The Legal Regulation Of Corporate Bonds Default

In recent years, China’s debt market has went through a great change. And the default of corporate bonds switch from criticized‘Rigid Payment’ to centralized credit risks, which ranging from private debt to public debt, including private enterprise and state-owned enterprises, the trend of default cannot be averted. Although the fact that the debt market would be distorted by ‘Rigid Payment’, it doesn’t mean the lack of investor protection shall do good to the economic development. It is imperative that the current situation requires the balance between convenient financing and investor protection through legal regulation of corporate bonds defaults.However, the increasing credit risks force the scholars both in financial research and legal research which the former is aimed at risk measure and the latter focus on investor protection. The system is a balance between incentive and restrained, so the legal system of corporate is equal to the legal regulation of corporate bonds default to some degree,which comprised of Market Access, Supervision of Disclosure and Remedy of Default. Although the national legislation is complete in such three stages, but the practice of debt markets in China which focus on the approval of entry of market had made it lack of development.This situation in the legal regulation has led the default of corporate bonds. Therefore, the institutional adaption of legal regulation shall contributes to the solution of the crisis.As new institutionalism claims that the cost of transaction can be reduce by technical progress or system achievement. To create the condition to achieve those goals is the part fixed position with appropriate government, the government policy should help to reduce transaction cost rather than increase The cost of transaction shall be categorized as exogenous or endogenous according to the Endogenous Exchange Economics Theory, the former one has to do with the cost of improving the institution’s assets or alleviating constraints by, or avoiding other legal constraints, the latter one is the cost incurred in realizing the institution’s comparative advantages, such as the cost of negotiating with a counterpart, information cost,or the cost of uncovering opportunities.It is regrettable that China’s debt market was arising from the planned economics, which increases the endogenous transaction cost. Firstly, the market do not have the unified market access rules,such as three different kinds of approval rules and two segmented trading markets; secondly, it is the fact that five regulators and the disclosure index system of debt cannot reflect issuer’s reality which makes the supervision of disclosure is not efficient; finally, the authority intervenes in the remedy of default which makes the price of debt hardly reflect its true risks.The exogenous transaction cost mainly exist in the contract, which means the debt contract demand for more in legal system and environment than the stock contract based on the knowledge that financial products amount to legal contract, which make debt market grown slowly.The market game(Secondary Exchange) must be based on the rules of game(Primary Exchange), laws only to be limited to set rules and anything that goes beyond that will be counterproductive. In fact, the legal framework should help to reduce transaction costs rather than increase;at times public power will help to reduce exogenous transaction costs and thereby expedite the process of institutional movement.This paper try to put the endogenous exchange economics theory into the legal regulation of corporate bonds default, and it holds the opinion that the bond default should blame on the structural issues of the debt market, and the only solution is to adjustment it. According to the theory, the exogenous cost can be reduced through primary exchange to realize comparative advantages.And it focus on the reality of corporate bonds defaults and targets on improving legal regulation system through studying on the history of corporate bond capital market in China and overseas bond default sample and legal regulation.