Changes in Early Redemption Rules for Convertible Bonds and an Examination of the Effect of Forced Redemption

Abstract

In 2022, the Shanghai Stock Exchanges and Shenzhen Stock Exchanges (SSE and SZSE) made a series of amendments to the convertible bond trading rules and self-regulation of listed companies. In addition to this, SSE and SZSE made more detailed requirements on the time and process for listed companies to exercise their rights for convertible bond redemption in advance. By summarizing and analysing the data of convertible bonds listed by the Shanghai Stock Exchanges and Shenzhen Stock Exchanges in China in the past 10 years, this paper introduces the background of the convertible bond market, analyses the characteristics of convertible bonds redeemed early and the impact of early redemption of convertible bonds on listed companies, and explores what kind of forced redemption effect has been produced by the new changes of convertible bond regulations. The paper also explores the implications of the forced redemption effect on investors by considering the changes in the convertible bond market since its inception.