space dimension.Set up an appropriate investor access system to prevent investors without risk tolerance and risk identification ability from blindly entering the market,and actively introduce diversified and qualified investors to participate in transactions.The investor risk prevention mechanism has become the first gate of risk prevention by stipulating measures such as the proportion structure of investor funds and the limitation of the size of a single transaction.