In a drive for transparency, the People's Bank of China (PBOC) has said that it will tighten rules on interbank bond market trading in China. All transactions will now be conducted through the National Interbank Funding Centre.
Market participants will be banned from trading if they fail to connect their systems to the platform within a month according to the PBOC.
Transactions including forwards and repurchases cannot be reversed once agreed between the two parties and clearing agencies will not be allowed to settle trades outside of the interbank market.
"A number of the roles of the National Interbank Funding Centre are geared towards providing the bond market in the PRC with services of trading, clearing, information and surveillance," says Vijay Chander, executive director of fixed income in ASIFMA in Hong Kong. "So I believe that this directive will help ensure both the smooth and efficient functioning of the PRC bond markets and more efficient data collection and reporting."
China is trying to clean up the US$3.8 trillion market and encourage companies to raise money via bonds, rather than rely on bank lending. The central bank allowed money-market rates to rise to record levels in June to discourage lenders from entering into a mismatch between short term financing versus longer-maturity loans.
China opened its interbank bond market in 2011 to more than 200 Qualified Foreign Institutional Investors (QFII), which were previously restricted to exchange-traded securities.
This followed a process during which the PBOC required participants to present self-examinations of their bond trading histories two months ago, which included data about transactions between banks and associated investment companies.
Possible changes to equity settlements
China's securities regulator, China Securities Regulatory Commission, said at the end of last week that it will consider shifting to same-day settlement in domestic equities. This plan remains under consideration and has not been approved yet.