| Opportunities and challenges are survived together, advantages and difficulties are coexisted. That is the description of China's convertible bonds market development situation.In response to"sub-prime crisis"on the adverse impact of China's economy, the State Council issued a 4 trillion of investment-led program at the end of 2008. To implement the"to maintain growth, benefit the people's livelihood and promote transformation"of the macro-economic objectives, the total credit of financial institutions reached a record of 9.59 trillion in 2009. In early 2010, China's economy began to reveal inflationary pressures. In order to meet the new situation, to ensure a smooth transition of the economy, loose monetary policy and fiscal policy began to steady out. The banking is facing strong re-financing needs after assessed the commercial banks'deposit-loan ratio and capital adequacy by regulators. The Bank of China in 2010 with 40 billion convertible bond financing disclosure of convertible bonds market ushered in unprecedented opportunities for development. However, there is a serious shortage of the scale of trading in very active, poor signal transduction, lack of pricing capacity and many other issues on the current convertible bonds market in China.It is against this background, the paper from the convertible bonds market microstructure start, through qualitative analysis and quantitative research methods combined to explore the convertible bonds market, the low efficiency of price discovery, information transmission mechanism of the reasons for poor, thus there are countermeasures and proposals to improve efficiency of convertible bonds market.Through demonstration study on Investors structure, convertible bonds trading strategy selection and the relationship between the efficiency of market information (Chapter 6), the institutional investors accounted for excessive and liquidity investors accounted for inadequate were found in China's convertible bonds market. And institutional investors to invest in long-term investment strategy based convertible bonds market has led to apathy, a serious shortage of market liquidity. Because of poor market liquidity, investors cannot use"that is to buy or sell"short-term way of knocking on transactions, leading to T + 0 market of China's convertible bonds trading mechanisms do not work. The interest of volume as the core of the price discovery mechanism is very difficult to play a role when the liquidity support in convertible bonds market is adequate. This matches up to the conclusions of"Convertible bonds market turnover rate of return volatility effect of asymmetric shocks"(Chapter 4). The demonstration conclusion of"The role of underlying share price in information transmission mechanism of convertible bond market"reveals that convertible bonds market has strong pricing power of independent (Chapter 5). This illustrates that the price discovery mechanism which is based on institutional investors'capacity of value analysis has played a leading role. This also ensures the dominant position of institutional investors in convertible bonds market. Because institutional investors generally have a strong information-gathering, analysis, pricing power, and the pricing method used in pricing model is quite similar to institutional investors accounted for the main body of convertible bonds market in response to new information appears, does not require a great volume on the price of convertible bonds can be adjusted to a reasonable level, thus the performance of the core in the volume of the price discovery mechanism fails, while convertible bond market still has a strong independent pricing power. Through the convertible market, bid-ask spread component analysis (Chapter 7), found that in our convertible bonds market, trading instruction execution risk spreads the proportion accounted for up to 80%, while the informed trader's information cost compensation (adverse selection costs) accounted for the proportion of price difference of about 6%. As the instruction execution risks are too high, a substantial increase in transaction costs of short-term speculative operations, the result must be the lack of short-term speculative traders in convertible bonds market; while information on the cost of informed traders due to insufficient compensation and force control private information trading chooses in other markets (stock market) to earn higher trading profits, nature information in other markets were first released, resulting in convertible bonds market information efficiency relatively low.This paper give some countermeasures and proposals from the perfect market, trading mechanism, actively make innovations, improve the soft environment for the market and abundant types of investors, set to improve the efficiency of China's convertible bonds market.â… . Improve the trading mechanism to increase the market liquidity of convertible bonds marketâ…°. Introduce the Market-Maker System. Consideration of our convertible bonds market, the lack of short-term speculators, large trading mechanism to be improved, the serious shortage of market liquidity, it is proposed convertible bonds market in China's implementation of"e-bidding system for automatic matching mainly by competitive multi-making system, supplemented by business, investors and market makers quote bid to participate in the bilateral mixed auction trading system". This is purely market-maker system can effectively overcome the high transaction costs, market makers act difficult to monitor defects, while with the pure auction trading system can be compared to a substantial increase in market liquidity of convertible bonds, more efficiently to meet the institutional investors'need for large transactions, reduce transaction costs.â…±. Pilot margin purchase and short sale; increase the profits of investment in convertible bonds. Convertible bonds as a financial derivative products, the design of its provisions, especially the transfer price downward revisions to the terms and provisions of redemption has a strong ability to stop such"protection under the end of the non-capping"can be characterized as a better guarantee that the credit trading mechanism to play a liquidity effect at the same time, to a large extent to avoid the speculative effects."Beneficial for both parties the right to draw upon similar weight, relative to the lesser of two disadvantages". Consideration of our convertible bonds market, low proportion of speculative traders, lack of market liquidity resulting in T + 0 rotation trading system failure the fact that the paper should be introduced margin purchase and short sale system in the convertible bonds market. Through the leverage effect of margin to improve utilization of funds from investors to increase the elasticity of supply and demand for convertible bonds, convertible bonds market to achieve a substantial increase in trading volume targets. At the same time, it will be the issuance of convertible bonds into shares in the company of the scope of the experiment margin, allowing investors take advantage of convertible bonds implicit in the call option, through the"short selling the underlying shares, buying convertible bonds,"the arbitrage trading strategies, access to stable return.â…²."Debt-to-Equity Swap"implementation of the T + 0 settlement system to increase the arbitrage opportunities between convertible bonds market and the stock market, in an active market, trading convertible bonds, while the operation of China's stock market to provide a"stable mechanism".â…³. Improve the block trading system; reduce transaction costs of investors. The first is to relax the time limit of large transactions in convertible bonds market; two is to adopt an electronic trading system on block trading.â…¡. Actively carry out the main issue, the conditions of issue and distribution, distribution venues innovation, seize the opportunity to rapidly expand the market size of convertible bondsâ…°. Reduce the threshold of convertible bonds issues, enriching the main issue of convertible bonds.In the current"financing gate"events frequently occurred. The stock market is sluggish. Through the issuance of ways to meet the needs of companies'large sums of money are more difficult, and low-cost additional to the old shareholders will be eroded, while the amount of allotment forms of financing also extremely limited at this time if appropriate to reduce the threshold of convertible bonds issues, these problems can be resolved. For this reason, this paper suggests regulatory authorities to reduce the threshold issue of convertible bonds, not only listed companies can issue, as long as the non-listed companies have good prospects for development should also be actively encouraged to issue; not only the state-owned enterprises can be made, private enterprises should enjoy the same treatment as in particular, some high-tech venture industry, private enterprise, convertible bonds market, should actively support their financing needs.â…±. Relax the convertible financing conditions; rich convertible bonds type of product.Firstly, reduce the credit rating requirements, release the restriction of convertible bonds interest rates; secondly, abolition of collateral requirements in full, lower issuance cost of convertible bonds; thirdly, simplify the approval procedures of convertible bonds issued, improve distribution's efficiency; fourthly, regulate the issuance of convertible bonds trading detachable, to meet the needs of investors with different risk preferences.â…². Means the introduction of private placement and encourage enterprises to attract strategic investors by way of directed the issuance of convertible bonds and achieve the enterprises'merger, at the same time provide a new idea for the reduction of state-owned shares.â…³. Encourage SMEs to issue convertible bonds in the GEM and support the development of high-tech industry.â…¢. Improve the soft environment and enrich the main type of convertible bonds market's investmentFirstly, nurture the issuing agency and emphasis on the role of credit rating; secondly, establish and improve the convertible bonds market in the interests of investors protection mechanisms; thirdly, strengthen the market's supervision and protect the interests of investors; fourthly, strengthen information disclosure of the bonds of the main and improve the information efficiency of convertible bonds market.
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