china’s bond market overview
TRANSCRIPT
China’s Bond Market Overview
2019
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Since 1981 when the issuance of treasury bonds resumed, China’s bond market has
developed amidst twists and turns and experienced an unusual development process. At
the end of 1996, the CSD (Central Securities Depository) was established, and
subsequently the bond market entered a rapid development period. The market size was
rapidly enlarged; market innovations successively emerged; market participants were
diversified; the market became increasingly active; and institutional arrangements were
gradually improved. China has become the second largest bond market worldwide.
The bond market has become more and more important. The resolution of the 3rd
Plenary Session of the 18th
Central Committee of the CPC proposed that we should
develop and regularize the bond market and increase the proportion of direct financing.
The 13th
Five Year Plan pointed out that bond issuance by registration and bond
market infrastructure should be improved, bond market connectivity should be
accelerated and bond product innovation should be advanced steadily. The 19th
National Congress of CPC proposed to enhance the financial sector’s capacity of
serving the real economy, raise the proportion of direct financing and promote the
sound development of a multi-tiered capital market. As an important part of the
capital market, China’s bond market is in the ascendant and is entering a critical
period of strategic opportunities.
In such context, CCDC Research & Development Center has been organizing to
update and publish China’s Bond Market Overview on an annual basis since 2016, so
as to explain the status and the latest developments of China’s bond market, serving as
a stepping stone for those who are willing to invest in, participate in and study the
market at home and abroad. 2020 is the last year to achieve the target of building a
moderately prosperous society in all respects as well as targets set out in the 13th
Five
Year Plan. To this end, the bond market is supposed to play an active part in reducing
funding costs and enhancing quality and efficiency of economic growth. Hopefully,
China’s Bond Market Overview 2019 will help stimulate insights for further
improving the market. Due to limited knowledge and data available, this paper may
include misinformation and could only serve as a reference; advice and suggestions
are very well welcomed.
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Contents
W.1 Market Profile .................................................................................................................. 1
W.2 Types of Bonds ................................................................................................................. 3
I. Bond classification by issuer .............................................................................................. 3
II. Classification by interest payment .................................................................................... 7
III. Classification by currency ............................................................................................... 8
IV. Others .............................................................................................................................. 8
W.3 Bond Market Participants ............................................................................................ 11
I. Cash bond market participants ......................................................................................... 11
II. Derivatives market participants ...................................................................................... 14
W.4 Central Securities Depository ....................................................................................... 15
I. CCDC ............................................................................................................................... 15
II. Other registration and depository institutions ................................................................. 19
W.5 Laws and Regulation ..................................................................................................... 21
I. Bond market-related laws and regulations ....................................................................... 21
II. Regulators for the bond business .................................................................................... 24
W.6 Bond Issuance ................................................................................................................ 26
I. Issuance methods ............................................................................................................. 26
II. Issuance system .............................................................................................................. 27
III. Cross-border issuance .................................................................................................... 28
W.7 Bond Registration and Depository ............................................................................... 29
I. Bond registration .............................................................................................................. 29
II. Bond depository structure ............................................................................................... 29
III. Cross-market transfer of depository of bonds ............................................................... 31
IV. Account structure for market opening-up ..................................................................... 32
V. Bond principal redemption/interest payment.................................................................. 32
W.8 Bond Transaction .......................................................................................................... 34
I. Market structure ............................................................................................................... 34
II. Transaction types ............................................................................................................ 35
III. Ways of transaction execution ....................................................................................... 38
IV. Clean price trading and full price settlement ................................................................. 40
V. Investor eligibility .......................................................................................................... 40
W.9 Bond Settlement ............................................................................................................. 42
I. Settlement methods .......................................................................................................... 42
II. Settlement cycle .............................................................................................................. 42
III. Maturity ......................................................................................................................... 43
IV. Settlement systems and connection modes ................................................................... 43
V. Settlement process .......................................................................................................... 45
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VI. Handling of special cases .............................................................................................. 49
VII. Market monitoring ....................................................................................................... 50
VIII. Cross-border settlement .............................................................................................. 50
W.10 Bond Collateral Management .................................................................................... 52
I. Significance of Collateral Management ........................................................................... 52
II. Service Areas of Collateral Management ....................................................................... 52
III. Functions of the ChinaBond Collateral Management System (CMS) ........................... 57
IV. Strengths of ChinaBond Collateral Management .......................................................... 58
W.11 Bond Information Services ......................................................................................... 60
I. Information disclosure ..................................................................................................... 60
II. Statistics .......................................................................................................................... 60
III. ChinaBond information products .................................................................................. 61
W.12 References .................................................................................................................... 70
Appendix I
CCDC Business Contact Information ..................................................................................... 71
Appendix II
Operation of China’s Bond Market (2019).............................................................................. 73
Appendix III
Business Procedures for Overseas Central Banks to Enter China’s Inter-Bank Bond Market 95
Appendix IV
Operational Guide on Networking and Account Opening for Overseas Institutional Investors
to China Inter-bank Bond Market .......................................................................................... 115
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W.1 Market Profile
Country People’s Republic of China
Currency Renminbi (CNY)
Greenwich Mean
Time (GMT) +8 hours (Beijing Time, UTC+8h time zone)
Main trading
venues
Inter-bank bond market
Exchange bond market
Commercial bank counter market
Bond types
Government bond
Central bank bill
Government-backed agency bond
Financial bond
Enterprise credit bond
Assets-backed securities
Panda bond
Trading modes
Cash bond
Repo
Bond lending
Bond forward
Central government bond (CGB) futures
Trading hours
Inter-bank bond market: 09:00-17:00
Exchange bond market: 09:30-11:30, 13:00-15:00
Commercial bank counter market: 10:00-15:30 (Bank counter marketable bond)
9:00-17:00 (Savings CGB (electronic))
CGB futures market at CFFEX: 09:15-11:30, 13:00-15:15
09:15-11:30 (trading hours on the last trading day)
Settlement
mechanism
Gross settlement
Net settlement
Settlement
method DVP (inter-bank bond market)
Settlement cycle Domestic investors: T+0, T+1
Overseas investors: T+0, T+1, T+N
Bond depository
China Central Depository & Clearing Co., Ltd. (CCDC)
China Securities Depository & Clearing Co., Ltd. (CSDC)
Shanghai Clearing House Co., Ltd. (SHCH)
Central
counterparty
CSDC
SHCH
Other
intermediaries
Inter-dealer brokers
Settlement agents
Valuation providers
Rating agencies
Accounting firms
Law firms
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Green bond verification and certification agencies
Relevant
authority
People’s Bank of China (PBC)
Ministry of Finance of the People’s Republic of China (MOF)
National Development and Reform Commission of the People’s Republic of China (NDRC)
China Securities Regulatory Commission (CSRC)
China Banking and Insurance Regulatory Commission (CBIRC)
State Administration of Foreign Exchange (SAFE)
Market size1
Issuance amount: RMB27.04 trillion (2019)
Depository amount: RMB87.38 trillion (as of end-2019)
Trading amount: RMB1307.31 trillion (cash bond and repo in 2019)
1 Negotiable certificates of deposit (NCD) are not included in the issuance and depository amounts. In 2019,
issuance of NCD was RMB17.97 trillion and the outstanding amount at year-end was RMB10.72 trillion.
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W.2 Types of Bonds
After more than 30 years’ development, China has developed a bond market with a
reasonable combination of types and increasing depth of credit.
I. Bond classification by issuer
(I) Government bond
1. Central government bond (CGB). With the central government that has the highest
credit rating as the issuing body, the CGBs are issued via the MOF and classified into
book-entry bonds and savings bonds.
The book-entry CGBs are issued by auction through CCDC, and traded in the
inter-bank bond market, exchange bond market and commercial bank counter market
under general depository of CCDC. At present, there are discount CGBs with
maturities of 91, 182 and 273 days; coupon-bearing CGBs with maturities of 1, 2, 3, 5,
7, 10, 15, 20, 30 and 50 years2.
Saving bonds are issued to retail investors through the commercial bank counters and
classified into the certificated type and electronic type, of which the savings CGB
(electronic) are under general depository of CCDC.
2. Local government bond. With the local government as the issuing body, local
government bonds are classified into general bonds and special purpose bonds. They
are issued by auction or private placement via CCDC, and traded in the inter-bank
bond market, the exchange bond market and commercial bank counter market under
general depository of CCDC. At present, the maturities are 1, 2, 3, 5, 7, 10, 15, 20 and
30 years. From 2019, local government bonds could also be issued in the commercial
bank counter market.
(II) Central bank bill
With the PBC as the issuing body, central bank bills are debt obligations issued to
commercial banks (primary dealers) to adjust the money supply. The maturity usually
does not exceed one year, but there are also varieties whose terms last for as long as
three years. Central bank bills are issued through the central bank’s open market
2 Book-entry CGB of key terms can be traded in commercial bank counter market.
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operation (OMO) system, traded in the inter-bank bond market and under depository of
CCDC.
(III) Government-backed agency bond
Generally, government-backed agency bonds are issued through CCDC, traded in the
inter-bank bond market or the exchanges, mainly under depository of CCDC.
1. Railway bond. With China State Railway Group Co., Ltd. (formerly the Ministry of
Railways) as the issuing body, railway bonds are issued upon the approval of NDRC.
Since 2018, railway bonds have been tradable in the inter-bank bond market and the
exchange market. From 2019 on, after being issued via auction, railway bonds could
be traded in a cross-market manner.
2. Central Huijin bond. With Central Huijin Investment Ltd. as the issuing body,
Central Huijin bonds are issued upon the approval of the central bank.
(IV) Financial bond
Generally, financial bonds are issued through CCDC, traded in the inter-bank bond
market and under depository of CCDC.
1. Policy bank bond. The issuers are developmental financial institutions (China
Development Bank) and policy banks (Export-Import Bank of China and Agricultural
Development Bank of China).3 In recent years, innovation has been strengthened in
policy bank bonds. For example, issues targeted at poverty alleviation, issuance of
green financial bonds under the Bond Connect, and pilot issue by flexible auction
were made. Now, policy bank bonds are also traded in the commercial bank counter
market, where China Development Bank (CDB) bonds, particularly, are already
issued in a regular manner.
2. Commercial bank bond. With legal entities of commercial banks established
domestically as the issuing body, commercial bank bonds are classified into general
financial bonds, special loan bonds for small and micro enterprises, special financial
bonds for agriculture, farmers and rural areas, subordinated bonds, Tier 2 capital
instruments, perpetual capital bonds and other varieties.
3 One pilot issue was traded in the exchange market.
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3. Non-bank financial bond. The issuers are legal entities of non-bank financial
institutions established domestically. Non-bank financial bonds include finance
company bonds issued by banking institutions, financial leasing company bonds,
securities company bonds, financial bonds and subordinated bonds of insurance
companies.4
(V) Enterprise credit bond
1. Enterprise bond. With enterprises as the issuers, enterprise bonds are issued after
registration with NDRC, which designates relevant organizations to accept and review
issuance applications. CCDC is designated to accept the applications, and both CCDC
and the National Association of Financial Market Institutional Investors (NAFMII)
are responsible for reviewing.5 Enterprise bonds are issued through CCDC’s issuance
system to be traded in the inter-bank and the exchange markets, and are under general
depository of CCDC.
SME collective bond. Collective bonds of SMEs represent one kind of enterprise
bonds. The issuance is organized by the initiator, with the consortium consisting of
multiple SMEs as the issuing body. While each issuing enterprise shall determine the
amount of its own liabilities, they all use one bond name, and perform unified funds
collection and payment. The maturity lasts 3-5 years usually.
Project revenue bond. Project revenue bonds represent one kind of enterprise bonds,
with the project implementation body or its actual controller as the issuing body. The
proceeds are used for investment in and construction of specific projects, and the
payment of principal and interest completely or mainly comes from operational
earnings after the completion of the project.
Renewable bond. Renewable bonds represent one kind of enterprise bonds issued in
the inter-bank bond market, with non-financial enterprises as the issuing body. They are
non-fixed-term bonds and have the hybrid capital nature, with the issuer’s roll-over
option embedded.
2. Debt financing instrument of non-financial enterprises. The instruments are
4 Securities company bonds are approved by CSRC, issued and traded in the exchange market.
5 As prescribed in the Notice by the National Development and Reform Commission of Matters Concerning
Implementation of Registration-based Enterprise Bond Issuance (No. [2020]298 of NDRC) released by NDRC on
1 March 2020.
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registered and issued through NAFMII. Having non-financial enterprises with the legal
person status as its issuing body, the instruments are issued and traded in the inter-bank
bond market and under depository of SHCH6.
3. Corporate bond. Listed companies or non-listed public companies are the issuers.
Corporate bonds are publicly or privately issued in the exchange bond market, and are
under depository of CSDC.
4. Convertible corporate bond. With domestically listed companies as the issuing
bodies, convertible corporate bonds can be converted into shares based on the agreed
conditions within a given time. Convertible bonds are issued in the exchange bond
market, under depository of CSDC.
5. Privately placed bond of SMEs. With domestic SMEs and micro-enterprises as the
issuing bodies, the bonds are privately placed to eligible investors, under depository of
CSDC.
(VI) Assets-backed securities (ABS)
1. Credit assets-backed securities. The credit assets-backed securities shall be issued
by the special purpose vehicles,(SPV) representing shares of beneficial rights under the
special purpose trust. Subject to the credit assets obtained from a banking financial
institution though trust, the SPV shall pay the revenue of the securities to the investors.
Credit assets-backed securities are mainly issued and traded in the inter-bank bond
market, and can also be issued and traded across markets, registered and deposited with
CCDC.
2. Enterprise assets-backed securities. With the securities firms as the issuing body,
the securities come in the form of the issuer’s collective asset management plans; the
underlying assets are those other than credit assets, rights of charge, etc. The securities
are issued and traded in the exchange market, registered and deposited with CSDC.
(VII) Panda bond
Panda bonds are RMB bonds issued within the territory of China by a foreign issuer.
The issuers include sovereign organizations, international development institutions,
6 All debt financing instruments by non-financial enterprises issued before 2010 were under the depository of
CCDC.
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financial institutions and non-financial enterprises. Panda bonds issued and traded in
the inter-bank bond market are under depository of CCDC or SHCH; those issued in
the exchange market, mainly by non-financial enterprises, are under depository of
CSDC.
(VIII) Negotiable certificate of deposit
As a book-entry fixed-term deposit certificate issued in the inter-bank market by
deposit-taking financial institutions, a negotiable certificate of deposit (NCD) is a
money market instrument. They are publicly or privately issued through China Foreign
Exchange Trading System (CFETS) in an electronic way, held and traded by inter-bank
lending participants, fund managers and funds. They are under depository of SHCH.
The maturities of fixed-rate NCDs are one month, three months, six months, nine
months and one year; while those of the floating-rate NCDs are one year, two years and
three years.
II. Classification by interest payment
1. Zero-coupon bond. A zero-coupon bond is issued at a price lower than the face
value, with the face value repaid lump-sum at the time of maturity. Its maturity is more
than one year.
2. Discount bond. A discount bond is issued at a price lower than the face value, with
the face value repaid lump-sum at the time of maturity. Its maturity is less than one
year.
3. Fixed rate bond. Features such as the coupon rate, interest-paying frequency, and
payment date shall be stipulated at issuance; the interest shall be determined as
stipulated and paid regularly, and the final interest and principal shall be paid at the
maturity date.
4. Floating rate bond. The coupon rate is a benchmark, a certain short-term money
market reference rate, plus a spread (determined at auction or book-building); the
benchmark may vary in the life of the bond while the spread stays fixed.
5. Balloon repayment bond. The coupon rate shall be determined at issuance while
no interest shall be paid until all accrual interest and the principal are paid lump-sum at
maturity.
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III. Classification by currency
1. RMB bond. RMB bonds are RMB-denominated bonds issued by domestic issuers
and Panda bonds by overseas issuers, taking up the majority of China’s bond market.
2. Foreign currency bond. They are bonds denominated in a foreign currency issued
by a domestic issuer in the onshore market upon approval of PBC. At present, they
build up only a limited size in USD, most of which are under depository of CCDC.
3. SDR bond. They are bonds denominated in Special Drawing Rights (SDR). In
August 2016, the World Bank issued RMB500 million RMB-settled SDR bonds in
China’s inter-bank market. In the future more Chinese institutions and international
organizations are expected to participate in the issuance of SDR bonds.
IV. Others
1. Green bond. They are bonds that raise funds to support green projects. Green bonds
are classified into labeled green bonds and unlabeled green bonds based on the Catalog
of Supported Green Bond Projects drafted by the Green Finance Committee of China
Society for Finance and Banking and released by PBC in 2015 and the Guidelines on
Green Bond Issuance issued by NDRC. In 2019, Chinese entities issued RMB382.3
billion of labeled green bonds, up by 35% year on year. Of this amount, RMB297.497
billion were listed onshore, up 35.20% year on year, and RMB84.754 billion were
listed offshore, up 35.43% year on year. As of end-2019, the aggregate issuance of
labeled green bonds by Chinese issuers stood at RMB1.1 trillion, ranking the second
in the world.
2. Social impact bond. They are bonds whose proceeds are used in the fields of public
services, with focus on addressing social issues by market-oriented means. In 2016,
China’s first social impact bond, Yinan County Poverty Alleviation Social Impact Bond,
was registered with NAFMII and raised RMB500 million for local poverty alleviation
purposes.
Table 2-1 Evolution of Bond Types, Venues and Pricing Benchmark
Year Government bond Financial bond Corporate credit bond
1981 CGB
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1984 Enterprise bond
1985 Special loan financial bond
1986 NCD
1989 SCP
1992 Urban construction investment
bond
1994
Policy bank bond (planned
issuance);
Floating-rate bond with
one-year deposit rate as
benchmark
1996
Discount CGB;
Central bank financing
bill
Special financial bond
1998
Policy bank bond
(market-oriented issuance
by auction)
2000
Floating-rate enterprise bond
with one-year deposit rate as
benchmark
2001 Non-bank financial bond
2002
Central bank bill;
Book-entry CGB issued
in the commercial bank
counter market
2003 Domestic USD bond Collective bond of SMEs
2004 Certificate CGB
(electronic book-entry)
Subordinated bond of
commercial bank;
SCP by securities firms;
Floating-rate bond with
7-day repo rate as
benchmark
2005
Commercial bank general
bond;
Foreign institution bond
(Panda bond)
Credit ABS; Enterprise ABS
2006 Savings CGB Convertible bond
2007 Special CGB Floating-rate bond with
Shibor as benchmark
Corporate bond;
Floating-rate enterprise bond
and SCP with Shibor as
benchmark
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2008 Exchangeable bond;
MTN
2009 Local government bond SME collective notes
2010 Government-backed
agency bond Enterprise ABN
2011 PPN
2012 Privately placed bond of SMEs
2013 Inter-bank NCD Renewable bond
2014
SCP of securities firms;
Subordinated bond of
insurance company;
Special bond for
agriculture, farmers and
rural areas;
Policy bank bonds issued
in the commercial bank
counter market
Perpetual MTN;
Project revenue bond;,
Project revenue note
2015 Targeted local
government bond Directional financial bond
Privately placed project revenue
bond
2016 Local government bond
issued in the FTZ
Green financial bond;
SDR bond;
Financial bond for poverty
alleviation
Green enterprise bond;
Green ABS;
Shuangchuang corporate bond;
Project collective enterprise
bond
2017
Innovative varieties of
special local government
bonds
Special varieties of enterprise
bonds;
Market-oriented convertible
enterprise bond
2018 Railway bond traded
across markets
Special bonds for PPP projects;
Belt and Road bonds;
High-quality enterprise bond
2019
RMB CGB issued in
Macao;
Local government bond
issued in the commercial
bank counter market
Perpetual capital bonds;
Green bond under the Bond
Connect;
Floating-rate bond with
LPR as benchmark
Floating-rate SSCP, credit ABS
and enterprise ABS with LPR as
benchmark
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W.3 Bond Market Participants
Along with the market development, the investor base in China’s bond market is
expanding and diversifying, injecting great vigor to the development of the bond
market.
I. Cash bond market participants
1. Issuers. Fund-raisers with the issuance qualification after approval by or filing with
relevant authorities may issue bonds in the inter-bank bond market, exchange bond
market and/or commercial bank count market. These issuers include central and local
governments, the central bank, government-backed agencies, financial institutions,
corporations, international development organizations, etc.
2. Underwriters. An underwriter is a financial institution who guides and helps the
issuer to complete bond issuance, participates in the bond issuance and subscription,
distributes the underwritten bonds to other settlement participants (and distribution
subscribers) within the issuance period, and leads other market intermediaries to
supervise whether the bond issuer performs related obligations within the life of the
bond. At present, nationally qualified lead underwriters are mainly large commercial
banks, joint-stock banks, large securities firms and some city commercial banks.
3. Market makers. A market maker is a financial institution carrying out market
making in the inter-bank bond market, having certain rights and obligations as
approved by the PBC. The market maker shall offer two-way quotes (bid and ask prices)
continuously in accordance with the relevant regulations, and trades with other market
participants by such quotes. As of December 31, 2019, there were 30 market makers in
the inter-bank bond market.
4. Inter-dealer brokers. An inter-dealer broker is a non-bank financial institution set
up with the approval of CBIRC, specializing in brokerage services such as inter-bank
funding and FX trading via electronic or other means, and receiving commissions
wherefrom. An inter-dealer broker shall file with PBC before it starts business in the
inter-bank bond market. There are currently five such brokers in the market, namely,
Tullet Prebon SITICO (China) Ltd., Shanghai CFTES-NEX International Money
Broking Co., Ltd., Ping An Tradition International Money Broking Company Ltd.,
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China Credit BGC Money Broking Company Limited and CITIC Central Tanshi
Money Brokering Company Limited.
5. Settlement agents. A settlement agent is a financial institution handling bond
settlement and related businesses upon entrustment by other market participants. To
take on such business, the settlement agent shall get approval from PBC and sign the
agency agreement with the principal. The agent shall open a bond account at CCDC in
the name of the principal and carry out bond depository and settlement operations on
behalf of the principal using this account. There are currently 47 settlement agents in
the inter-bank bond market, as listed below.
Table 3-1 List of settlement agents in the inter-bank bond market
No. Name No. Name
1 Industrial and Commercial Bank of China 25 Fudian Bank
2 Agricultural Bank of China 26 Harbin Bank
3 Bank of China 27 Jinshang Bank
4 China Construction Bank 28 Bank of Guiyang
5 Bank of Communications 29 Bank of Xi'an
6 China Merchants Bank 30 Haixia Bank of Fujian
7 China CITIC Bank 31 Qishang Bank
8 China Everbright Bank 32 Qilu Bank
9 Industrial Bank 33 Bank of Urumqi
10 China Minsheng Bank 34 Bank of Dongguan
11 Huaxia Bank 35 Bank of Chengdu
12 Shanghai Pudong Development Bank 36 Baoshang Bank (suspended)
13 Ping An Bank 37 Bank of Changsha
14 China Guangfa Bank 38 Bank of Hebei
15 Hengfeng Bank 39 Xiamen Bank
16 Bank of Beijing 40 Bank of Qingdao
17 Bank of Shanghai 41 Shanghai Rural Commercial Bank
18 Bank of Nanjing 42 Changshu Rural Commercial Bank
19 Bank of Tianjin 43 HSBC Bank (China) Company Limited
20 Bank of Hangzhou 44 Shunde Rural Commercial Bank
21 Hankou Bank 45 Standard Chartered (China)
22 Bank of Dalian 46 Deutsche Bank (China)
23 Bank of Chongqing 47 BNP Paribas (China)
24 Bank of Ningbo
6. Domestic investors. Commercial banks, credit cooperatives, non-bank financial
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institutions (trust companies, finance companies, leasing companies, auto financing
companies, etc), securities firms, insurance companies, fund managers, non-financial
institutions, unincorporated institutional investors and retail investors.
Investors eligible for the inter-bank market need to file with PBC Shanghai Head
Office for market entry. The exchange market is accessible to various kinds of
investors upon application to Shanghai Stock Exchange (SSE) and Shenzhen Stock
Exchange (SZSE). Policy banks and China Development Bank (CDB), large
state-owned commercial banks, joint-stock commercial banks, city commercial banks,
foreign-funded banks in China and other banks listed onshore can participate in cash
bonds trading by auction on exchange7. Participants in the commercial bank counter
market need to open secondary depository accounts with the undertaking institutions.
The undertaking institution establishes an investor suitability management system, and
provides distribution and trading services for available bond types to eligible investors.
Investors in the commercial bank counter market are mainly individuals and small to
medium institutions.
In addition, a direct investor, who meets certain qualifications but is not a member of
the underwriting syndicate, may take part directly in subscription or bidding of a new
enterprise bond issue in the book-building or auction process. It can participate in the
book-building/auction of all enterprise bonds according to its own investment needs.
7. Overseas investors. They are overseas central banks or monetary authorities,
sovereign wealth funds, international financial organizations, RMB clearing banks,
overseas participating banks for RMB settlement of cross-border trades, overseas
insurance institutions, Qualified Foreign Institutional Investors (QFII), RMB Qualified
Foreign Institutional Investors (RQFII); financial institutions legally incorporated
overseas such as commercial banks, insurance companies, securities firms, fund
managers and other asset managers, as well as investment products issued by the
aforementioned entities to their clients; overseas pension funds, charity funds,
endowment funds and other mid- to long-term institutional investors recognized by
the PBC.
7 In August 2019, the Notice on Issues Concerning Banks’ Participation in Bond Trading on Stock Exchanges
published by CSRC, PBC and CBIRC allowed banks to trade cash bond by auction on exchange, a further step to
ease restrictions on banks’ participation in the exchange bond market.
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These overseas institutional investors are eligible for cash bond transactions in the
inter-bank market, as well as bond lending, bond forward, forward rate agreements and
interest rate swaps based on hedging needs. Among them, overseas central banks or
monetary authorities, international financial organizations, sovereign wealth funds,
offshore RMB clearing banks and participating banks can also carry out bond repo in
the inter-bank market. Qualified overseas institutional investors can independently
decide their investment size in the inter-bank market without any quota.
II. Derivatives market participants
1. On-exchange derivatives market
The trading venue is China Financial Futures Exchange (CFFEX). Investors are
qualified individuals, general institutions and special institutional customers including
securities firms, fund managers, trust companies, etc. Beside, according to the
Announcement on Participation in CGB Futures Transaction on China Financial
Future Exchange by Commercial Banks and Insurance Institutions jointly published
by CSRC, MOF, PBC and CBIRC in February 2020, eligible commercial banks and
insurance institutions with capability of investment management may conduct CGB
futures transactions on CFFEX while ensuring compliance, controllable risks and
business continuity. To open an account, an investor needs to file with CFFEX through
a CFFEX participant. The CGB futures contracts are settled at CFFEX and delivered at
CCDC.
2. OTC derivatives market
The trading venue is CFETS. To carry out a transaction, an investor needs to sign the
Master Agreement on Derivatives Transactions in the Inter-bank Market of China. The
settlement and delivery are done in CCDC or SHCH according to different bond types.
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W.4 Central Securities Depository
Growing attention is paid to the system for bond registration, depository and
settlement. According to the Recommendations for Securities Settlement Systems
(RSSS) and Principles for Financial Mark Infrastructures (PFMI) issued by relevant
international organizations, central depository should be implemented as much as
possible for the sake of safety and efficiency, and economies of scales and cost-saving
can be achieved by concentrating depository and settlement onto a single entity. In
China’s bond market, three institutions are engaged in the central depository of bonds
at present: CCDC, CSDC and SHCH. CCDC has the major market share.
I. CCDC
(I) Company profile
CCDC, established in 1996 upon approval of the State Council, is a systemically
important financial market infrastructure (FMI). CCDC is a limited liability
corporation funded by the State Council, and is solely and wholly state-owned. With a
non-bank financial institution license, CCDC is one of the 22 central financial
enterprises. And CCDC is under the supervision of PBC, MOF and CBRC.
(II) Positioning
As a neutral, independent and non-profit FMI, CCDC serves the market and provides
business and technical support for regulators including MOF, PBC, CBRC, CSRC,
CIRC, NDRC and SAFE. It is the only CGB general depository authorized by MOF,
responsible for establishing and operating the nation-wide CGB depository system. It
supports registration, depository, and settlement in the inter-bank bond market as
designated by PBC, and acts as the general depository for trading of book-entry CGB
at commercial bank counters. Under the authorization by CBIRC, CCDC undertakes
the development and operation of the wealth management products information
registration system, the trust registration system and the credit assets registration and
exchange system. Upon authorization by NDRC, it also works as the general registry
and depository for enterprise bonds, and is responsible for the third-party technical
assessment of enterprise bond issues, registration of government-sponsored industrial
funds and building of the credit system.
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As a professional depository and settlement institution, CCDC lends great strength to
policy implementation, and works with cutting-edge technologies and business
expertise. Its integrated operating system featuring versatile functions and high
security protection covers investors across China via proprietary network. With the
same security level as that of the national payment system, the system is one of the
national core information systems.
(III) Functions
Starting with centralized depository of CGB, CCDC has grown gradually into a CSD
for various fixed-income securities, and become a core FMI to support operation of the
bond market and implementation of macro policies, playing a significant role in
maintaining financial stability and promoting market development.
CCDC is the core operation platform of the bond market. CCDC serves as a pivot
for safe and smooth operation of China’s bond market by providing comprehensive
services over the life cycle of bonds, including issuance, registration, depository,
transaction settlement, interest payment, principal redemption, valuation, collateral
management and information disclosure. In 2019, CCDC supported the issuance of
RMB27 trillion of bonds and settlement of over RMB1, 307 trillion, making itself the
largest bond settlement platform in China. As a major service provider, CCDC has
under its depository around 75% of all bonds in the market, including CGB, local
government bonds, policy bank bonds, government-backed agency bonds, commercial
bank bonds, enterprise bonds, ABS, etc.
CCDC is the implementation platform for macroeconomic policies. CCDC houses
the Government Bond Auction Venue of MOF and the OMO Venue of PBC. In terms of
fiscal policy assistance, CCDC has provided comprehensive services for a total of
RMB56 trillion of CGBs and local government bonds, and supported cash
management for central and local treasuries. For monetary policies, since 1998 when
the PBC began indirect monetary control, CCDC has provided business and technical
support for OMO and other operations. In terms of industrial policy, as authorized by
NDRC, CCDC provides third-party technical assessment and centralized issuance
support for enterprise bonds, participates in the building of the enterprise credit system,
and undertakes the registration of government-sponsored industrial funds.
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CCDC is a service platform for direct financing. With professional, efficient and
secure FMI services, CCDC, as the largest service platform for direct financing,
enhances the role of the bond market as the country’s main direct financing channel.
The bonds, ABS and other direct financing instruments issued with support of CCDC
raise funds to invest in major infrastructure projects, ecological conservation,
environment protection, development of agriculture, rural areas and farmers, social
welfare and poverty alleviation, providing targeted financing support for supply-side
structural reform and economic transformation and upgrading.
CCDC is a platform for benchmark pricing in the financial market. CCDC has set
up a complete system of ChinaBond pricing products that reflects the market price and
risk status of RMB bonds, serving as an important benchmark for financial assets
pricing. The official websites of the MOF, PBC and CBIRC publish the ChinaBond
CGB Yield Curves on a daily basis. ChinaBond pricing service publishes more than
2,200 curves, including Shanghai Key Yield (SKY), and over 100,000 valuations every
day, covering the entire bond market. In 2015, the ChinaBond 3-Month CGB Yield was
included in the SDR interest rate basket by IMF, becoming a global pricing benchmark
for RMB.
CCDC is the risk management platform for the financial market. Committed to
the stability and security of the market, CCDC has incorporated in the design of all its
services operational and other risk prevention mechanisms. Also, CCDC leverages on
its own resources to explore and improve risk management for the market. It now
provides professional, smart and integrated collateral management services, widely
adopted in monetary policy implementation, payment and settlement systems, treasury
cash management, national foreign exchange reserve management, cash bond and
derivatives trading, as well as a growing variety of cross-border businesses. At present,
with about RMB13 trillion outstanding under management, CCDC is one of the largest
bond collateral managers in the world, and is becoming a liquidity hub and risk
management hub for the market. Moreover, customized in-depth application of
ChinaBond pricing products serve as a robust tool for institutions to identify and assess
risks in their portfolios. In terms of regulatory support, CCDC has always effectively
performed its function of front-line statistical monitoring to help prevent systemic and
regional financial risks.
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CCDC is an innovation platform for the bond market. CCDC is actively building a
ChinaBond think tank and, in line with the innovative development of the bond market,
has provided research and development support for the introduction of new securities
such as ABS, enterprise financing instruments, commercial bank capital instruments,
and new trading methods such as outright repo, bond forward, bond lending and CGB
futures. CCDC has undertaken many consulting projects of the World Bank and the
Asian Development Bank, and delivered a series of important research findings. In
cooperation with PBC, CCDC has accomplished crucial research projects, such as the
study on the role of the CGB yield curve in monetary policy transmission. The annual
reports on bond market and wealth management market published by CCDC have
attracted broad attention from all sectors. The Bond Magazine by CCDC is the only
professional bond journal in China. The website www.chinabond.com.cn is the most
influential integrated web portal for bonds in China. CCDC has also been providing
training services for customers in the inter-bank bond market, and operating the
ChinaBond Online Training Platform, which is China’s first online training platform
dedicated to bonds.
CCDC is a service platform to support diversification in the financial market.
Under the guidance of relevant authorities, CCDC has successively provided
registration and other FMI services for transfer of loans, trust products and wealth
management products, and set up China Credit Asset Registration & Exchange Co.,
Ltd., China Wealth Management Registry & Custody Co., Ltd. and China Trust
Registration Co., Ltd.. With more than RMB118 of various financial products under its
registration at end-2019, CCDC plays a positive role in ensuring robust market
development, enhancing regulatory effectiveness, protecting investor rights and saving
institutional costs, thus paving the way for activating the idle financial assets and
optimizing the allocation of financial resources.
CCDC is a gateway for opening-up of the bond market. CCDC, supports the Global
Connect and the Bond Connect for market access. As of end-2019, CCDC was serving
over 1,000 investors under the Global Connect and over 700 investors under the Bond
Connect, holding for them RMB1.88 trillion of bonds under its depository. It rolled
out both Chinese and English versions of the ChinaBond Integrated Operation
Platform (CIOP), allowing overseas investors to make business queries via the Online
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English CIOP Client while settlement agents process settlement operations for them
via the Desktop Client. CCDC is engaged in active international exchanges,
multilateral collaborations and promotional events such as annual conventions and
irregular road shows for investors at home and abroad. It also works on cross-border
cooperation in collateral management and pricing products, promotes cross-border
mutual recognition of collateral and provides collateral management services for
offshore financing against onshore guarantees and the MOF foreign loans. CCDC
launched indices in cooperation with IHS Markit, and issued the ChinaBond green
index series on the Luxembourg Stock Exchange. It has strengthened capacity building
for going global, continued to conduct relevant research and established the ChinaBond
International Research Institute in cooperation with Shanghai University of Finance
and Economics. To facilitate bond market growth as well as financial growth in
Macao, CCDC supported MOF in the first issue of CGB in Macao valued at RMB2
billion on 4 July 2019. Going forward, an online portal targeted at overseas investors,
https://global.chinabond.com.cn, is coming soon, which will add to the convenience
for overseas investors to keep informed about and take part in China’s bond market.
II. Other registration and depository institutions
(I) CSDC
CSDC, founded in 2001, is under the supervision of CSRC. It has branches in Shanghai
and Shenzhen to undertake the registration and settlement of Shanghai and Shenzhen
Stock Exchanges.
CSDC’s functions include: establishment and management of securities accounts and
settlement accounts, depository and transfer of securities, registration of names and
rights of the securities holders, settlement and delivery of securities and funds as well as
related management, distribution of rights and benefits of securities under the
entrustment of the issuer, and other services related to securities registration and
settlement including inquiry, information, consulting and training. Assets under
depository of CSDC cover stocks, funds, bonds and securities derivatives, among
which stocks are the majority. Bonds under depository are corporate bonds,
convertible bonds and SMEs’ private placement bonds. CSDC also acts as a
sub-custodian under CCDC for CGBs, local government bonds and enterprise bonds.
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(II) SHCH
Founded in 2008, SHCH is a CCP in the OTC market approved and supervised by
PBC. CFETS and CCDC are the top two shareholders of SHCH.
Its functions include: to provide clearing services in RMB and foreign currencies,
including clearing, settlement, delivery, margin management, collateral management,
information service and consulting, for spot and derivatives transactions and RMB
cross-border transactions approved by the PBC; and to offer registration and
depository services to debt financing instruments of non-financial enterprises and
NCDs.
Table 4-1 Comparison of the three CSDs
CCDC CSDC SHCH
Founded in 1996 2001 2008
Approved by The State Council CSRC PBC
Regulators PBC, MOF, CBIRC, NDRC,
CSRC CSRC PBC
Ownership Wholly state-owned Joint-stock company Joint-stock company
Assets served
General registration and
depository for CGB, local
government bond, policy bank
bond, government-backed
agency bond, enterprise bond,
ABS, commercial bank bond,
non-bank financial bond,
international organization
bond, etc.
General registration for
corporate bond, stock,
funds, etc.
Sub-custodian for CGB,
local government bond
and enterprise bond.
Debt financing
instrument of
non-financial
enterprises, NCD, etc.
Bond
business
share (at
end-2019)
Depository RMB64.98 trillion, 74.36% RMB10.78 trillion,
12.33%
RMB11.62 trillion,
13.30%
Settlement RMB813.79 trillion, 62.25% RMB239.28 trillion
18.30%
RMB254.24 trillion,
19.45%
Settlement method Real time gross settlement Gross and net Gross and net
Funds settlement Using central bank money Using commercial bank
money
Using central bank
money
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W.5 Laws and Regulation
The legal structure of China’s bond market is constituted of laws, administrative
regulations, ministerial rules, business rules and business agreements from top to
bottom. The laws are made by the National People’s Congress (NPC) or the NPC
Standing Committee, with the supreme legal force; administrative regulations are
issued by the State Council; ministerial rules are made by departments of the State
Council (including the bond market regulators); business rules are the rules issued by
the FMIs; business agreements are the service agreements signed by and between the
FMIs and customers. Market laws and regulations refer to the general term of laws,
administrative regulations and ministerial rules.
I. Bond market-related laws and regulations
(I) Basic laws and regulations regarding the inter-bank bond market
Law of the People's Republic of China on the People’s Bank of China, implemented
since 1995 and revised in 2003;
Measures for the Administration of Bond Transactions in the National Inter-Bank Bond
Market, implemented since 2000;
Measures for the Administration of the Bond Registration, Depository and Settlement
in the Inter-Bank Bond Market, implemented since 2009;
Measures for the Administration of the Issuance of Financial Bonds in the National
Inter-Bank Bond Market, implemented since 2005;
Measures for the Administration of Commercial Papers of Securities Companies,
implemented since 2004;
Measures for the Administration of Pilot Credit Asset Securitization, implemented
since 2005;
Measures for the Administration of Debt Financing Instruments for Non-financial
Enterprises in the Inter-Bank Bond Market, implemented since 2008;
Measures for the Administration of the When-Issued Trading in Bonds in the National
Inter-Bank Bond Market, implemented since 2014;
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Interim Measures for the Administration of Bond Issuance by Overseas Institutions in
the National Inter-Bank Bond Market, implemented since 2018;
Provisions on the Administration of Outright Repurchase of Bonds in the National
Inter-Bank Bond Market, implemented since 2004;
Provisions on the Administration of Bond Forward Transactions in the National
Inter-Bank Bond Market, implemented since 2005;
Interim Provisions on the Administration of Bond Lending in the National Inter-Bank
Bond Market, implemented since 2006;
Provisions on the Administration of Market Makers in the National Inter-Bank Bond
Market, implemented since 2007.
(II) Basic laws and regulations regarding the exchange bond market
Securities Law of the People's Republic of China, implemented since 1999, revised in
2005 and 2019, the latest version effected on 1 March 2020;
Administrative Measures for the Issuance and Transactions of Corporate Bonds,
implemented since 2015;
Administrative Provisions on Assets Securitization of Securities Companies and
Subsidiaries of Fund Management Companies, implemented since 2014;
Measures for the Administration of Securities Registration and Clearing, revised in
2018;
Shanghai Stock Exchange Rules for Listing of Corporate Bonds, revised in 2018;
Rules of Shanghai Stock Exchange for Transfer of Privately Placed Corporate Bonds,
implemented since 2018;
Shenzhen Stock Exchange Rules for Listing of Corporate Bonds, revised in 2018;
Rules of Shenzhen Stock Exchange for Transfer of Privately Placed Corporate Bonds,
implemented since 2018.
(III) Basic laws and regulations regarding the commercial bank counter market
Measures for the Administration of (Electronic) Savings Bonds, implemented since
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2013;
Notice on Matters Related to Increasing the Varieties of the Commercial Bank Counter
Bond Business, implemented since 2014;
Measures for the Administration of Commercial Bank Counter Business in the National
Inter-Bank Bond Market, implemented since 2016;
Notice on Developing the Counter Local Government Bond Business in the National
Inter-Bank Bond Market, implemented since 2018;
Notice of the Ministry of Finance on Issuing Local Government Bonds through The
Commercial Bank Counter Market, implemented since 2019.
(III) Basic cross-market laws and regulations
Regulation on Treasury Bills of the People’s Republic of China, implemented since
1992 and revised in 2011;
Regulations on Administration of Enterprise Bonds, implemented since 1993 and
revised in 2011;
Interim Measures for Depository and Administration of China Government Bonds of
the People’s Republic of China, implemented since 1997;
Administrative Measures for Custody Transfer of China Government Bonds,
implemented since 2003;
Administrative Measures for Subordinated Term Debts of Insurance Companies,
implemented since 2011, revised in 2013 and amended in 2018;
Interim Measures for the Administration of Project Revenue Bonds, implemented since
2015;
Interim Measures for the Administration of Issuance of General Local Government
Bonds, implemented since 2015;
Interim Measures for the Administration of Issuance of Special Local Government
Bonds, implemented since 2015;
Guidelines on Green Bond Issuance, implemented since 2015;
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Guidelines on Issuance of Special Bonds for the Elderly Care Industry, implemented
since 2015;
Guidelines on Issuance of Special Bonds for Construction of Urban Parking Lots,
implemented since 2015;
Guidelines on Issuance of Special Bonds for Strategic Emerging Industries,
implemented since 2015;
Guidelines for Issuance of Special Bonds for Urban Utility Tunnel Construction,
implemented since 2015;
Guidelines for Issuance of Special Bonds for Market-Oriented Debt-to-Equity Swaps of
Banks, implemented since 2016;
Guidelines on Issuance of Special Bonds for Social Service Industries, implemented
since 2017;
Guidelines for Issuance of Special Bonds for Public-Private Partnership (PPP)
Projects, implemented since 2017;
Guidelines on Issuance of Special Bonds for the Integrated Development of Rural
Industries, implemented since 2017.
Guidelines for Auction Issuance of Enterprise bonds, implemented since 2019;
Guidelines for Book Building Issuance of Enterprise bonds, implemented since 2019;
II. Regulators for the bond business
The regulation is based on market segments and bond types. (Please see Table 5-1)
Table 5-1 Regulation of bond business
Regulators Regulatory responsibility
PBC
Inter-bank bond market, commercial bank counter market;
Central bank bill, financial bond, securities firms’ CP, debt financing
instrument of non-financial enterprises, credit ABS, and Panda bond,
NCDs, etc. ( Registration and issuance of debt financing instruments of
non-financial enterprises in the inter-bank market are self-regulated by
NAFMII.)
MOF CGB, local government bond, Panda bond
NDRC Enterprise bond, Panda bond, railway bond
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CSRC
Exchange market, CFFEX;
Corporate bond, securities firms’ CP, convertible bond, exchangeable
bond, corporate ABS, Panda bond, CGB futures
CBIRC Financial bonds and credit ABS issued by banking institutions
Subordinated term bonds and financial bonds by insurance companies
SAFE Panda bond
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W.6 Bond Issuance
I. Issuance methods
Public offering is the main method.
(I) Public offering modes
1. Auction. The issuer determines terms like the auction mode and bid-awarding mode.
The bidding is open in the market, and the underwriting syndicate members shall
underwrite bonds based on the awarded amount. Auction modes include bidding by
quantity, price, coupon rate and spread, and bid-awarding modes are proportional
quantity, single price, multiple price and hybrid price; there are multiple combinations
of bidding and awarding modes. Now auction is adopted for government bonds,
financial bonds and large-scale enterprise bonds.
2. Book-building. After the issuer and lead underwriter determines the coupon rate or
price range through consultations, the book runner (usually the lead underwriter)
performs one-on-one negotiations with investors, who will then decide their
subscription order at different rates. Finally, the book runner collects all orders,
determines the issuance rate or price according to predetermined way of pricing and
allotment, and carries out the allotment. Enterprise credit bonds, financial bonds,
credit ABS and debt financing instruments by non-financial enterprises tend to use
book-building.
(II) Private placement
Targeted issuance by agreement. The issuer, based on the market needs, negotiates
with the bond subscriber to determine the terms like the coupon rate, price, maturity,
interest payment mode, subscription quantity and payment date, subscription fees and
subscriber’s obligations and signs the subscription agreement. The targeted issuance by
agreement is taken as a supplement to market-oriented issuance methods.
(III) Commercial bank counter issuance
The bond issuance in the commercial bank counter bond market is usually
synchronized with that in the inter-bank market, at the issue price determined
according to the price set via bidding in the inter-bank bond market. The underwriters
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carry out the underwriting and distribution. The book-entry CGBs of key terms are
distributed in the inter-bank market and over the bank counter at the same time. The
underwriters distribute these bonds over the bank counter within their proprietary
amount won via bidding. In the case of policy bank bonds and local government bonds,
the issuer determines the issue over the bank counter and carries out bidding for
additional counter amount, while underwriters distribute the bond over the counter.
Savings CGBs are only issued over the bank counter, with the issue price determined
separately by the issuer.
II. Issuance system
CCDC provides an integrated issuance service platform to support large-scale,
high-frequency, low-cost, low-risk and efficient issues.
First, the platform enables flexibility to support both auction and book-building. The
issuance system allows simultaneous offerings of multiple bond types by auction or
book-building, with diversified options such as flexible auction (flexible allotment),
follow-on issuance and reopening; it allows multiple auction (book-building) and
bid-awarding (allotment) modes; it also allows flexible settings of bidding
(subscription) elements such as bidding increments, price points, bid (subscription)
amount and continuity.
Second, the platform supports customized needs. The system can be customized for
different kinds of issuers and support various bond types, interest paying ways, and
auction (book-building) ways.
Third, the platform is accessible from multiple locations. With its Shanghai
Headquarters and Shenzhen Customer Service Center, CCDC has built up geographic
edges by allowing auction for local government bonds and book-building for
enterprise bonds at multiple locations, adding to convenience for issuers.
Fourth, the platform enables remote issuance. CCDC’s book-building system is
capable of supporting remote book-building of enterprise bonds, financial bonds and
ABS. The remote book-building function enables clear and separated permissions for
different users, and allows emergency operations to ensure smooth issuance in a
remote manner and meet market participants’ need for a flexible book-building venue
and a safe, efficient and convenient system.
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III. Cross-border issuance
According to the Interim Measures for the Administration of the RMB Bond Issuance
by International Development Organizations, CCDC provides issuance, registration,
depository and other support to international development organizations in issuing
financial bonds in the inter-bank bond market. Since 2005, the International Finance
Corporation, the Asian Development Bank and the New Development Bank have
issued Panda bonds.
To apply for onshore issuance of RMB bonds, international development organizations
need to submit the application to MOF, who will then report to the State Council for
approval after verification by PBC, NDRC, CSRC and SAFE. If the issuer wants to
convert the proceeds into foreign currency and move them overseas, an approval from
SAFE shall be obtained. To transfer RMB funds from overseas for onshore bond
principal and interest payment, the issuer shall file with PBC; to transfer foreign
exchange from overseas for onshore payment, the issuer shall get the approval from
SAFE.
IV. Issuance in the free trade zone (FTZ)
According to its Bond Services Guide for China (Shanghai) Pilot Free Trade Zone,
CCDC provides support for bond issues in the FTZ. Eligible issuers need to sign the
Issuance, Registration and Agency Payment Service Agreement and open an issuer
account with CCDC. The first FTZ issue was rolled out in December 2016.
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W.7 Bond Registration and Depository
I. Bond registration
Bond registration is where a registration and settlement institution authorized by the
state confirms, in accordance with the law, the bond holder’s ownership to the bond in
the book-entry form.
In China, the CSD, also known as the bond registration, depository and settlement
institution, serves the duty of bond registration.
II. Bond depository structure
Direct holding and sub-custody are employed In China’s bond market, with direct
holding used in the inter-bank market and sub-custody in the exchange market and
commercial bank counter market. CCDC is responsible for general depository and
direct holding, while sub-custodians play their roles under the general depository
framework.
(I) Inter-bank bond market
Any investor conforming to the PBC’s stipulations regarding market access can
become a depository and settlement participant of CCDC. According to differences in
qualifications for participation in bond settlement business and handling methods,
settlement participants are divided into three types, Type A, Type B and Type C. Type A
settlement participants can handle the proprietary settlement business and act as the
agent of Type C participants to carry out bond settlement; Type B participants can only
handle proprietary settlement; Type C participants have to entrust Type A participants
as the agent to handle bond settlement.
According to the nature and business scope of participants, CCDC implements
classification and centralized management for the accounts. Institutional investors can
directly open primary bond accounts in CCDC, divided into the proprietary account and
the general agent account. The proprietary account is used to keep track of outstanding
balances of the bondholder’s proprietary bonds, and should be used by Type A, B and
C participants. The general agent account shall be used by sub-custodians for the
bonds under their custody. The structure of participants and their accounts is shown in
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the figure:
Figure 7-1 Settlement Participant and Bond Account Structure
(II) Exchange bond market
In the exchange bond market, the settlement institution CSDC implements centralized
registration and secondary depository. CSCD registers and keeps the book of transfers
of all bonds in the exchange market. Investors trade in the exchange bond market
through qualified securities firms, which act as their agents for depository and
settlement.
As the sub-custodian for CGB, local government bonds and enterprise bonds, CSDC
keeps a general agent account at CCDC. An investor keeps a bond account at CSDC.
CSDC undertakes the responsibilities of bond registration and depository for
transactions on exchanges and manages corresponding risks. Its Shanghai Branch and
Shenzhen Branch serve as depositories of SSE and SZSE, with the same depository
account structure.
(III) Commercial bank counter market
In the commercial bank counter market, a secondary depository system is adopted;
CCDC is the primary depository while a commercial bank handling the counter
business is a secondary depository. CCDC opens the proprietary and general agent
accounts (a primary depository account) for the bank, recording the proprietary bonds
and the bonds held for secondary customers in separate books for the bank. CCDC is
accountable for the authenticity, accuracy, integrity and security of the primary
CCDC Integrated bond business system
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depository books, and provides investors with review and inquiry functions. The bank
runs the bond depository account (secondary depository accounts) for investors to keep
track of bond holdings and changes therein by investors, and process operations
including selling, trading, pledging, blocking, non-trading transfer, depository transfer
and principal redemption. The bank is responsible for the secondary depository
account.
(IV) FTZ market
CCDC sets up the Dedicated Sub-Accounts of FTZ bonds for investors, which is
dedicated to providing depository service for FTZ bonds held by investors, thus
distinguishing FTZ bonds from those in the inter-bank bond market (CIBM) under the
framework of separate accounting and independent management. Investors need to
apply for the Dedicated Sub-Accounts in accordance with the Instructions for the
Dedicated Sub-Accounts in China (Shanghai) Pilot Free Trade Zone. Eligible banks
for the FTZ counter market business may conduct the bond counter business within
the FTZ. CCDC assumes the central registration, primary depository and settlement
functions for the FTZ counter bond market, while the banks are responsible for
secondary depository and settlement.
III. Cross-market transfer of depository of bonds
Investors can transfer the depository of a bond across markets. Investors qualified for
trading in CIBM and the exchange bond market may transfer a bond between the two
markets; those qualified for trading in the bank counter market can transfer a bond
between the counter and the exchange markets. Besides, transfers of secondary
depository can be done within the counter market, i.e. from one bank to another.
At present, depository of CGBs, local government bonds and enterprise bonds can be
transferred. The transfer should be processed in accordance with the Business Rules
for Cross-Market Custody Transfer of CGBs, the Procedures for Listing and Custody
Transfer of Real-Named Book-Entry Enterprise Bonds, and other relevant rules.
Type A and B participants can apply directly to CCDC for the transfer; Type C
participants needs to apply to their settlement agents or the bond underwriters who
opened accounts as their agent, and then the agent handles the transfer of depository on
behalf of them at CCDC. Upon accepting the application, CCDC transfers the bond to
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CSDC’s account, and the bond is tradable in the exchange on the next day. CSDC,
upon accepting a transfer application, transfers the bond to CCDC’s account after
netting at end of day, and the bond is tradable in the inter-bank market on the next day.
Figure 7-2 Transfer of Depository between CIBM and the Exchange
IV. Account structure for market opening-up
Currently, overseas institutions may access CIBM via the Global Connect (direct
holding) or the Bond Connect (multi-tiered custody). CCDC supports both modes
with the Global Connect as the main channel.
The Global Connect is adopted as a main channel for market access in that bond
holdings under it account for 80% of total foreign holdings of China’s onshore bonds.
Direct holding and settlement agents are adopted. All investors need to open
real-name accounts at the CSD to hold bonds directly, thus ensuring clear legal
relationships, high uncertainty of investor rights, streamlined settlement process and
high efficiency. The accounts keep a real track of bond and cash flows with security
and transparency. This mode enables see-through regulation and is welcomed by
global investors, partner intermediaries and foreign CSDs in practice.
The Bond Connect adopts a multi-tiered custody structure. Investors open omnibus
accounts and hold bonds in an indirect way. This mode works for smaller-sized
overseas investors who are not familiar with China’s onshore market.
V. Bond principal redemption/interest payment
Entrusted by the issuer, CCDC provides the STP service for the principal redemption /
interest payment of bonds as the agent for the issuer, streamlining the process and
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improving capital efficiency. After receiving the funds from the issuer, CCDC
calculates the amount of funds payable and transfer such funds to investors who keep
accounts at CCDC through CNAPS.
In addition, CCDC offers ongoing bond services, such as options management and
coupon rate adjustment.
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W.8 Bond Transaction
I. Market structure
So far, a unified and layered market structure has taken shape in China’s bond market,
comprising the inter-bank market (CIBM), the exchange market, the commercial bank
counter market and the FTZ market.
1. CIBM. As the main body of China’s bond market, this market occupies nearly 90%
of the whole market by outstanding amount of bonds. It is a block trading market
(wholesale market) with various institutional investors as participants; transactions are
made based on bilateral negotiations and the main settlement method is the real-time,
gross settlement on a trade-by-trade basis. CCDC runs bond accounts for investors,
carries out primary depository and provides settlement services.
2. Exchange bond market. This is a retail market using matching for transaction and
netting for settlement. Secondary depository is used, with CCDC as the general
depository running the general agent account, and CSDC as the sub-custodian keeping
the detailed book for all investors on exchange. There is no direct relationship
between CCDC and the end investor, and settlement in exchanges is undertaken by
CSDC.
3. Commercial bank counter market. As an extension of the inter-bank market, this
market is a retail market. In the counter market, secondary depository is used, with
CCDC as the general depository running the proprietary account and the general agent
account for the bank, which acts as the sub-custodian keeping secondary depository
accounts for investors. There is no direct relationship between CCDC and the end
investor. Different from the exchange market, the bank shall send data regarding all
changes in the account balances to CCDC at end of day, and in the meantime, CCDC
provides counter investors with the balance check and inquiry service which becomes
an important way to protect investors’ rights and interests.
4. FTZ bond market. It is an extension of the inter-bank bond market, positioned as an
“offshore market located onshore”. It is an important attempt to open up and develop
China’s bond market. It helps attract overseas investors to the domestic bond market,
diversify bond issuers and investors, broaden the channel for returning of CNH and
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accelerate the internationalization of RMB. The FTZ bond market adopts the mode of
“inside the national border but outside the customs territory” and follows the principle
of “first-line liberalization and second-line control” in capital flow management, i.e.
overseas assets can freely enter and leave the FTZ, but the flow of assets between the
FTZ and the domestic market must follow relevant regulatory requirements. CCDC
provides integrated services such as issuance, registration, depository, settlement,
interest payment, valuation and information disclosure for FTZ bonds. Investors can
invest through the FTZ’s electronic platform or FTZ counter business providers.
II. Transaction types
(I) Cash bond transaction
The two parties to a transaction transfer the ownership of the bond of the type, quantity
and price as per agreed on the day or the next day (the settlement cycle can be
extended where an overseas counterparty is involved) when the transaction is
executed.
(II) Repo transaction
Repo represents the majority of trading in the bond market, playing a significant role in
monetary regulation and liquidity management of institutions like the commercial
banks.
1. Repo in CIBM. The main types are the pledged repo and the outright repo. Before
entering the repo transaction, market participants shall sign the Master Agreement on
Bond Repurchase Transactions in the Inter-bank Market of China.
- Pledged repo. It is used for short-term funding by way of pledging bonds. The funds
receiver (the repo party) pledges the bonds to the funds provider (the reverse repo
party), while both parties agree that, on a certain date in the future, the repo party shall
refund the funds to the reverse repo party of the amount calculated on the basis of the
stipulated repo rate, and the reverse repo party shall release the pledged bonds. Neither
party may use the bonds pledged within the repo period, and the interests accrued
during the pledge shall be in the possession of the pledgor.
- Outright repo. The repo party sells the bonds to the reverse repo, and both parties
agree that, on a certain date in the future, the repo party shall buy back the same
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quantity of the same bonds at the agreed price from the reverse repo party. Different
from the pledged repo, in the outright repo, the reverse repo party may claim interest
on the bonds and may own and use the bonds during the repo, as long as it has adequate
bonds to give back at maturity. During the repo, the interest of bonds shall be in the
possession of the bond holder. For settlement, an agreed amount of a certain bond can
be posted as collateral at the start leg; such collateral will be blocked in the bond
provider’s account during the repo and unblocked upon successful settlement at
maturity.
2. Repo in the exchange market
The main types are the pledged repo and the outright repo. Collateral include CGBs,
corporate bonds, enterprise bonds, bonds with warrants, ABS, etc. The main type for
outright repo is the CGB.
(III) Bond lending
It is a kind of bond financing where the bond receiver borrows an underlying bond by
posting a certain amount of bonds as collateral, and enters an agreement with the bond
lender that, on a certain date in the future, the receiver returns the underlying bond
while the lender returns the collateral. During the lending, in case of interest payment
on the lent bond, the bond receiver shall refund the interest to the bond lender in time.
The receiver pays the lender a fee as negotiated by both parties.
At present, only bilateral bond lending is available in the inter-bank market. Automatic
bond lending is expected.
(IV) Transaction of bond derivatives
1. Bond forward. The two parties agree to trade the underlying bond by an agreed
price and quantity on a certain date in the future. The underlying bond should be a
bond available for spot transactions in the inter-bank bond market. The time between
the start date and the settlement date is no longer than 365 days.
Standardized bond forward. It is a bond forward contract traded in the inter-bank
market, with standardized underlying bond, settlement date and other elements.
2. CGB futures. It is a standardized contract where the two parties agree to deliver a
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certain amount of CGB at the exercise price on a certain date in the future. Three
maturities, namely, 2-year, 5-year and 10-year, are available. The contract is settled
with physical delivery of book-entry CGB traded simultaneously in CIBM, SSE and
SZSE. To take part in the transaction, an investor needs to file with CFFEX for a CGB
depository account through a CFFEX member.
(V) Treasury cash management
1. Central treasury cash management. It refers to a series of fiscal management
activities aimed to realize the minimization of cash reserves in the treasury and the
maximization of income from investment on the premise of guaranteeing the payment
need of the central fiscal treasury. The operation modes include the time deposit in
commercial banks, CGB buy-back, CGB repo and reverse repo, etc. During the early
stage, time deposit and CGB buy-back were the main ways; since the start in 2006,
time deposit in commercial banks has been used for most of treasury cash management.
Between 2015 and 2017, 52 commercial banks participated in time deposit for central
treasury cash management, and CCDC provided technical and business support.
2. Local treasury cash management. The local governments manage fiscal funds
deposited by the municipal or district (county) governments by means of time deposit
in commercial banks. The time deposit rate is based on the benchmark rate of
inter-bank RMB deposits of the same maturity at the operation date plus the fluctuation
range of deposit rates stipulated by PBC, and it is eventually determined by the
commercial banks. The banks participating in the time deposit for local treasury cash
management are determined by the local finance department. CCDC provides the
auction system and assists in pledge and settlement operations.
(VI) Open market operation
The open market operation is a main tool for the central bank to adjust the monetary
base and market liquidity, through securities and foreign exchange transactions
between the central bank and designated dealers. Since 1999, the open market
operation has become an important tool for the daily operation of the monetary policy
by PBC, playing a positive role in regulating the money supply, adjusting the liquidity
level of commercial banks and guiding the money market rates. CCDC provides
paperless and electronic remote technical support for open market operations, and
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under the entrustment of PBC, undertakes and supports daily operations including
trading, issuance, liquidity monitoring and related data analysis.
III. Ways of transaction execution
(I) Ways of transaction in CIBM
Transactions in CIBM are executed mainly through independent negotiations by
trading parties on a trade-by-trade basis. The negotiation, where quotes are
communicated, execution and generation of the contract can be carried out in the
electronic trading system of CFETS, or by phone, fax and other means. When a
transaction is executed, the trading parties shall input transaction data in the CFETS
system to generate a contract note.
1. Negotiations for quotes. The trading parties negotiate to determine the price and
other elements for a transaction. There are three ways of quotes, i.e. the intentional
quote, the two-way quote and the dialogue quote. The intentional quote is a price sent
to the whole market, specific trading participants and/or system users to show
intentions of trading; the two-way quote presents both ask and bid prices to the whole
market; the dialogue quote is sent to specific trading participants with all elements
specified, and a transaction can be executed once the recipient accepts the quote.
2. Execution by clicking. A named or anonymous offer is sent, and a transaction can
be executed when a recipient clicks to take the offer or by matching with price limit.
The offers are categorized into market making offer (two-way) and clicking offer
(one-way). The market making quote is where a market maker and trial market maker
makes both ask and bid quotes for a certain bond; the clicking quote is where the offer
maker makes an ask quote or a bid quote, as well as quantity, for a certain bond.
3. Request for quote. A request for quote is sent to specific market participants, who
can make a reply specifying the price and other trading terms. The request sender will
confirm the trading method is a transaction is executed. Market makers may reply to
such requests.
(II) Ways of transactions in the exchange market
1. Auction trading. Transactions are executed through auction following the principle
of “first by price, then by time”. Call auction is adopted during the opening session
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each day, and continuous auction in the rest of the trading day, resulting in full
execution, partial execution and non-execution.
2. Block trading. A single cash bond trade or a bond repo whose intended trading
volume is no fewer than 1,000 lots or trading value is no less than RMB1 million on
SSE, or a single cash bond trade or pledged repo whose trading volume is no fewer
than 500 lots or trading value is no less than RMB500,000 on SZSE is identified as a
block trade. Block trading employs negotiated trading and after-hour pricing.
3. Fixed-income platform. The fixed-income platform, in parallel with the call
auction system, is an electronic bond trading platform for institutional investors. It is
directly accessible to dealers (securities firms, trusts, fund managers, insurance
companies, finance companies and other entities approved by CSRC or PBC), but not
to other investors.
(III) Ways of transactions in the commercial bank counter market
At present, bonds traded over the bank counter are outstanding CGBs, local
government bonds, CDB bonds, policy bank bonds approved by the issuers, and new
issues offered to counter investors. The transaction is done between the bank and the
investor, which is usually an individual or a small to medium institution. In the
trading hours, the bank makes continuous two-way quotes, publishing the bank-wide
bid and ask prices, as well as YTM for reference, at all its branches. The investor may
sell the bond at the bank’s bid price or buy the bond at the ask price. Counter
transactions are processed via the bank’s counter trading system, and the trading days
are from each Monday to Friday, except the legal holidays. Before making a counter
transaction, the investor needs to open a bond depository account in his/her true identity,
and open or designate a cash account according to the bank’s requirements; to buy or
sell a bond, the investor needs to submit a written order to the bank. The bank
processes the settlement and delivery of bonds and cash in real time, send the related
data and settlement instructions to CCDC after completion of a transaction, and
transmit the transaction information to CFETS for filing.
(IV) Ways of transactions in the FTZ market
Pursuant to requirements of the regulator and the FTZ trading desk, CCDC handles the
listing and trading procedures for bonds issued in the FTZ, and publishes the bond
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information on www.chinabond.com.cn. Investors can trade either through the FTZ
electronic platform or an eligible bank counter, in the afore-mentioned ways of
transaction in the inter-bank market and the counter market.
IV. Clean price trading and full price settlement
Clean price trading refers to spot trading quoted and executed by a price excluding
accrued interest. Full price settlement uses the clean execution price plus the accrued
interest as the settlement price. In clean price trading, since accrued interest is excluded,
the execution price is a relatively more accurate representation of a bond’s intrinsic
value, supply-demand relationship and expectations of market rates.
At present, clean price trading and full price settlement is adopted for cash bond
transactions, repos and bond forward transactions in the inter-bank market and part of
bond transactions on the exchange. Whereas, full price trading still exists for discount
bonds and zero coupon bonds in the inter-bank market and convertible bonds on
exchange.
V. Investor eligibility
1. Inter-bank bond market investors. Institutional investors, including special
settlement participants like the PBC and MOF, commercial banks, non-bank financial
institutions, securities firms, insurance institutions, fund managers, non-financial
institutions, unincorporated institutional investors and overseas institutional investors.
2. Exchange bond market investors. Qualified investors and retail investors. Taking
SSE as an example, qualified investors are financial institutions like securities firms,
fund managers and their subsidiaries, futures dealers, commercial banks, insurance
companies, trusts, and finance companies; unincorporated institutional investors such
as asset management products by securities firms; overseas institutions like QFII and
RQFII; enterprise and public institution legal persons and partnerships with net assets
no less than RMB20 million; and individual investors with daily average financial
assets no less than RMB5 million.
3. Commercial bank counter market investors. Investors verified by an eligible
bank to meet at least one of the following conditions may invest in all types of bonds /
transactions: (i) Financial institutions founded as approved by the State Council or its
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financial administrative departments; (ii) investment companies or other investment
management institutions lawfully registered with the competent authority or its
authorized industrial self-regulatory organization, and holding or managing financial
assets of a net value no less than RMB10 million; (iii) wealth management products,
securities investment funds and other investment plans managed by the foregoing
financial institutions, investment companies or investment management organizations;
(iv) enterprises with net assets of no less than RMB10 million; (v) individual investors
with an annual income of no less than RMB500,000, financial assets of no less than
RMB3 million under their names and more than two years of experience in securities
investment; (vi) institutional or individual investors that meet other requirements of
PBC and are approved by the bank. Investors who fail to meet the above conditions can
only buy and sell AAA (or above) bonds or bonds by an AAA (or above) issuer, and
participant in bond repo.
4. FTZ market investors. According to CCDC’s Bond Services Guide for China
(Shanghai) Pilot Free Trade Zone, domestic institutions that have set up an approved
FTZ Separate Accounting Unit, domestic or overseas institutions with a Free Trade
Account (FTA), overseas institutions with a Non-Resident Account (NRA) and other
qualified overseas institutions may apply to CCDC for bond account and the FTZ
Dedicated Sub-Accounts to enable direct participation in the FTZ bond market; they
can alternatively engage in the market via a settlement agent or a qualified overseas
securities depository. Those who have already hold accounts at CCDC may use their
existing bond accounts, and only need to open the FTZ Dedicated Sub-Accounts to
access the FTZ bond market.
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W.9 Bond Settlement
I. Settlement methods
(Ⅰ) Classification based on whether the positions are netted
1. Gross settlement. At present, CCDC provides the real-time gross settlement. Gross
settlement is the main method used in the inter-bank bond market.
2. Net settlement. At present, CSDC and SHCH provide the net settlement services.
Net settlement is the main method used in the exchange bond market.
(Ⅱ) Classification based on the relationship between bond delivery and fund
payment
1. Delivery versus Payment (DVP). It refers to a settlement method by which bond
delivery and payment are carried out simultaneously and mutually conditional at the
settlement date. In 2004, CCDC connected its integrated bond operation system to
PBC’s HVPS as a special participant, enabling market-wide DVP settlement for the
inter-bank bond market. Now all transactions in the inter-bank bond market are settled
in DVP.
DVP settlement allows for two fund account arrangements. Direct participants in
HVPS may use their HVPS accounts; indirect participants may use their fund accounts
at CCDC.
2. Other settlement methods. Certain transactions, mainly the onshore dollar bond
transactions, can be settled in methods other than DVP. These methods include: (1)
Free of Payment (FOP), where the trading parties settle and deliver bonds via CCDC
and transfer funds on their own; (2) Payment after Delivery (PAD), where the bond
taker, upon knowledge that the bond giver has sufficient bonds for fulfilling its
obligation at the settlement date through CCDC Integrated Bond Operation system,
transfers the funds and sends out the confirmation, and then notifies CCDC to handle
bond settlement; (3) Delivery after Payment (DAP), where the bond giver, after
confirming the receipt of sufficient funds, asks CCDC to handle bond delivery.
II. Settlement cycle
At present, settlement cycles of bond transactions in the inter-bank bond market are
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mainly T+0, T+1, T+2 and T+3, where T is the transaction execution date. As long as
one counterparty is an overseas investor, the trading parties may choose T+2 or T+3
for settlement of the transaction, which may be a cash bond transaction, pledged repo,
outright repo or bond lending.
Moreover, to further facilitate trading, rolling settlement is available to overseas
investors in the inter-bank bond market. This is applicable where the original contract
is a spot transaction and allows another three business days following the original
settlement date. In addition, CCDC also supports non-standardized settlement cycle
(T+N, where N is equal to or longer than 4) for cash bond transaction by overseas
investors; SHCH, by working with CFETS, supports settlement cycle no longer than
T+10 for cash bond transactions by overseas investors.
III. Maturity
1. Repo. Settlement of a repo includes the start settlement, done on the transaction
date, and the closing settlement, done at the date as agreed by the trading parties. The
maximum maturity for both the pledged repo and the outright repo is 365 days.
2. Bond forward. For a bond forward transaction, the trading parties need to confirm
the settlement instruction on the day of transaction execution or the next working day.
The maturity should be within 2-365 days (execution date included while settlement
date excluded).
3. Bond lending. Settlement of the bond lending includes the start settlement, done on
the transaction date, and the closing settlement, done at the date as agreed by the
trading parties. The maximum maturity is 365 days
IV. Settlement systems and connection modes
Bond settlement systems are the infrastructure used to handle all processes of bond
settlement.
(I) CCDC Integrated Operation system
The CCDC Integrated Operation system, developed, operated and managed by CCDC,
is an electronic system to handle bond registration, depository, settlement and other
operations. By connecting to PBC open market system, bond issuance system, bond
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counter service processing system, CNAPS and CFETS trading system, it offers
“non-stop” bond services comprising issuance, registration, depository and settlement.
As identified by the authority, CCDC system’s security level is the same as that of
CNAPS, of the civil highest level. The Client of the system, namely, the ChinaBond
Integrated Operation Platform (CIOP), provides market participants with functions to
handle various operations through the life of a bond. It supports three operational
modes, that is, the Direct Link, the Desktop and the Online, in Chinese and English.
(II) PBC payment system
The CCDC Integrated Operation system enables funds clearing related to bond
settlement via interaction with PBC payment systems. Involved in CIBM businesses
are the High Value Payment System (HVPS) and the Bulk Electronic Payment System
(BEPS). Also known as the real-time gross transfer system, the HVPS provides banks,
enterprises and the financial market with fast, efficient, safe and reliable clearing and
payment services on a real-time and gross basis transaction by transaction. The BEPS
provides the society with low-cost and high-amount clearing and payment services in
batches on a netted basis.
CCDC is a direct participant in the HVPS, holding a clearing account, with which
CCDC, as a third party, initiates instant transfers regarding debit/credit directly to the
HVPS.
Settlement participants with accounts in the HVPS can handle DVP fund settlement
through their own accounts, or commission CCDC to handle DVP fund settlement;
settlement participants without accounts in the HVPS should commission CCDC to
handle DVP fund settlement. Before handling DVP fund settlement, participants shall
sign the DVP Settlement Agreement for Bond Transaction, and those commissioning
CCDC to handle DVP fund settlement should also sign the Agreement on Use of Bond
Settlement Fund Accounts.
(III) Straight-Through Processing
Straight-through processing (STP) allows for the whole process of data transmission
and processing, from an inquiry to transaction confirmation, bond delivery and fund
settlement, to be totally automated, free of human intervention, reducing operational
risk and improving efficiency.
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1. Connection between front and back offices
Since 2005, CCDC has been connected with CFETS to provide the inter-bank bond
market with STP for transaction data. Transaction data generated in the CFTES system
is transmitted to CIOP in real time which then generates the settlement instruction to be
confirmed by trading parties via the Client. Finally, the CIOP system processes
settlement based on the confirmed instruction.
2. Connection with the payment system
Since 2004, CIOP has been connected to PBC’s payment system to enable DVP
settlement. The two systems work in coordination to handle DVP settlement for OMOs
and bond transactions, as well as funds services for bond issuance payment, interest
and principal payment, margin management, etc. In DVP settlement, CIOP’s
book-entry system processes the reception and confirmation of instructions, and
transfer of bonds; CIOP’s fund system sends and receives settlement instructions to
and from the payment system, and processes fund delivery. CCDC, as a third party, can
initiate instant transfers to the payment system through its special account.
3. Direct connection with key settlement participants
In 2011, CCDC launched a direct interface in alignment with international standards to
provide customers with access to business operations and data. By connecting its
internal bond management systems (or relevant systems used for bonds management
like a fund management system or a trading system) to CCDC’s CIOP system, the
customer needs only to log into its own internal system to handle bond settlement.
Meanwhile, CCDC provides the two-way data interface for settlement participants to
access basic data and information products, thus erasing all intermediaries in data
transmission and realizing genuine STP for settlement services. Now, 80% of all
business processed by CCDC comes from institutions with direct connection.
V. Settlement process
(I) Inter-bank market
With CCDC as an example, the settlement process of transactions in the inter-bank
bond market follows three steps:
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1. Account opening and networking. Market participants make the filing based on
PBC’s relevant stipulations, and connect to CFETS and CCDC.
2. Execution of transactions. Transactions are executed by the trading parties through
negotiation or clicking. The negotiation and execution may be achieved via the CFETS
system or by phone or fax, and a contract note will be generated by the CFETS system.
3. Settlement and delivery: After execution, the trading parties complete the
settlement and delivery of bonds and funds through CIOP system. The process of
settlement business starts with the settlement parties sending the settlement instruction
and ends with the delivery of bonds and funds. The flow is as follows.
Step 1: At the date of execution, the transaction data is transmitted to CCDC
automatically, and the corresponding third-party settlement instruction is generated, to
be confirmed by the settlement parties.
Step 2: Before end of day on the settlement date, the trading parties confirm the
settlement instruction through CIOP.
Step 3: The settlement contract is generated upon confirmation of the instruction.
Step 4: At the settlement date designated in the contract, the CIOP system automatically
checks the two parties’ account balances. If the bonds are sufficient, the system checks
the funds, and if the funds are sufficient, then the contract can be performed. The
settlement will be completed and a settlement statement will be generated as an
evidence for the completion of the settlement.
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Figure 9-1 Flow Chart of Settlement of Bond Transactions in Inter-bank Bond Market
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During the operating hours at the settlement date, any contract for which settlement
fails to be completed due to inadequate amount of designated bonds or a temporary
failure in full payment of funds is put in the waiting line. If the related conditions are
provided by the end of the settlement date, the system will re-start the processing of
such waiting settlement. If the bonds or funds are still inadequate by the end of the
settlement date for a contract, the system will notify the related settlement participants
of the settlement failure and generate a settlement failure statement as a final evidence
of such failures.
(II) Exchange market
The settlement process of transactions in the exchange bond market basically follows
four steps:
1. Account opening. An investor needs to pick a securities broker (exchange member)
to open the cash account and the securities account.
2. Entrustment and orders. An investor can give an entrusted order by paper, phone,
self-service terminal, Internet, etc., to commission its agent to buy/sell bonds. The
order can be a limit one or a market one.
3. Transaction execution. The transactions are executed first by price and then by
time.
4. Settlement and delivery. Clean and guaranteed settlement is adopted for cash bond
and pledged repo transactions in exchanges. After the market closes at 15:00 on each
trading day, CSDC carries out settlement based on the transaction data sent by the stock
exchange, and sends the settlement results to all settlement participants; bonds delivery
is completed on T+1.
(III) Commercial bank counter market
Investors may open secondary depository accounts with the eligible bank for counter
business and trade book-entry bonds over the bank counter, via online banking service
or telephone. These transactions are settled and delivered in real-time. The bank sends
the transaction data and settlement instructions to CCDC after the trading closes on a
daily basis. CCDC processes the transfer of bonds between the proprietary account
and the general agent account of the bank automatically before the start of trading on
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the next day. Where bonds in the proprietary account are insufficient due to improper
management of the bank itself, CCDC will give an immediate alert. The bank may
replenish its position through inter-bank measures and the book-entry system will
conduct a partial transfer until the position is closed out.
(IV) FTZ market
CCDC offers settlement services for bond transactions in the FTZ market, and runs
the FT funds account, which is dedicated to cash settlement for FTZ bond operations,
for investors who have opened the FTZ Dedicated Sub-Accounts. The investor needs
to sign, with CCDC, the Commitment Letter for Bond Settlement in China (Shanghai)
Pilot Free Trade Zone, the Agreement on Bond Trade DVP Settlement in FTZ and the
Agreement on Bond Settlement Account Used in FTZ, and install the CCDC operation
terminal. The settlement process is similar to that of the inter-bank market, where
CCDC processes DVP settlement based on relevant instructions confirmed by the
trading parties. If the bond payer has insufficient bonds or the cash payer has
insufficient funds by end of the settlement date, the settlement fails.
VI. Handling of special cases
(I) Settlement failure
In the inter-bank bond market, settlement failures are mainly caused by the seller’s
insufficient amount of bonds or the buyer’s inadequate amount of funds, which will
result in a failure to perform the settlement contract. As to the contract with a settlement
failure, the trading parties should submit written explanation to CCDC on the working
day following the settlement date.
As to settlement failure of the close leg of a pledged repo, the trading parties can have
the collateral unblocked through the “overdue bond resale in pledged repo”, and
handle funds transfer through negotiations.
(II) Emergency settlement
In case of a technical failure that cannot be timely recovered in the a terminal
connected to the CCDC system (CIOP), or any other business requiring a paper
voucher, the settlement participant may use the emergency method to commission
CCDC to handle it.
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Settlement participants should send emergency instructions. The deadline for the
handling of emergency business is 30 minutes before the operation system closes, i.e.
16:30 at present.
VII. Market monitoring
Market monitoring is an important function that the regulator entrusts to CCDC and a
significant part for the bond market risk management.8 To this end, CCDC has
established a whole set of monitoring systems and approaches, utilizing multiple
methods like data monitoring and field investigation to monitor bond-related risk.
As per relevant regulatory requirements, settlement members shall submit explanation
to CCDC before executing transactions regarding abnormal prices.
VIII. Cross-border settlement
Along the way of the RMB bond market opening-up, it can be found that the scope of
qualified foreign investors kept expanding as more types of transactions became
accessible. After the market entry of the Asian Bond Fund in 2005 and the RMB
cross-border trade settlement pilot program in 2009, the CNH pool was enlarged,
leading to increasingly strong demands for asset allocation and liquidity management.
In 2010, foreign central banks, monetary authorities, RMB clearing banks and
cross-border RMB trades settlement participating banks based in Hong Kong and
Macao were allowed to enter CIBM; in 2011, RQFII and QFII were included. In June
2015, overseas clearing banks and participating banks were allowed to trade repos and
move the proceeds overseas. In July, PBC issued the Notice on Issues concerning
Investment in the Inter-Bank Market with RMB Funds by Foreign Central Banks,
International Financial Organizations, and Sovereign Wealth Funds, simplifying the
previous approval process for market to filing, lifting investment quotas, and allowing
participation into bond repo, bond lending, bond forward, interest rate swap, forward
rate agreement beyond spot transaction. The PBC Announcement [2016] No.3 issued
in February 2016 took a further step to allow into the market financial institutions
lawfully incorporated outside the territory of the PRC such as commercial banks,
8 There are three defense lines for market monitoring. One is the internal control by the middle or back
offices of the market participants. A second one is the monitoring and management by intermediaries.
CCDC is a core platform for market operation and is assigned the frontier-line duty of market
monitoring. The third line is the government regulation.
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insurance companies, securities companies, fund management companies and other
asset management institutions; investment products issued by the above institutions to
customers in compliance with laws and regulations; and pension funds, charitable
funds and endowment funds and other medium- and long-term institutional investors
approved by PBC. These investors may conduct cash bond transactions and also
conduct, as approved by PBC, bond lending, bond forward, forward rate agreement
and interest rate swap for hedging purposes with no investment quota. In November
2017, PBC issued the Procedures for Entry of Overseas Commercial Institutional
Investors into the Chinese Inter-Bank Bond Market and related appendices, specifying
the steps and rules of entering CIBM, facilitating investment in RMB bonds.
On 21 June 2016, PBC released the Interim Measures for Administration of Mutual
Bond Market Access between Hong Kong SAR and Mainland China, announcing the
establishment of the Bond Connect. It is clarified that eligible overseas investors may
trade all marketable bonds in CIBM using proprietary RMB funds or foreign currency
funds via the Northbound Connect, which went live on 3 July. CCDC was connected
with CMU, the debt securities clearing and settlement system in Hong Kong, to
enable this new channel of connectivity. Meanwhile, it also built a connection with
the CIPS (China International Payment Service) system to carry out DVP settlement
for bonds and funds under the Bond Connect.
With the accelerated opening-up of CIBM, the number of overseas institutions had a
rapid growth. As of end-2019, 2,721 overseas institutions had entered CIBM, holding
bonds of RMB2.1876 trillion. CIBM has become the highlight of China’s bond market
opening-up.
So far, all overseas investors in CIBM are CCDC’s settlement participants. Most of
them entrust a domestic settlement agent to process settlement in CCDC’s system;
some central banks have PBC as their settlement agent.
CCDC has also set up a one-way connection to Clearstream, providing agent
settlement services for qualified domestic institutions to invest in the overseas bond
market.
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W.10 Bond Collateral Management
Based on its role as a CSD, CCDC has the highest-quality collateral in the market
under its depository and has developed ChinaBond collateral management service.
Since the beginning, ChinaBond collateral management service has started from a
high policy level, and extended to supporting policy implementation, the financial
market and factor markets with a cluster of full-functional, all-encompassing and
global services.
I. Significance of Collateral Management
Collateral management is at the core of liquidity and risk management. It is not only
regarded as the safest financial innovation tool in the new century, but also the best
financial risk management tool. Safe, efficient, convenient and transparent collateral
management services help financial institutions significantly reduce funding costs,
optimize liquidity management and prevent credit risks, thus conducive to deepening
the reform, innovative development and opening-up of the financial market.
After the financial crisis, regulators introduced a series of new regulations on risk
control which led to tightened liquidity and “scarcity” of eligible collateral.
Centralized collateral management services help customers effectively manage their
assets. By establishing a unified collateral pool with more securities included as
eligible collateral, collateral management services enable customers to better manage
their assets and counterparty risks, relieving liquidity pressure.
II. Service Areas of Collateral Management
In early 2010, CCDC integrated the previously decentralized collateral management
functions and officially launched the updated collateral management services. As of
end-2019, the outstanding collateral under management was over RMB13.2 trillion,
serving more than 7,200 domestic and overseas customers. It is now one of the largest
bond collateral managers in the world, boasting international leadership by service
quality and technical system.
According to types of customers and business, the service areas of collateral
management are divided into policy support, market services and cross-border
services.
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(I) Policy support
ChinaBond collateral management provides support for monetary policy, fiscal policy,
foreign exchange management, operation of the payment and settlement system, etc.
1. Monetary policy
CCDC has long provided collateral management services for PBC in its traditional
monetary policy operations such as OMOs. Since 2013, CCDC has also provided
comprehensive collateral management for a series of new monetary policy tools, such
as Standing Lending Facility (SLF), Medium-term Lending Facility (MLF), Targeted
Medium-term Lending Facility (TMLF), and agriculture support / small business
support / poverty alleviation facilities, etc., thereby serving the precise regulation of
monetary policy.
2. Fiscal policy
Since 2014, CCDC has been supporting the pilot areas in local treasury cash
management. By establishing a collateral management mechanism, CCDC has helped
local public finance authorities effectively control risks and safeguard treasury funds.
At present, the business reaches out to 34 provinces and municipalities with
independent planning status.
3. Foreign exchange (FX) management
Since 2014, CCDC has provided collateral management services for the FX
management of the SAFE, including FX operation and SAFE co-financing, so as to
effectively prevent and control credit risks and ensure security of funds through
centralized collateral management.
4. Operation of payment and settlement systems
Since 2014, CCDC has provided collateral management services for PBC’s High
Value Payment System (HVPS) automatic pledge financing and Bulk Electronic
Payment System (BEPS), helping the China National Advanced Payment Systems
(CNAPS) provide liquidity support to market institutions and ensuring the stable and
efficient operation of clearing.
(II) Market services
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1. Default disposal
With the release of its Guidelines on Disposition of Collateral after Default (for Trial
Implementation) on 17 June 2019, CCDC started to support disposition of collateral
after default by auction, sale and negotiated transfer, tackling a long-standing concern
and mitigating potential financial risk at an institutional level. The first auction was
carried out on 5 August 2019 and the first sale was performed in January 2020; both
disposition practices managed to obtain sufficient funds to cover the full amount of
the underlying creditor rights (penalty included). The auction took three working days
and the sale took only one. With simple, clear and efficient procedures, such
disposition methods managed to realize security rights quickly in the event of default.
In addition, CCDC worked with CFFEX and Shanghai Futures Exchange to launch
the disposal mechanism in the futures market, so as to enhance risk management.
2. Social security funds management
Since 2015, CCDC has been providing collateral management for social security
funds, so as to improving management of the national and local social security funds.
In 2019, the business surged as CCDC started to support another eleven local public
finance departments. As of end-2019, twenty local public finance departments had
dedicated accounts with CCDC, who managed outstanding collateral of RMB557.4
billion for them. Moreover, CCDC has been working with these local departments in
optimizing the funding pricing system, which might find extended use in treasury
cash management.
3. Bonds posted as margin
Since 2015, CCDC has been providing collateral management support for CFFEX to
enable investors to post bonds as margin for CGB futures trading, and such business
model was extended to trading at Shanghai International Gold Exchange in 2016. In
the second half of 2018, system upgrade was completed for the business to boost
efficiency. In January 2019, bonds started to be accepted as margin for all types of
futures trading at CFFEX, further reducing the cost of carry and improving liquidity
of the futures market. In April, the service was extended to serve an overseas investor.
On 1 November, CCDC signed MOUs with Shanghai Futures Exchange, Zhengzhou
Commodity Exchange, Dalian Commodity Exchange, CFFEX and Shanghai
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International Energy Exchange, extending the service to the entire futures market. As
of end-2019, 79 futures traders had accounts and the total value of the service reached
RMB11.27 billion.
4. Negotiated deposit
In 2011, CCDC supported the first pledge for negotiated deposits for the Postal
Savings Bank of China. Now this business mode has been extended to all deposit
businesses under the National Social Security Fund (NSSF) and the basic pension
funds, and expanded to the management of more than 10 local social security funds,
providing a fine-grained risk management tool for the national social security system.
Since 2018, in response to the proposal for the bank-insurance partnership, CCDC has
introduced the pledge for negotiated deposits into insurance fund management, thus
promoting inclusive finance and mitigating capital insufficiency for medium and
small financial institutions. As of end-2019, 84 institutional customers had carried out
pledges for negotiated deposits at CCDC as pledgees, and bonds with a total face
value of RMB102.648 billion were under pledge.
5. Inter-bank credit lines
In the second half of 2018, CCDC signed a service agreement with the Bank of
Communications, bringing collateral management services into inter-bank business
for the first time by providing more efficient and cost-saving risk management
methods for inter-bank credit lines. In August 2019, the first business practice of this
kind was carried out between the Bank of Communications and Hankou Bank. The
business addresses funding difficulty for small and medium financial institutions and
enables the transmission of money market credit from large financial institutions to
small and medium ones, buttressing financial stability.
(III) Cross-border services
In response to the national strategy of financial opening-up, CCDC has invested great
efforts in exploring cross-border issuance, cross-border financing, currency swap,
foreign currency inter-bank lending, etc. so as to widen and deepen the use of RMB
bonds as collateral. Successful attempts so far include serving currency swap pledge,
supporting overseas issuance of green covered bonds by a Chinese bank, and helping
domestic and overseas commercial banks with cross-border financing. As a collateral
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manager, CCDC lives up to its duties with excellent on-going management functions
such as collateral valuation, marking to market, adjustment and default disposal.
In 2019, CCDC collateral management service continued its cross-border efforts by
working with international FMIs (e.g. Euroclear and London Stock Exchange),
international industrial associations (e.g. ISDA and ICMA), global custodians (e.g.
Citibank and JPMorgan Chase) and settlement agents (e.g. ICBC and BOC) to create
innovative platforms for collateral management, seeking shared benefits with
professional and practical collaboration.
1. Expanding collateral management services
In April 2019, CCDC and CFFEX support the posting of bonds as margin for futures
contract by an overseas investor for the first time. In November, CCDC assisted with
the rollover of a currency swap between the Industrial and Commercial Bank of China
(ICBC) and the central bank of Nigeria, and creatively brought in default disposal and
pre-payment mechanisms to improve risk management.
2. Promoting mutual recognition of collateral between China and the UK
CCDC managed to promote the inclusion of “Both parties agree to promote RMB
bonds as common qualified collateral accepted by the UK market” into the policy
outcome of the 10th
China-UK Financial and Economic Dialogue, representing
support from the national and regulatory levels. On this basis, CCDC is determined to
work closer with European regulators, FMIs and financial institutions with a view to
enabling practical mutual recognition and use of RMB bonds in the UK market.
(IV) Innovation efforts
In the future, CCDC collateral management service is expected to go even wider and
deeper.
First, CCDC will continue to expand the use of collateral management in
financial transactions. CCDC will continue to expand the use of collateral
management to more types of transactions to ensure capital security and improve
transaction efficiency. For example, based on the pledged repo, CCDC will explore
services for the tri-party repo, stepping in as a professional third-party collateral
manager to provide automatic collateral selection, pledging and ongoing management
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to save costs and boost efficiency.
Second, efficiency of collateral management functions will be enhanced. The key
to effective collateral management lies in using minimum amount of collateral in
mark-to-market valuation and adjustment while keeping risks controllable. This is
also the core of strengthening risk control and improving operational efficiency.
Going forward, CCDC will continue to raise the efficiency of the third-party collateral
management in various areas, provide unified, centralized and automatic services and
build a risk warning mechanism based on collateral business.
Third, CCDC will expand the use of collateral disposal in default. Based on what
has been achieved, CCDC will improve and expand the disposal mechanism to the
repo market, futures contracts, cross-border business and other plausible scenarios,
and effectively fortify the last line of defense for risk control.
III. Functions of the ChinaBond Collateral Management System (CMS)
Collateral management services mainly include pledge and release of collateral,
automatic selection, calculation, daily marking to market, automatic replenishment
and return, automatic or manual substitution of matured collateral, and inquiry and
printing of data reports. The main features are as follows.
1. Parameter-based management
Parameter-based management is adopted for key elements, which can be set,
maintained and modified according to customized requirements. Currently main
parameters of the system include collateral eligibility, pledge ratio, excess pledge ratio,
pledge order and exposure difference ratio, etc. Market participants can have
tailor-made sets of parameters for different types of businesses to ensure
corresponding perspectives of risk management.
2. Automatic management
Once parameters are set, the trading parties need no longer to discuss details when
processing business, but only to determine the value of risk exposure and leave
everything else with automatic management. Such automation streamlines business
procedures and raises efficiency of collateral management.
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3. Ongoing management
The core of collateral management lies in the monitoring and prevention of risks
throughout the collateral management period. The ongoing management provided by
CMS includes daily marking to market, manual adjustment, manual substitution,
replenishment / return, automatic substitution of matured collateral, etc. The
automatic operation ensures that the exposure be fully covered by collateral.
4. Data management
The system ensures access for trading parties to the most comprehensive and detailed
data on collateral and enables centralized and integrated data management, including
overall information on counterparties, details of collateral and results of marking to
market.
IV. Strengths of ChinaBond Collateral Management
After years of research and practice, CCDC has drawn on good peer practices to form
a collateral management service system, giving full play to the advantages of
centralized and specialized depository and settlement services and providing safe,
reliable and efficient collateral management services for market participants. Starting
from serving macroeconomic regulation, CCDC safeguards credit transactions and
contract performance in various markets. As an infrastructure provider in the bond
market, CCDC has inherent strengths in collateral management.
(I) Centralized management creates economies of scale.
Among all bonds under depository of CCDC, the CGB, central bank bills, local
government bonds and policy bank bonds with the highest credit rating and that are
most suitable for collateral have reached RMB52.14 trillion. It can be said that CCDC
has taken the highest-quality collateral in the domestic market under its central
depository, which is sufficient to support a huge scale of financial business. The
centralized collateral management creates economies of scale in collateral
management and reduces the management cost.
(II) Years of practice has built up expertise.
CCDC has gained extensive experience in collateral management in so many years’
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practice. It is on such a basis that the CMS has been shaped. The system represents
the summarization, mining, enhancement and expansion of the past experience. It can
fully meet diverse market demands for increasingly sophisticated risk management.
(III) The system is operated and managed with efficiency and security.
The CMS is managed on an automatic and parameter-based basis, in full pursuit of
efficiency. The IT systems of CCDC have reached the highest level of national
security certification. The security of the CMS, as part of the CCDC systems, is
beyond doubt.
(IV) Fair value presents the real collateral value.
One of the core contents of collateral management service is marked-to-market
service, which adopts the ChinaBond valuations published by CCDC on a daily basis.
ChinaBond valuations are a fair market value indicator adopted and recommended by
the regulators, and also tested by the market over a long period of time and generally
accepted by market participants. Therefore, the calculation of collateral value is fair,
reasonable and accurate.
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W.11 Bond Information Services
I. Information disclosure
Bond information disclosure comprises pre-issue disclosure, including issuance
statements, prospectus, credit rating, legal opinions, etc., disclosure after issuance, such
as the issuing result, and ongoing disclosure, such as credit rating, financial reports,
interest payment and principal redemption announcements, major event
announcements, etc.
Disclosure requirements by the regulators vary across markets and bond types.
Information disclosed in CIBM is accessible on www.chinabond.com.cn, and that in
the exchange market on the website designated by CSRC.
CCDC has established information disclosure channels like www.chinabond.com.cn,
self-service bond information disclosure system, CIOP and CCDC WeChat account.
Among them, the website www.chinabond.com.cn has become a professional
information platform in China’s bond market, a designated channel for disclosure by
the issuer and the main way for investors to get business information. To support the
opening-up of the market, CCDC has been building up its capabilities to go global by
developing an international client terminal and an English website with enriched
information.
II. Statistics
CCDC, as a CSD, offers a series of reliable, standardized and mature public statistical
products to the market and regulators. These products include basic bond data,
statistical summary of settlement, monthly statistical reports, weekly reports on the
operation of the bond market, monthly analysis reports on the bond market, annually
analysis reports, as well as rankings of various services. ChinaBond statistics products
comprise the public statistics and “My Statistics”.
1. Public statistics. General information to show market size, trends and so on. The
public statistics helps investors, issuers and regulators learn more about the market,
assists investment analyses and decision making and improves market transparency.
With efforts over the past two decades, ChinaBond public statistics now covers the
entire inter-bank bond market, and has reached world-class quality in terms of
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relevance and timeliness among other features. The public statistics offers data and
reports. The data refers to the basic bond data, the statistical summary of settlement,
monthly statistical reports and rankings. The basic data records details about each
bond in its whole life; the statistical summary of settlement reflects the prices and
trading volume in real time; the monthly statistical report presents 24 monthly charts
demonstrating issuance in the primary market, settlement in the secondary market, the
investor base and other indicators; the rankings regularly rank various service
providers by business, namely, trading, settlement, underwriting as well as
participation in ChinaBond pricing services. The reports aim to offer sensible
representations of the latest market updates and trends; they are published weekly,
monthly and annually, to assist investors in decision making, well-received across the
market.
2. My Statistics. It is the customized statistical report created for the investor based on
individual data to serve as measurement for specific businesses or performance
evaluation. The product can offer as much as nearly 70 bond business statistical charts
covering primary market business, secondary market trading, investment performance,
position structure and risk monitoring indexes. Serving investors, My Statistics makes
multidimensional analysis of the investor’s business data by using ChinaBond price
indexes and statistical methods, enabling in-depth application of such analysis in the
front, middle and back offices by the investor.
III. ChinaBond information products
ChinaBond Pricing Center, a wholly-owned subsidiary of CCDC dedicated to pricing
service, has developed a full set of products. It now offers three dimensions of
products and services, namely, ChinaBond Pricing Products, ChinaBond Analytic
Tools, and ChinaBond Consulting and Solutions. As a good representation of the price
and risk status in the bond market, the Pricing Products have become reliable
benchmarks that promote fair value formation and market transparency, crucial
reference for implementation of fiscal and monetary policies and monitoring tools for
regulators, buttressing interest rate liberalization and RMB internationalization. They
are used extensively by the front, middle and back offices of financial institutions in
pricing bond transactions, risk management, accounting, performance evaluation, etc.
Included in the pricing products are ChinaBond Yield Curves, ChinaBond Valuation,
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ChinaBond Indexes, ChinaBond Risk and Compliance Products, ChinaBond
Reference Data and ChinaBond Market Data.
(I) ChinaBond yield curves
The ChinaBond yield curves show the yields of bonds with the same rating but
different terms to maturity. ChinaBond offer a complete family of curves for CGB,
policy bank bonds, corporate bonds, ABS and so on with different types of yields,
namely, the YTM, the spot rate and the forward rate. From the first CGB yield curve in
China published by CCDC in 1999, ChinaBond yield curves have so far grown to
cover all types of bonds with all ratings in China’s bond market. As of end-2019,
CCDC published over 2,200 yield curves at the end of each day, including 125 YTM
curves, 105 spot rate curves and 2,010 forward rate curves.
As the basis of ChinaBond pricing services, the ChinaBond CGB yield curves,
functioning as a leading indicator for national economy, are used as a benchmark for
pricing of bonds, assessment of risk management and investment, pricing of equity
securities and derivatives like the CGB futures, as well as pricing of deposits and
loans of commercial banks. Since 2004, PBC and MOF have been citing ChinaBond
yield curves and indexes in policy reports to reflect the overall status of the bond
market; in 2007, the former CBRC designated ChinaBond yield curve as the
benchmark for market and regulatory risk management used internally in banks; in
2009, MOF used the ChinaBond inter-bank fixed-rate CGB yield curve as the
benchmark for pricing local government bonds; in 2010, the former CIRC took the
3-year moving average of ChinaBond inter-bank fixed-rate CGB spot rate yield curve
as the reference for insurance reserves; in 2011, the ChinaBond inter-bank fixed-rate
CGB yield curve was taken as the benchmark for pricing the 50-year fixed-rate CGB
issued by MOF; in 2014, ChinaBond CGB yield curves of key terms started to be
published on the website of MOF daily. In December 2015, IMF included the
ChinaBond three-month CGB yield in the SDR interest rate basket as the representative
rate of short-term RMB debt instruments and one of the five global components for the
SDR rate, effected on October 1, 2016. Starting from June 15, 2016, PBC published on
its website the ChinaBond CGB Yield Curve, the ChinaBond Commercial Bank Bond
Yield Curve and the ChinaBond CP & Note Yield Curve. In 2016, the China
Development Bank, the Agricultural Development Bank of China and the
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Export-Import Bank of China displayed on their websites the ChinaBond CDB Bond
Yield Curve, the ChinaBond ADBC Bond Yield Curve and the ChinaBond Eximbank
Bond Yield Curve respectively. In December 2017, the Shanghai Key Yield (SKY) was
issued in Shanghai. In April 2018, ChinaBond CGB Yield Curve and other curves were
published on the website of CBIRC, both in Chinese and English. In October 2018, the
ChinaBond CGB Yield Curve was published on the website of the National Debt
Association of China. In May 2019, ChinaBond Pricing Center launched the first
pricing products for USD-denominated bonds by Chinese issuers, diversifying the
“Shanghai price” system and helping Shanghai with its efforts to become an
international financial center. In September 2019, yield curves and valuations were
rolled out for offshore RMB sovereign bonds and policy bank bonds, representing the
market status of offshore RMB bonds. In December 2019, ChinaBond CGB yield
curves started to be published on the website of China Appraisal Society.
(II) ChinaBond valuation
ChinaBond valuation is generated by discounting future cash flows determined by
ChinaBond yield curves. The results are issued to the market every day with a series of
related indicators, which can be used as reference for determining fair value,
monitoring market risk and pricing transactions.
At present, the ChinaBond valuation covers bonds, preferred stocks, restricted shares,
credit risk mitigation instruments, wealth management direct financing instruments,
non-standardized debt assets of banks’ wealth management plans, underlying assets in
transfer of loans, debt assets of insurance plans and asset-backed plans. Over 100,000
valuations are provided daily, of which over 72,000 concern bonds of all marketable
onshore types and related risks
ChinaBond valuation products have found its wide and deep application in the market.
It is an indicator for PBC to monitor abnormal transactions in CIBM and a critical
benchmark for SAC and AMAC to monitor abnormal transactions in the bond market.
CBRC recommends ChinaBond valuation as the fair value of bonds provided by a
professional and trusted third party. AMAC recommends that ChinaBond valuation
should be adopted for the net value calculation of bonds held by securities firms and
fund managers. Accounting firms use ChinaBond valuation as the auditing standards.
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As the fair value of bonds, ChinaBond valuation is used to keep track of market value
in collateral management services, including marked-to-market and automatic
replenishment / return, and is also used as the fair value of the underlying bonds in
collateral disposal after default. ChinaBond valuation is adopted by the MOF and the
State Taxation Administration as the fair value of bonds in VAT calculation.
(III) ChinaBond indexes
The ChinaBond index is a set of bond indexes aimed to objectively reflect the price
trends in China’s bond market from diversified perspectives, and offer an alternative
set of underlying indexes for investment. Since its debut in 2002, through unremitting
upgrading and improvement, it has become an index set boasting relevance and
coverage. It is now used by the National Council of Social Security Fund, commercial
banks, insurance institutions, securities firms and other domestic and overseas entities
as reference for performance assessment and portfolio analysis. At present, the
ChinaBond index comprises twelve major series, namely, the aggregate index family,
the component index family, the strategy index family, the foreign currency
denominated index family, the ChinaBond iBoxx index family, the customized index
family, the green bond index family, the interest rate index family, the Chinese-issued
USD bond index family, the offshore RMB bond index family, the classified investor
index family and the position index family. Along with the development of the
indexes and the deepening of market needs, ChinaBond indexes are used in more and
more scenarios. In 2014, the first RQFII-ETF tracking ChinaBond 5-Year CGB Index
was listed on Hong Kong Stock Exchange; the first ETF tracking ChinaBond High
Grade Bond Index was listed on New York Stock Exchange. In 2015, the classified
investor index was rolled out to serve as a refined performance evaluation and analysis
tool. In 2016, CCDC presented China’s first green bond index and the world’s first
climate-aligned bond index; it worked with the fund manager to launch a fund
tracking he CDB Index, expanding the application of ChinaBond indexes into
management of insurance funds. In 2017, CCDC became the first Chinese member to
the Index Industry Association (IIA). In 2018, the interest rate index was used by the
World Bank as the performance benchmark for RMB investment; the ChinaBond green
bond indexes were listed on Luxembourg Stock Exchange; the ChinaBond Aijian High
Yield Bond Index was released as the first high-yield bond index in China; the
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ChinaBond Overseas Institution Investment Index was released as the first classified
investor index focusing on overseas investors in the domestic bond market; the first
co-branded ChinaBond iBoxx indexes was released overseas in cooperation with IHS
Markit. In 2019, the Shin Kong China Treasury Policy Bank Green Bond ETF,
tracking ChinaBond 10Y CGB and Policy Bank Bonds Green-Enhanced Index, was
listed on Taiwan Stock Exchange; the first index series representing the bond market
of the Yangtze River Delta, ChinaBond Yangtze River Delta Bond Indices, was issued
in Shanghai; the “Innovation and Breakthrough in ChinaBond Pricing Products”
project won a first prize of Shanghai Financial Innovation Award; and the
ChinaBond-ICBC RMB Bond Index was listed on Singapore Stock Exchange.
As of end-2019, over 2,400 funds were using ChinaBond indexes as performance
benchmark; 27 ChinaBond indexes were tracked by 71 onshore and offshore funds,
one bank wealth management product and one certificate of revenue by a securities
firm.
Table 11-1 Bond Indexes Used as Performance Benchmarks in Domestic Funds (by quantity)
Number of funds Bond indexes
included
ChinaBond
indexes used ChinaBond, %
Bond funds 1,695 1,349 80%
Hybrid funds 2,265 938 41%
Equity funds 273 117 43%
Total 4,233 2,404 57%
Total (equity funds excluded) 3,960 2,287 58%
As of December 31, 2019
Table 11-2 Bond Indexes Used as Performance Benchmarks in Domestic Funds (by value)
Value in RMB100m Bond indexes
included
ChinaBond
indexes used ChinaBond, %
Bond funds 29,043 23,729 82%
Hybrid funds 15,904 7,342 46%
Equity funds 2,255 1,288 57%
Total 47,201 32,359 69%
Total (equity funds excluded) 44,946 31,071 69%
As of December 31, 2019
(IV) ChinaBond risk and compliance data
The ChinaBond risk and compliance data includes the market implied rating (MIR),
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the market implied default rate (MIDR), the VaR, the SPPI and the ECL. The MIR is a
dynamic presentation of the credit evaluation of bonds extracted from market price
signals and issuer information. It is an intermediate product in the production of
ChinaBond valuation. Now ChinaBond MIR covers all onshore credit bonds, with
more than 47,000 pieces issued daily. Reflecting changes in the credit risk of bonds,
the MIR fills the rating gap by providing daily ratings for 1,600 unrated bonds. With
its independence, timeliness and stability, the MIR is now an important reference for
credit risk monitoring and analysis of commercial banks, securities firms, fund
managers, insurance companies and foreign institutions. Compared with the ratings by
rating agencies, the role of ChinaBond MIR lies in credit risk monitoring, filling rating
gaps, double checking with general ratings and discovering investment opportunities.
With increased frequency of major credit events, ChinaBond MIR has gained growing
attention and application as an important reference for credit risk evaluation.
The ChinaBond MIDR displays the accumulative possibility of default by an issuer
based on market information and other ChinaBond pricing indicators. It reflects
instantly the changes in an issuer’s credit risk status, thus enhancing risk management
across the market. Now, 50,000 pieces of MIDR covering 5,000 domestic issuers are
published on a daily basis.
The ChinaBond VaR (Value at Risk) reveals the possible max loss of a certain bond or
bond portfolio within the future holding period under certain probability. The CVaR
(Conditional VaR) shows the average loss of those parts beyond the possible max loss.
ChinaBond VaR/CVaR products can be generated for a single bond or a bond account
set. Two confidence levels (95% and 99%) are provided; the holding period is fixed at 1
day, 5 days or 10 days. The ChinaBond VaR/CVaR can assist banks in calculating
regulatory capital, measuring and managing market risks of bond assets, and making
risk adjustment to bond investment performance. It also enables market participants to
verify the risk indicators generated by self-developed or purchased software.
(VII) ChinaBond SPPI
The ChinaBond SPPI is China’s first automated SPPI judgment tool developed by
CCDC by making full use of its valuation expertise and robust database and drawing
on IFRS9 guidelines, international practices and consultation with senior accounting
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experts. It covers onshore bonds in various currencies and releases 60,000 pieces of
judgment results each day. AMAC recommends that fund managers use ChinaBond
SPPI as reference.
The ChinaBond ECL (expected credit loss of bonds) a product used for measuring
impairment of bonds and developed on the basis of consultation with regulators and
market experts. About 50,000 pieces of ECL information are released each day. The
ChinaBond ECL, SPPI and valuations work together as a comprehensive solution that
is compliant with the new accounting standards for financial instruments, enhancing
compliance with the new standards and fine management of credit risks for market
participants.
(V) ChinaBond reference data
ChinaBond reference data includes basic bond information, ChinaBond classified data
and ChinaBond statistical data.
The basic bond information provides data support for investment decision making,
issuance pricing and risk control. Particularly, as a crucial part, the bond cash flow
data is a critical reference throughout the life of a bond developed by CCDC based on
disclosure and other public information. It helps market participants refine pricing and
improve pricing efficiency.
The ChinaBond classified data comprise data by industry and green labeling data. The
ChinaBond data by industry can be used to capture data by the issuer’s industry and
the issuer rating. The classification of industry is based on the Industrial
Classification for National Economic Activities (GB/T 4754-2017) issued by the
National Bureau of Statistics and the products continuously track the financial and
operational data disclosed by the issuer. The ChinaBond green labeling data is to
identify whether the proceeds raised by a bond are used on green projects, and specify
which green field they are used for. This is co-developed by ChinaBond Pricing
Center and CECEP Hundred. The label “substantially green” was created for the first
time to identify bonds whose the funds are substantially used for green-related
industries.
My Statistics, as the major part of the ChinaBond statistical data, uses ChinaBond
pricing indicators and statistical data to make multidimensional analysis and generate
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nearly 70 statistical reports, assisting investors with management and efficiency of
bond investments. As a customized statistical support, it now serves about 3,000 bond
investors. My Statistics reports cover information on primary market activities,
secondary market activities, bond investment performance, position structure, risk
monitoring indicators, etc.
(VI) ChinaBond market data
Based on the enormous amount of data of CCDC, the ChinaBond market data offers
data on settlement (spot trading and repo) throughout the life of a bond. For bonds
marketable on the bank counter market (some CGB, local government bonds and
policy bank bonds), quotes by market makers are also provided. These data products,
offered by none other than CCDC, present investors with important reference to keep
track of market trends.
(VII) ChinaBond analytic tools
The ChinaBond analytic tools comprise Dr. Quant, the quantitative analysis tool, and
the ChinaBond debt management tool. To help investors use ChinaBond pricing
products more effectively and flexibly, CCDC integrated and packaged its
methodologies and services into an innovative tool, Dr. Quant, which provides pricing
benchmarks and further assistance in investment analysis. Dr. Quant offers calculation
and pricing tools based on ChinaBond methodologies, models for generation of the
yield curves, valuation and indexes, as well as additional functions that facilitate
performance analysis and risk management, so as to help users make more accurate
and well-informed decisions.
The ChinaBond debt management tool takes different debt maturity structures as
options, calculates the cost and risk of each issuance option over the medium to long
term, arrives at a comprehensive evaluation and recommends the optimal option to the
issuer. The tool is based on the research results of the World Bank’s technical assistance
project Quantitative Analysis of China Government Debt Management Strategies
organized by MOF. It makes full use of CCDC’s two decades of expertise in making
bond yield curves and its robust database, effectively absorbs debt management
experience of domestic and foreign issuers, integrates the idea of cost-risk trade-off into
debt management to establish a quantitative analysis framework in consistence with the
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actual situation in China’s bond market. It can recommend the debt management plan
that suits the issuer best from thousands of automatically generated options. The tool is
highly scalable and can adapt to the debt management methods of different issuers. The
debt management tool is helpful to make debt management more reasonable and
forward-looking, representing the future trend of international debt management.
(VIII) ChinaBond consulting and solutions
As an extension and innovation of the service mode, The ChinaBond consulting and
solutions offers comprehensive services including advisory support for valuation and
pricing models and customized solutions regarding pricing services. The lasting
expertise in valuation, pricing and modeling of the ChinaBond Pricing Center is
offered to market participants through customized consulting and technical support.
This service helps build up valuation capabilities within the user, implement
regulatory requirements, enhance market transparency and promote the use of fair
value.
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W.12 References
[1] www.cbrc.gov.cn, China Banking Regulatory Commission
[2] www.cffex.com.cn, China Financial Futures Exchange
[3] www.chinabond.com.cn, China Central Depository & Clearing Co., Ltd.
[4] www.chinaclear.cn, China Securities Depository & Clearing Co., Ltd.
[5] www.chinamoney.com.cn, China Foreign Exchange Trade System & National
Inter-bank Funding Center
[6] www.circ.gov.cn, China Insurance Regulatory Commission
[7] www.csrc.gov.cn, China Securities Regulatory Commission
[8] www.mof.gov.cn, Ministry of Finance of the People’s Republic of China
[9] www.pbc.gov.cn, People's Bank of China
[10] www.sdpc.gov.cn, National Development and Reform Commission of the
People’s Republic of China
[11] www.shclearing.com, Shanghai Clearing House Co., Ltd.
[12] www.sse.com.cn, Shanghai Stock Exchange
[13] www.szse.cn, Shenzhen Stock Exchange
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Appendix I
CCDC Business Contact Information
YAN Qiyuan, Overseas Customer Service Department, CCDC
Tel.: 021-60813019
E-mail: [email protected]
TAN Minjie, Bond Issuance Center, Operation Center, CCDC
Tel.: 010-88170515
E-mail: [email protected]
LI Ran, Customer Account Department, Operation Center, CCDC
Tel.: 010-88170848
E-mail: [email protected]
LI Jie, Registration and Settlement Department, Operation Center, CCDC
Tel.: 010-88170792
E-mail: [email protected]
LIU Meijie, Bank Counter Market Department, Operation Center, CCDC
Tel.: 010-88170147
E-mail: [email protected]
TAO Fei, Collateral Management Service Center, CCDC
Tel.: 021-60813316
E-mail: [email protected]
FAN Wei, Collateral Management Service Center, CCDC
Tel.: 010-88174630
E-mail: [email protected]
WANG Han, Marketing Department, ChinaBond Pricing Center
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Tel.: 021-60813514
E-mail: [email protected]
XU Ying, Valuation Department 1, ChinaBond Pricing Center
Tel.: 021-60813524
E-mail: [email protected]
XU Yaofang, Valuation Department 2, ChinaBond Pricing Center
Tel.: 010-88170882
E-mail: [email protected]
GE Liang, Index Department, ChinaBond Pricing Center
Tel.: 010-88170664
E-mail: [email protected]
CHEN Nan, Quality Control Department, ChinaBond Pricing Center
Tel.: 010-88174551
E-mail: [email protected]
LI Bo, Research and Development Center, CCDC
Tel.: 010-88170699
E-mail: [email protected]
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Appendix II
Operation of China’s Bond Market (2019)
I. Status of China’s Bond Market in 2019
i. Money market rates declined.
Owing to the reasonably ample liquidity in the banking system, the money market rates
went down from an overall perspective, compared with last year. In 2019, the average
overnight benchmark repo rate (BR001) dropped by 29 bps from 2018 to 2.19%, and the
average 7-day benchmark repo rate (BR007) stood at 2.60%, down 19 bps (Figure 1).
The daily average of overnight Shibor in the inter-bank funding market fell by 29 bps,
and the daily average of 7-day, 2-week, 1-month, and 3-month Shibor dropped by 15, 62,
71 and 91 bps, respectively (Figure 2).
Figure 1 Trends of BR (%)
Source: www.chinabond.com.cn
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Figure 2 Trends of SHIBOR (%)
Source: Shibor
ii. Bond yield curves went down slightly.
The 10-year China government bond (CGB) yield fluctuated throughout the year and
ended up with a slight drop. As of end-2019, the 10-year CGB yield stood at 3.1365%,
down 9 bps compared with end-2018. The movements of 10-year CGB yield throughout
2019 could be divided into two phases. In the first phase (from the beginning of the year
to mid-August), the yield fell to 3%, the lowest level of the year, following the drop of
economic data in Q2. In the second phase (from late August to the end of the year), the
yield rebounded as the inflation expectations rose from September, and then fell back to
a level similar to the year-beginning at the year-end. The amplitude of the yield
remained within 40 bps throughout the year. (Figure 3)
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Figure 3 CGB yield curves in 2019 (%)
Source: www.chinabond.com.cn
The CGB yield curve rose first and then descended. The curve went down slightly in Q1,
and then bounced back significantly in Q2. In Q3, a divergence between short- and
long-end yields was observed, as the short-end yield dropped sharply before stabilizing,
while the long-end yield rose a bit, resulting in a steeper slope. At year-end, the yield
fell again all the way to a level similar to the beginning of the year. (Figure 4)
Figure 4 CGB yield curve changes (%)
Source: www.chinabond.com.cn
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The bond price indexes went down first and then up. Generally, the ChinaBond New
Composite Index (net price) declined amid fluctuation in Q1 and reached the lowest
level of the year in April. From May, it started to pick up gradually. Another decline
followed in September and October. From November, it picked up again. The lowest
point was 95.16 on April 24, while the highest was 100.59, up by 5.7% from the lowest,
on December 31. (Figure 5)
Figure 5 Trends of ChinaBond New Composite Index (net price)
Source: www.chinabond.com.cn
iii. Total issuance in bond market increased sharply.
In 2019, all types of bonds issued totaled RMB27.04 trillion9, a YOY increase of
19.65% (Figure 6). Among these, RMB15.31 trillion, or 56.61% of total, was issued and
registered at CCDC (China Central Depository & Clearing Co., Ltd.); RMB7.21 trillion,
or 26.67% of total, was at SHCH (Shanghai Clearing House); and RMB4.52 trillion, or
16.72%, was at the exchanges. (Table 1)
9Inter-bank negotiable certificates of deposits (NCDs) were excluded from issuance or depository of bonds. Issuance
of NCD throughout the year amounted to RMB17.97 trillion, and the outstanding amount at year-end was RMB10.72
trillion.
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Figure 6 Trends of bond issuance from 2005 to 2019 (in RMB100 million)
Source: www.chinabond.com.cn, SHCH and Wind
Table 1 Bond issuance in 2019
Issuance (RMB100 million)
Total 270,400.53
CCDC 153,061.16
SHCH 72,123.07
CSDC (China Securities
Depository and Clearing
Corporation Limited)
45,216.30
Source: www.chinabond.com.cn, SHCH and Wind
In the inter-bank market, at CCDC, the issuance of book-entry CGBs was RMB3.76
trillion, up by 12.69% YOY; local government bonds (LGBs), RMB4.36 trillion, up by
4.74%; policy bank bonds, RMB3.66 trillion, up by 6.59%; commercial bank bonds,
RMB1.60 trillion, up by 74.36%; and credit asset-backed securities, RMB0.96 trillion,
up by 3.39%. At SHCH, the issuance of medium-term notes was RMB1.84 trillion, up
by 9.37% YOY; SCP (including SSCP), RMB3.58 trillion, up by 14.54%; and private
targeted debt financing instruments, RMB0.62 trillion, up by 13.25%. (Figure 7)
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Figure 7 Bonds issuance in the inter-bank market in 2019
Source: www.chinabond.com.cn and SHCH
iv. Total bond depository amount kept a stable growth.
As of end-2019, total outstanding bonds under depository had reached RMB87.38
trillion, up by RMB 10.93 trillion or 14.29% YOY. The amount under CCDC depository
was RMB64.98 trillion, or 74.37% of the total market, comprising mainly CGBs, LGBs,
and policy bank bonds (Figure 8); that under SHCH, RMB11.63 trillion, or 13.30% of
the market; and that on the exchanges, RMB10.78 trillion, or 12.33% of the market.
(Table 2)
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Figure 8 Proportions of bonds under CCDC depository at end-2019
Source: www.chinabond.com.cn
Table 2 Bonds under depository in 2019
Bonds (in RMB100 million)
Total 873,786.20
under CCDC depository 649,780.21
under SHCH depository 116,250.98
under CSDC depository 107,755.01
Source: www.chinabond.com.cn, SHCH and Wind
The following are observations regarding bonds under CCDC depository and structure
of holdings at the end of 2019 (Table 3):
1. The stock of LGBs recorded a new high. Outstanding LGBs totaled RMB21.12
trillion, up by 16.87% YOY, of which special LGBs went up by 29.73% YOY. As for
the investor structure, commercial banks raised their holdings the most by amount,
holding RMB2.9 trillion more than the year before, while other financial institutions and
insurance companies built up their holdings faster than others, recording a YOY growth
rate of 826.87% and 284.72%, respectively.
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2. The size of commercial bank bonds grew steadily, and supplementary capital
instruments developed swiftly. Outstanding commercial bank bonds totaled RMB4.70
trillion, up by 23.38% YOY, of which supplementary capital instruments10
recorded
RMB2.57 trillion, up by 48.96% YOY. As for the investor structure, other financial
institutions and overseas institutions increased their holdings fairly fast, registering a
YOY growth rate of 125.69% and 120.19%, respectively.
Table 3 Holding structure of bonds under CCDC depository at end-2019
Policy
banks
Commercial
banks
Credit
cooperatives
Insurance
companies
Securities
firms
Other
financial
institutions
Unincorporated
products
Non-financial
institutions
Overseas
institutions Others Total
Book-entry
CGBs
2019 1056.91 99468.89 943.96 3621.43 1681.64 504.80 10957.97 7.20 13067.22 21751.16 153061.17
YOY 5.99% 12.25% 14.92% 10.66% 16.91% 48.21% 30.00% 0.00% 19.09% 1.15% 12.21%
LGBs 2019 16765.28 181996.31 1241.41 1353.67 846.48 188.62 4131.36 0.00 25.30 4634.51 211182.93
YOY -5.47% 18.74% 5.81% 284.72% 5.94% 826.87% 16.78% -- 0.80% 22.42% 16.87%
Government-
backed
agency bonds
2019 376.26 8900.02 168.89 2014.32 235.18 11.00 4530.54 0.21 47.29 441.29 16725.00
YOY 109.03% 5.52% -6.58% -9.90% 80.92% -27.15% -0.56% 0.95% 1.05% 20.46% 3.59%
Policy bank
bonds
2019 442.82 93073.88 4803.85 6157.62 1592.39 238.10 44864.84 0.20 4984.08 789.20 156946.98
YOY 28.54% 5.30% 9.76% 1.33% -11.97% -33.39% 14.21% -84.62% 37.50% -12.47% 8.11%
Commercial
bank bonds
2019 681.60 15729.95 299.18 3267.73 267.53 90.50 26468.07 2.00 156.82 0.20 46963.58
YOY 45.63% 11.52% -1.78% 13.40% 49.02% 125.69% 32.27% 0.00% 120.19% -- 23.38%
Enterprise
bonds
2019 43.90 5015.56 139.49 761.59 1851.26 71.51 13905.86 1.82 136.25 7855.12 29782.36
YOY 12.56% -3.45% -41.94% -14.12% 3.39% -26.28% -4.87% -50.41% -5.11% -2.36% -4.11%
ABS
2019 27.89 10438.88 2.60 57.63 175.51 546.46 8166.72 0.00 290.30 10.18 19716.18
YOY -23.87% 36.05% 306.25% 0.87% -5.65% 42.92% 28.95% -- 143.28% 17.44% 33.25%
Source: www.chinabond.com.cn
3. The size of ABS sustained its high-speed growth. Outstanding ABS totaled RMB1.97
trillion, up by RMB0.49 trillion or 33.25% YOY. As for the investor structure,
commercial banks and unincorporated products raised their holdings the most by amount,
holding RMB0.28 trillion and RMB0.18 trillion respectively more than the year before.
4. The size of enterprise bonds continued to shrink. There was RMB2.98 trillion of
enterprise bonds under depository, down by 4.11% YOY. As for the investor structure,
various kinds of investors, except policy banks and securities firms, cut down enterprise
bonds in their holdings to varying extents. The largest decline, which was RMB71.2
billion, came from unincorporated products.
5. The size of bonds held by other financial institutions expanded remarkably11
. Other
10Supplementary capital instruments of commercial banks include tier-2 capital instruments and other tier-1 capital
instruments. 11Other financial institutions include financial management companies, trust companies, leasing companies, auto
financing companies, and other non-bank financial institutions.
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financial institutions held bonds of RMB167.412 billion, up by 30.86% YOY. These
institutions increased their holdings of book-entry CGBs, LGBs, and ABS by
RMB16.420 billion, RMB16.827 billion, and RMB16.409 billion, respectively, which
contributed the most to the overall increase in their holdings.
6. Overseas investors raised their holdings of bonds. Overseas investors held bonds of
RMB1.88 trillion, representing a YOY growth 24.55%. Of these, book-entry CGBs and
policy bank bonds remained as the most favored types, accounting for 96.17% of the
total amount. The holdings of commercial bank bonds and ABS grew substantially by
120.19% and 143.28% YOY, respectively.
v. Bond market settlement volume grew faster.
In 2019, total settlement in the bond market, including spot, lending and repo
transactions, stood at RMB1307.31 trillion, up by 14.67% YOY with the growth rate up
by 1.81 percentage points than that in 2018. Specifically, settlement of spot transactions
across the market was RMB213.42 trillion, up by 40.87% YOY with the growth rate
down by 3.83 percentage points; repo settlement was RMB1,089.70 trillion, up by
10.50% YOY with the growth rate up by 1.31 percentage points. (Table 4)
Bond settlement at CCDC in 2019 was RMB813.79 trillion, up by 22.19% YOY.
Specifically, settlement of spot transactions was RMB139.40 trillion, up by 78.86%
YOY; that of repo, RMB670.21 trillion, up by 14.43%; and that of lending, RMB4.19
trillion, up by 74.31%. Settlement at CCDC accounted for 76.20% of the inter-bank
bond market.
In spot transactions processed by CCDC, book-entry CGBs and LGBs accounted for
31.33% of the year’s total trading volume and registered a YOY growth of 89.24% in
settlement amount. Turnover12
of book-entry CGBs surged from 137.61% in 2018 to
222.29% in 2019, representing a sharp increase in trading activity. Settlement of policy
bank bonds accounted for 63.59%, with a YOY increase of 76.72% in settlement amount,
keeping its status as the most traded bond type. Settlement of enterprise bonds accounted
for 1.18%, down by 1.2 percentage points from 2018, and the absolute settlement
amount decreased by 11.42% YOY.
12
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Table 4 Bond settlement in 2019
Settlement amount (RMB100
million)
Total 13,073,141.91
Subtotal at CCDC 8,137,938.51
Spot 1,393,954.14
Repo 6,702,133.23
Lending 41,851.14
Subtotal at SHCH 2,542,427.81
Spot 711,726.82
Repo 1,830,700.99
Subtotal at Exchanges 2,392,775.59
Spot 28,568.33
Repo 2,364,207.26
Source: www.chinabond.com.cn, SHCH and Wind
II. Characteristics of the Bond Market in 2019
i. Accelerated product innovation in the market
1. Functions of government bonds were intensified.
First, CGBs played a larger role in facilitating funding and were made more accessible.
In January, the Ministry of Finance (MOF) proposed to link CGBs with monetary
policies of the central bank, and increase the use of CGBs in monetary policy operations,
with a view to refining the interest rate transmission mechanism of CGB yield curves. In
April, MOF and the People’s Bank of China (PBC) rolled out a pilot program which
allowed investors to buy savings CGBs at any time. Under this program, the issuance
period for such bonds was extended from 10 days to one month, making it more
convenient for retail investors to buy savings CGBs.
Second, LGBs were offered in more varieties and circulated in more venues. In February,
the option-embedded LGB made its debut with a maturity of 3+2 years and a call option
at the end of the third year. This design offered the issuer a more flexible funding
scheme. In March, LGBs hit the commercial bank counter market. MOF released the
Notice on the Issuance of LGBs through the Commercial Bank Counter Market.
According to the notice, the LGB primary market would be opened to individual
investors, supporting more projects and allowing longer issuance periods. Throughout
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the year, LGBs were issued at a faster pace in 2019; the issuance of new bonds almost
came to an end in October, two months earlier than 2018r; the maturities became longer,
with the newly issued bonds averaging 10.26 years, 4.14 years longer than that in 2018,
and the proportion of ultra-long bonds (10 years and above) rose sharply; costs went
further down, with the new bonds issued at an average interest rate 40 bps lower than
that in 2018 signaling increased synergy between fiscal and monetary policies.
2. There were innovative types of financial bonds.
First, commercial banks perpetual capital bonds were issued. In January, Bank of China
(BOC) issued the first capital bond without a fixed term. In total, RMB596.9 billion of
perpetual bonds were issued by commercial banks throughout the year, greatly elevating
the tier-1 capital adequacy ratio (CAR), creating an alternative way to replenish other
tier-1 capital and enabling the banks to better serve the real economy.
To increase the liquidity of perpetual bonds by commercial banks, PBC decided to
initiate the central bank bill swap (CBS). In 2019, it carried out seven CBS operations
valued at RMB32 billion in total. Besides, perpetual bonds by issuers rated at AA or
above were included into the eligible collateral pool for medium-term lending facilities
(MLF), targeted medium-term lending facilities (TMLF), standing lending facilities
(SLFs) and re-loans. China Banking and Insurance Regulatory Commission (CBIRC)
allowed insurance companies to invest in these bonds.
Second, market-making mechanism was launched for CDB bonds. In December, China
Development Bank (CDB) carried out the first market-making operation. To streamline
the process, CCDC brought in delivery versus payment (DVP) settlement for such
operation, hence enhancing efficiency and reducing the funds occupied on the market
maker side.
3. New underlying asset and pricing benchmark were used in asset backed
securitization (ABS).
First, the pilot program of intellectual property right (IPR) securitization advanced at a
faster pace. In September, China issued its first patent license ABS, creating a new IPR
securitization mode. This mode would diversify the use of IPR, and boost innovation in
and coverage of IPR-related financial services.
Second, the credit ABS linked with LPR as the benchmark rate was issued. In
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September, the first floating-rate credit ABS product pegged to the loan prime rate (LPR)
hit the market. Both securities and asset sides adopted a floating rate with LPR as the
benchmark.
4. Pricing products came in refined, diversified varieties.
CCDC announced the ChinaBond benchmark repo (BR) rate, as a new fair benchmark
rate that revealed market liquidity and offered institutions and policy operations more
accurate and timely reference. CCDC released a host of new bond indexes. It launched
LGB indexes by province, such as ChinaBond Zhejiang Province LGB Index,
ChinaBond Jiangsu Province LGB Index, ChinaBond Hubei Province LGB Index,
ChinaBond Jiangsu, Zhejiang and Guangdong LGB Index, and ChinaBond Mega City
Select LGB Index, and added the maturities of 15 years and 20 years into the ChinaBond
LGB Yield Curve family to precisely portray the yields of ultra-long LGBs. CCDC
teamed up with many large financial institutions such as Industrial and Commercial
Bank of China (ICBC), Bank of Communications (BoCom), China Merchants Bank
(CMBC), CITIC Securities, and Huatai Securities to unveil a host of high-grade credit
bond indexes including the ChinaBond-CITIC Securities Exchange-traded Credit Bond
Index, the ChinaBond-ICBC RMB Bond Index, ChinaBond-CMBC Select Credit Bond
Index, and the ChinaBond-Huatai Securities Active ABS Index. These indexes took full
account of relevant investment strategies and provided a risk-controllable and
well-diversified reference for investing in high-grade credit bonds. CCDC co-released
with China Credit Assets Registration & Exchange Co., Ltd. (CCRE) the
ChinaBond-CCRE Credit Asset Price Index, providing a price benchmark for transfer of
credit asset. CCDC also introduced the ChinaBond-Offshore RMB Chinese Sovereign
and Policy Bank Bond Index, with a view to presenting a fair price benchmark for
offshore RMB bonds offered publicly overseas and listed for circulation.
ii. The bond market continued to make institutional advance.
1. Refinement in issuance
First, constant innovation was made in the issuance mechanism of LGBs. In February,
Guangdong Province issued China’s first option-embedded LGB through auction, with a
full call option. In March, MOF released the Notice on the Issuance of LGBs through the
Commercial Bank Counter Market. According to the notice, LGBs could be issued
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through the commercial bank counter, thus opening up a wider market for issuers and
meeting the diverse needs of individual investors and medium/small institutional
investors. In April, MOF and PBC rolled out a pilot program which allowed investors to
buy savings CGBs at any time. Under this program, the issuance period of such bonds
was extended, making it more convenient for individual investors to buy savings CGBs.
Second, the issuance mechanism of credit bonds was further refined. In February, the
National Association of Financial Market Institutional Investors (NAFMII) released the
Guidelines for the Debt Financing Instrument by Overseas Non-financial Enterprises
(Trial). In May, the State Council released the Circular on Supervision and Incentive of
the Regions which Made Concrete Efforts to Implement Major Policies and Measures
and Achieved Remarkable Results in 2018, stipulating that ten regions could apply for
enterprise bond issuance through the fast-track mechanism. In August, the exchanges
released the Measures for Private Placement of Convertible Corporate Bonds by
Non-listed Companies, expanding the scope of corporate bonds for innovation and
entrepreneurship on a trial basis and supporting non-listed companies in private
placement of convertible bonds.
2. Betterment of the bond market participation mechanism
First, more banks were allowed to participate in the exchange-traded bond market. In
August, China Securities Regulatory Commission (CSRC), PBC and CBIRC co-released
the Notice on the Matters Regarding the Participation of Banks in Bond Trading on
Stock Exchanges, to allow more banks into spot bond transactions on exchange. This
move could help stimulate the free flow of factors, expand the scope of bonds held by
banks, bring the real economy with more financing channels, and boost up the bond
market’s ability to serve the real economy.
Second, insurance companies were allowed to invest in the perpetual capital bonds
issued by commercial banks. In January, CBIRC released the Notice on the Matters
Concerning the Investment in Banks’ Supplementary Capital Bonds with Insurance
Funds, providing that insurance funds could be used to invest in the eligible tier-2
capital bonds and perpetual capital bonds by banks. At the same time, the notice also set
out the following two points: 1) tier-2 capital bonds and perpetual capital bonds issued
by policy banks would be treated as per quasi-government bonds; 2) tier-2 capital bonds
and perpetual capital bonds issued by commercial banks would be treated as unsecured
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non-financial enterprise (corporate) bonds.
3. Improvement of the risk mitigation mechanism in the bond market
First, bond transfer service in default was rolled out. In February, the bonds of which
the issuer defaulted upon maturity were put into anonymous auction for the first time
and traded successfully. In May, exchanges worked with CSDC to release the Notice on
the Matters Concerning the Provision of Transfer and Settlement Services for Specific
Bonds during the Listing Period. In June, PBC released the Announcement on
Conducting the Transfer of Bonds Defaulted upon Maturity (Consultation Paper), as a
move to put in place a mechanism which could help improve the efficiency of default
disposal regarding bonds and promote mitigation of credit risk thereof.
Second, guidelines on collateral disposal after default came out. In June, CCDC made
the Guidelines on Disposition of Collateral after Default (Trial Implementation), setting
out three disposition methods, namely, negotiated transfer, auction and sale. Creation of
the disposal mechanism regulated the disposal process and raised efficiency, thus
facilitating protection of the rights and interests of market participants.
iii. Credit risk got stabilized at a high level.
1. Credit bond defaults continued on a large scale.
In 2019, bond defaults were valued at RMB121.699 billion, a slight increase of 5.13%
YOY, which was a plunge compared to the YOY 300% surge in 2018, signaling that the
sharp rise of default got curbed. In terms of the number of bonds, 158 bonds defaulted in
2019, up 28.46% YOY; as to the number of defaulting parties, 56 issuers defaulted on
their debts, up by 9 from 2018, and 38 issuers among them had their first defaults, up by
5.
2. Defaulting issuers were concentrated in certain industries.
The number of industries of defaulting issuers dropped 14 in 2018 to 7 in 2019,
representing higher concentration. Issuer defaults in the manufacturing industry
amounted to RMB47.613 billion, a YOY increase of 190.01% and 39.12% of all defaults
in the market: 23 manufacturing issuers had their first defaults, representing a YOY
increase of 9 and accounting for 60.53% of all first-time defaulting issuers.
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3. Issuance of credit bonds picked up.
In 2019, the issuance of credit bonds13
reached RMB8.93 trillion, up 23.36% YOY. At
the same time, new structural features were observed. First, issuer credit quality had an
overall improvement. The average ChinaBond market implied credit rating (MIR) of
issuers of new credit bonds went up by 0.16 levels than 2018. Issuers with MIR AA and
above increased their issuance amount by 27%, while those below AA increased
issuance by only 9%. Second, financing environment did not improve for non-SOEs. In
2019, issuance by non-SOEs shrank by 24.64% YOY, merely accounting for 7.73% of
the market’s total. Non-SOEs proved to be more sensitive to the issuer rating. Issuance
by non-SOEs with an MIR below AA dropped by 46.72% YOY, way below average.
4. Credit spreads narrowed down in the secondary market.
As of the end of 2019, the credit spread of high-grade credit bonds14
narrowed to 82 bps,
down by 27 bps throughout the year. An even sharper decreased was observed in the
yields of low-grade and short-term credit bonds; the spreads by credit rating15
fell by
27-71 bps and the spreads16
by maturity rose by 7-54 bps.
iv. Opening-up of the bond market made steady progress.
1. Improved participation of and convenience for overseas institutions
(1) The number of investors and scale of investment were both on the rise. As of the end
of 2019, foreign bond holdings under CCDC depository amounted to RMB1.88 trillion,
up 24.6% YOY. CCDC support all the market access modes, namely, the Global Connect,
the Bond Connect (Hong Kong) and the MOX (Macao) mode.
(2) Foreign-funded institutions expanded their business scope in China. In July, the
Financial Stability and Development Committee of the State Council (FSDC) rolled out
policy measures to facilitate market opening. Foreign-funded rating agencies were
allowed to give credit ratings for all types of bonds in the inter-bank market and on
exchange. Foreign-funded institutions were allowed to obtain Type-A lead manager
13
Including enterprise bonds, corporate bonds, MTNs, SCPs, and privately placed instruments. 14
Credit spread for high-grade credit bonds = ChinaBond 5-Y AAA mid- and short-term notes YTM - ChinaBond
5-Y CGB YTM. 15
Spread by credit rating = ChinaBond 5-Y AA mid- and short-term notes YTM - ChinaBond 5-Y AAA mid- and
short-term notes YTM. 16
Spread by maturity = ChinaBond 5-Y AAA mid- and short-term notes YTM - ChinaBond 1-Y AAA mid- and
short-term notes YTM.
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license in the inter-bank bond market.
(3) Institutional improvements were made for panda bonds. In September, PBC and
MOF released the Interim Measures for the Management of Bond Issuance by Overseas
Institutions in the Inter-bank Bond Market (Announcement No. 16 [2018] of PBC and
MOC), specifying eligibility requirements and the application/registration process for
issuance, as well as provisions on disclosure, issuance, depository, settlement, RMB
fund accounts, cross-border remittances, investor protection, etc.
(4) Greater facilitation was in place for overseas institutions to invest in the inter-bank
bond market. In September, upon the approval of the State Council, the State
Administration of Foreign Exchange (SAFE) decided to lift the investment quota limits
on qualified foreign institutional investors (QFIIs) and RMB qualified foreign
institutional investors (RQFIIs). Therefore eligible overseas institutional investors need
only make registration before they transfer funds into China at their discretion and start
permitted securities investments. In October, PBC and SAFE announced that an investor
could make non-trade transfers of bonds between its account under the QFII/RQFII
scheme and its account under the Global Connect scheme, and that funds could also be
transferred directly; in addition, an investor needed to make only one filing for all these
market access channels. In November, CCDC released operational rules for application
of the aforesaid non-trade transfers of bonds.
Bond Connect completed multiple functional upgrades. In July, China Foreign Exchange
Trading System (CFETS) upgraded quoting functions by working with third-party
platforms and increased the number of market makers to 47. The basic increment of a
request for quote (RFQ) and the quotation amount reduced from RMB100,000 to
RMB10,000, enhancing flexibility in trading. Besides, Bloomberg wrapped up the
development of pre-allocation and post-allocation functions, and had them tested with
CFETS. With the two functions, overseas investment managers could ask for quotes of
multiple products and trade ABS products at the same time.
2. Better integration of Chinese institutions into the global market.
(1) New strides were made in offshore issuance of CGBs, sovereign bonds and central
bank bills. In 2019, MOF issued six tranches of RMB CGBs in Hong Kong, totaling
RMB12 billion, up 20% YOY, and issued USD-denominated sovereign bonds of USD6
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billion. It issued RMB CGBs of RMB2 billion in Macao for the first time, with a view to
fueling local financial sector development. During the process, CCDC supported Macao
in local market infrastructure development, and created the MOX mode to enable this
business. Sovereign bonds of EUR4 billion were issued in France. As the first Chinese
sovereign bond denominated in Euro for the past 15 years, the issue was welcomed by
active bidding, implying bullish prospects for the Chinese economy. 12 PBC bills were
offered in Hong Kong, totaling RMB 150 billion. More maturities of PBC bills were
now available in Hong Kong’s market and a routine mechanism for PBC bill issuance
was coming into shape.
(2) Chinese bonds were included into global indexes. In April, RMB-denominated CGBs
and policy bank bonds were included in the Bloomberg Barclays Global Aggregate
Indices. From then, the RMB-denominated bonds made the world’s fourth largest bond
pool by currency following USD, EUR and JPY bonds. In September, the JPMorgan
Chase announced to include nine CGBs into some of its indexes within ten months from
February 28, 2020. This was predicted to bring the Chinese bond market with a monthly
capital inflow of USD3 billion.
(3) Use of RMB collateral was promoted in overseas markets. In June, CCDC managed
to have “both parties agree to promote RMB bonds as common qualified collateral
accepted by the UK market” included in the outcome of the 10th China-UK Economic
and Financial Dialogue. This would help ease the shortage of high-quality collateral in
the UK market, consolidate London’s role as an offshore RMB hub, and further enable
RMB and the Chinese bond market to go global.
3. Enhanced collaboration between domestic and overseas institutions.
(1) CCDC and Euroclear entered into a memorandum of understanding (MOU) on
cooperation. In September, the two sides singed the MOU in Shanghai, confirming
intent for collaboration to develop a cross-border connection and enable collateral
management services on the professional and technical levels while in compliance with
existing regulatory frameworks.
(2) ChinaBond indexes were listed on overseas exchanges. In March, the Shin Kong
China Treasury Policy Bank Green Bond ETF, tracking ChinaBond 10Y CGB and
Policy Bank Bonds Green-Enhanced Index, was listed on Taiwan Stock Exchange. In
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November, ICBC, CCDC and Singapore Stock Exchange (SGX) launched the
ChinaBond-ICBC RMB Bond Index on SGX. This new index, covering CGBs, policy
bank bonds and credit bonds, will be a performance benchmark and an investment target
for investments into China’s onshore bond market.
III. Suggestions for Future Development of the Bond Market
i. To improve the CGB market system and CGB’ role as a benchmark.
First, market segments need to be better coordinated and the scope of investors needs to
be expanded. In the primary market, CGB issuance size, maturity and frequency can be
more flexible to allow CGB to serve as a benchmark. At the same time, the scope of
investors can be expanded to enhance accuracy and reliability of pricing. In the
secondary market, it is imperative to increase the efficiency of the market making,
enhance liquidity and thus make CGB yield curves a more reliable benchmark. Besides,
steps need to be taken to refine the CGB futures market, stimulate the trading volume,
and improve CGB yield curves by coordination of maturities.
Second, CGBs are expected to give play to its role as a quasi-currency and CGB yield
curves need to be put into more extensive use. The Opinions of the CPC Central
Committee and the State Council on Improving the Systems and Mechanisms for
Market-based Allocation of Factors proposed to improve the pricing efficiency in the
bond market, refine the CGB yield curves that could reflect the supply and demand in
market, and give to better play the benchmark role of the curves. It is necessary to
intensify the use of the CGB yield curves, explore the application scenarios and methods
of CGBs in monetary policy operations and the offshore RMB market, and improve
CGB yield curves as a benchmark, thus allowing CGB to function as a quasi-currency.
ii. To allow granular categories and explore a rating and pricing mechanism for
LGBs.
First, LGB can be put into granular categories as actually needed by the real economy.
Besides promoting special LGBs, granular categories in accordance with local fiscal
needs and risk control strategies can be encourage to achieve efficient and targeted use
of proceeds. While controlling the overall size of LGBs, structural adjustment can be
accelerated, so that LGBs can be a better guidance for social capital, thus enhancing the
funding function and resource reallocation of the bonds market.
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Second, it is necessary to explore for an effective rating and pricing mechanism fit for
the LGB market. LGBs have become one of the largest bond types in the inter-bank
bond market. Despite some recent progress, it is still a market with limited and biased
liquidity. To improve liquidity, it is necessary to develop a market-based rating
mechanism and an effective pricing system for LGBs, and improve the LGB yield
curves. Additionally, efforts need to be made to increase investment channels, and try to
develop derivatives trading based on LGBs.
iii. To promote development and functions of financialbonds.
First, special-purpose financial bonds can be encouraged to provide targeted financial
support for key fields. It is recommended to support policy bank bonds for poverty
alleviation and green financial bonds, and improve mechanisms regarding green bonds,
so that funding can be secured for poverty alleviation, ecological protection and
sustainable development. At the same time, commercial bank bonds for loans to small
and micro enterprise need to be encouraged, so that policy transmission can be effective
to expand funding sources for small and micro enterprises.
Second, efforts need to be made to encourage innovation in capital instruments, and thus
stepping up service capabilities of commercial banks. In November, CBIRC published
the Guiding Opinions on the Innovation of Capital Instruments of Commercial Banks
(Revision), which refined policies on capital instrument innovation and issuance and
created a favorable policy environment for commercial banks to replenish their capital.
It is advised to give to full play the role of the bond market in supporting the capital
replenishment of the real economy and commercial banks.
iv. To advocate innovation in credit bonds in support of the real economy.
First, it is recommended to increase the varieties of credit bonds. To this end, the
following measures will be adopted: to support the issuance of bonds by high-quality
enterprises, and optimize the application, approval, and issuance processes; to increase
issuance of special bonds, streamline the structure of using proceeds, intensify support
for key industries, and channel the flow of social funds; and to develop the high-yield
bond market, improve the supporting systems in favor of market-based issuance of
high-yield bonds, and offer direct financing channels to medium and small enterprises
with low credit quality.
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Second, it is necessary to upgrade credit derivatives. Credit derivatives could boost
investment willingness, optimize risk distribution and improve pricing efficiency.
Currently, most credit derivatives are based on a single bond, and thus fail to diverse
risks for the sponsor and make it difficult to build a deep underlying asset pool. A
solution is to prioritize the development of credit bond index options and forwards, and
credit bond yield swaps, with a view to reducing loss to a single entity in the event of
credit risk and providing the market with risk hedging instruments.
v. To improve institutional arrangements for ABS and cross-market integration.
First, it is suggested to enhance top-level design. The new Securities Law of the
People’s Republic of China includes asset-backed securities (ABS) into the scope of its
applicability. Therefore, it is recommended to develop specialized ABS legislation, and
promulgate specific rules for issuance and trading of ABS, so as to nurture a robust
market and hopefully enable public placement of ABS. In terms of bankruptcy
remoteness, it is advised to improve regulations for corporate ABS on exchange, ensure
bankruptcy remoteness, and enhance independence of the underlying assets. With
respect to taxation, it is recommended to make clear the status of SPVs as taxpayers and
address double taxation, so as to facilitate efficient operation and innovative trading.
Second, it is important to strengthen information disclosure. Asset-level disclosure is yet
to be adopted for ABS, hindering trading and thus liquidity. It is recommended to
promote see-through disclosure regarding the underlying assets, so as to achieve
information symmetry and efficient pricing. As to the information that is not supposed to
be public, rights of investors and third-party valuation agencies to access such
information should be explicitly confirmed. Moreover, the current disclosure is made in
the format of PDF, which hinders digital processing of information.So it is suggested
that disclosure be standardized, using a unified format which allows standardized,
electronic and machine-readable disclosure.
Third, it is imperative to address market segmentation. At present, ABS products are
approved by multiple regulators, traded in multiple front offices and settled in multiple
back offices. Such segmentation impedes unified monitoring and risk management,
makes the products vulnerable to price distortion and regulatory arbitrage. In response,
regulatory coordination and market integration are suggested. Drawing on global
practices, integration of the back office (depository and settlement facilities) will help
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address segmentation and enhance market effectiveness and security. It is suggested to
start with centralized registration of credit ABS, and unified regulatory requirements on
market access, risk measurement and information disclosure for the same type of ABS.
vi. To promote market opening and facilitation for investors.
First, effective risk hedging instruments can be provided for overseas investors.
According to the survey at CCDC Investor Conference 2019, inadequate hedging tools
proved to be a major obstacle for overseas investors. In developed market, hedging is a
critical part of debt investment strategy, and investors rely heavily on hedging tools.
However, only limited hedging tools are available for overseas investors in the Chinese
bond market. It is hence recommended to improve relevant policies and allow the use of
more tools to hedge exchange rate risks, interest rate risks and defaults.
Second, further facilitation need to be provided. In the onshore market, efforts need to
be continued to strengthen market infrastructure and related services, optimize processes,
such as account opening, settlement agent system, repo transaction, intra-day financing,
settlement and quotation, and further upgrade the functions of the Bond Connect. For the
offshore market, it is recommended to refine the ecosystem of overseas RMB assets,
develop the offshore RMB market, and enhance infrastructure and relevant services for
investment, depository, trading, settlement and clearing, in the hope of catering to needs
for liquidity and risk management.
vii. To coordinate and integrate market infrastructure.
In September 2019, the 10th Meeting of the Central Committee for Deepening Overall
Reform adopted the Work Plan for the Overall Supervision of Financial Infrastructure,
which proposed to coordinate regulation on important financial market infrastructure,
unify regulatory requirements, improve access management, optimize distribution of
facilities and refine governance structure, so as to promote the formation of a
well-organized, effective, advanced, reliable and flexible market infrastructure system.
For the bond market, integration and connectivity are necessary. An integrated
depository and settlement system and an optimized distribution of market infrastructures,
in alignment with global practices, will help form a clear and efficient market structure,
facilitate coordinated regulation, enable efficient risk monitoring and promote sound
development of the bond market.
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viii. To allow capital gains tax break for higher turnover.
According to the current policies, overseas investors in the Chinese bond market are
exempted from capital gains tax, while Chinese investors are required to pay it. Despite
an obvious increase in turnover in 2019, it is still relatively low compared to developed
markets. From the perspective of taxation reform, it is recommended to reduce or
exempt capital gains tax on Chinese institutions in the bond market, so as to stimulate
trading and liquidity.
ix. To enable tri-party repo and improve collateral management services.
In recent years, more types of participants became involved in repo transactions in the
inter-bank bond market. With growing awareness of risk management and cost
efficiency, they are raising higher demands for collateral and risk management. The
launch of the tri-party repo in the inter-bank bond market will add to convenience for
market participants to carry out repo, help reduce settlement failures and ensure that risk
exposures can be covered during repo transactions. A suggested step to take is to put
tri-party repo in practice, allowing investors to voluntarily entrust a third-party agency
for selection, valuation, replacement and adjustment of collateral. In addition, it is
advised to promote the inclusion of RMB bonds into the global pool of qualified
collateral, increase the liquidity of RMB bonds, deepen foreign participation in the
Chinese bond market, mitigate the global shortage of high-quality collateral, and pusrh
forward the process of RMB internationalization.
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Appendix III
Business Procedures for Overseas Central Banks to Enter China’s
Inter-Bank Bond Market
For any advice or suggestion, please contact
LV Tingting E-mail: [email protected], Tel. 010-66194036
WEN Junwei E-mail: [email protected], Tel. 010-66199510
MU Kunjian E-mail: [email protected], Tel. 010-66194875
ZHANG Mengsheng E-mail: [email protected], Tel. 010-66199343
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Business Procedures for Overseas Central Banks to Enter China’s
Inter-Bank Bond Market
Contents
I. Through the Central Bank as Agent 99
(i) Registration 99
(ii) Signing the Agency Agreement 99
(iii) Opening the cash account and the bond depository account 100
(iv) Preparation before trading 100
(v) Investment and settlement 101
(vi) Daily inquiries and sending of other documents 102
(vii) Outbound fund transfer 103
II. Through Commercial Banks as agents 104
(i) Registration 104
(ii) Signing the Agency Agreement 104
(iii) Opening the cash account and the bond depository account 104
(iv) Preparation before trading 105
(v) Investment and settlement 106
(vi) Daily inquiries and sending of other documents 107
(vii) Outbound fund transfer 107
III. Direct Investment 107
(i) Registration 107
(ii) Opening the cash account and the bond depository account 107
(iii) Preparation before trading 109
(iv) Investment and settlement 110
(v) Daily inquiries and sending of other documents 110
(vi) Outbound fund transfer 110
Annex 1: Chinese Inter-Bank Market Investment Registration Form 111
Annex 2: Business Application Form for Overseas Institutional Investors 113
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Overview
There are three entry channels: through the central bank (PBC) as an agent, through
commercial banks qualified for international settlement and settlement agency (Commercial
Banks) as agents and direct investment. If an overseas central bank (FCB) has PBC as its agent
already, it can still pick another channel from the other two.
Transaction types: Spot bond, bond repurchase, bond lending, bond forward, interest rates
swap, forward rate agreement and other transactions approved by PBC.
Quota: None. PBC implements a registration system for overseas central banks’ investments
in China’s inter-bank bond market (CIBM). They can determine the size of investment at their
discretion.
Free outbound transfer of funds: Yes.
Master agreement of derivatives trading: NAFMII master agreement or ISDA master
agreement.
Fees: Trading commission1 payable to the National Inter-Bank Funding Center (NIFC), and
service fee2 payable to China Central Depository & Clearing Co., Ltd. (CCDC) and Shanghai
Clearing House Co., Ltd.. In addition, the agency commission and other fees payable to agents
are to be determined in accordance with the agency agreement and other relevant agreements
between the two parties concerned.
1 http://www.chinamoney.com.cn/chinese/sfbf2/ .
2https://www.chinabond.com.cn/cb/cn/zqsc/ywgz/zyjsgs/sfgd/20080920/974544.shtml for CCDC related rules and
http://www.shclearing.com/cpyyw/sfbf/201901/t20190127_478645.html for Shanghai Clearing House.
-- 98 --
I. Through the Central Bank as Agent
(i) Registration
The FCB shall send the original of the Chinese Inter-Bank Market Investment Registration
Form (Annex 1) by post to PBC. Contact information:
Secretariat of the General Office, PBC
Tel: 010-66195860, Fax: 010-66015370
Address: No. 32 Chengfang Street, Xicheng District, Beijing Postal Code: 100800
The Financial Market Department of PBC will notify the foreign party of completed
registration by mail within 7 working days, with c.c. to the Open Market Operations
Department and the Financial Market Management Department of PBC Shanghai Head Office,
NIFC, CCDC and Shanghai Clearing House.
(ii) Signing the Agency Agreement
The FCB shall sign the Chinese (Mainland) Interbank Market Investment Agency Agreement
(Agency Agreement in items (ii) to (vii) of this section) with PBC through negotiation.
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For any matters related to items (ii) to (vii) of this section, please contact the Open Market
Operations Department of PBC Shanghai Head Office. Contact information:
Open Market Operations Department of PBC Shanghai Head Office
Tel: 021-50795265/021-20693909, Fax: 021-50795279
Email: [email protected]
Steps (i) and (ii) can be carried out simultaneously.
(iii) Opening the cash account and the bond depository account
1. Pursuant to the Agency Agreement, PBC will open a dedicated RMB cash account for FCB
with PBC. The dedicated RMB cash account shall only be used for cash transactions related to
investments in the interbank bond market. PBC will notify the FCB of the account information
by mail, fax, etc. within 2 working days following the opening of the dedicated RMB cash
account.
2. PBC will assist the FCB to open the RMB bond depository account with CCDC and
Shanghai Clearing House. PBC will notify the FCB of the account information by mail, fax,
etc. within 2 working days following the account opening.
(iv) Preparation before trading
1. Authorization: The FCB shall exchange specimen signatures of authorized signatories and
contact information of front-office and back-office personnel with PBC.
2. Transfer funds into the dedicated RMB cash account: The FCB shall ensure that its
dedicated RMB cash account with PBC have a sufficient balance to pay for relevant
investments. The FCB may transfer funds from other RMB accounts within and outside China
to this account, or transfer the RMB proceeds of foreign currency conversion in the interbank
foreign exchange market into this account (for details, please see the Interbank Foreign
Exchange Market Business Procedures).
3. Prepare the transaction agreement
(1) The FCB that conducts bond repurchase transactions shall sign the Master Agreement on
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Bond Repurchase Transactions in the Chinese Interbank Market (Version 2013)3 (and its
supplementary agreements, if any) and the Letter of Registration of Agreement Usage
Approval4 formulated by National Association of Financial Market Institutional Investors
(NAFMII).
(2) The FCB that conducts bond lending transactions shall enter into a lending contract in
writing on a transaction-by-transaction basis.
(3) The FCB conducts transactions on bond forward, RMB interest rate swap, forward rate
agreement and other over-the-counter financial derivatives in the interbank market shall sign
the Master Agreement on Financial Derivatives Transactions in the Chinese Interbank Market
(Version 20095) and its supplementary agreements and the Letter of Registration of Agreement
Usage Approval6 with its counterparties, or sign the ISDA Master Agreement with its
counterparties through negotiation.
Contact information: Liu Xinyu
Transactions Regulation Department of NAFMII
Tel: 010-66538115, Fax: 010-66539028
Email: [email protected]
(v) Investment and settlement
1. Give trading instructions: The FCB shall give trading instructions to PBC in a manner
agreed upon by both parties. The FCB may determine the subject matter of transaction or
entrust PBC to make inquiries and determine the subject matter of transaction. PBC will send
the instruction receipt promptly in a manner agreed upon by both parties.
2. Conclude the transaction: PBC will, after completing the compliance review of transaction
elements, conduct the transaction in the interbank market on behalf of and as instructed by the
FCB.
3. Send the trade ticket information: On the date of transaction, PBC will send the notice of
3 http://www.nafmii.org.cn/zlgl/bzxy/zqhgjyzxy/201301/t20130121_19673.html .
4 http://www.nafmii.org.cn/xhdt/201406/t20140603_32376.html .
5 http://www.nafmii.org.cn/zlgl/bzxy/jrys/201202/t20120226_2557.html
6 http://www.nafmii.org.cn/zlgl/bzxy/jrys/201202/t20120226_2555.html
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transaction confirmation and the trade ticket issued by NIFC to the FCB by SWIFT, mail or
other methods agreed upon by both parties.
4. Bond settlement, fund settlement and clearing: PBC will act as an agent of the FCB to
complete bond settlement and fund settlement involved in the transaction. After the settlement
and clearing are completed, PBC will send relevant settlement documents to the FCB by
SWIFT, mail or other methods agreed upon by both parties.
5. The FCB that conducts derivatives transactions such as RMB interest rate swaps can be
exempted from centralized clearing at Shanghai Clearing House. If centralized clearing is
chosen, contact Shanghai Clearing House.
Contact information:
Jiang Chenming
Product Development Department of Shanghai Clearing House
Tel: 021-23198585
Email: [email protected]
(vi) Daily inquiries and sending of other documents
The FCB can inquire about the balances of the dedicated RMB cash account and the bond
depository account through PBC. PBC may provide daily information on relevant accounts at
its request.
PBC will provide the FCB with monthly statements, bond interest payment and redemption,
interest settlement and other documents by SWIFT, mail or other methods agreed upon by
both parties.
The FCB can directly inquire about market performance, transaction details, etc. through the
NIFC client.
Contact information:
NIFC
Lu Junao, Marketing Department II
Tel: 021-38585304
Email: [email protected]
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Lu Wenrong, Marketing Department II
Tel: 021-38585586
Email: [email protected]
The FCB can directly inquire about the balance of the bond depository account, details of the
bond settlement contract, etc. through the English client provided by CCDC. Please refer to
the ChinaBond Integrated Operation Platform or
www.chinabond.com.cn/cb/eng/xwgg/ggtz/zyjsgs/ywgg/zzzhywpt/list.shtml for details of
inquiry operations.
Contact information:
CCDC
Huang Shaoshi
Customer Service Department (Fund Management System Project Department) Tel:
010-88170764
Email: [email protected]
The FCB may, directly or through PBC, inquire about the balance of the bond depository
account, settlement details and other information via the Shanghai Clearing House client.
Contact information:
Service hotline of Shanghai Clearing House
Tel: 021-23198686
Email: [email protected]
(vii) Outbound fund transfer
The FCB shall give payment instructions signed by authorized signatory to PBC in a manner
agreed upon by both parties. The FCB can freely transfer RMB funds from its dedicated RMB
cash account with PBC. They can be directly transferred to any other RMB account of the
FCB within or outside China or converted into foreign currencies in the Chinese interbank
foreign exchange market for outbound transfer (for details, please see the Interbank Foreign
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Exchange Market Business Procedures).
II. Through Commercial Banks as agents
(i) Registration
The same as I (i). The FCB may name a Commercial Bank as its agent. The Financial Market
Department of PBC will notify the foreign party by mail of completed registration, with c.c. to
the Commercial Bank.
(ii) Signing the Agency Agreement
The Commercial Bank negotiates and signs a settlement agency agreement with the FCB.
(iii) Opening the cash account and the bond depository account
1. The Commercial Bank shall open a dedicated RMB deposit account for the FCB in
accordance with the Circular of the General Office of PBC on Matters Related to Opening of
RMB Bank Settlement Accounts by Foreign Central Banks and Similar Institutions with
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Domestic Banking Institutions7 (Y.B.F. [2015] No. 227), without the need to issue the permit
for basic deposit account opening or other supporting documents.
2. The Commercial Bank shall assist the FCB to open the RMB bond depository account and
the bond settlement fund account with CCDC and Shanghai Clearing House respectively.
CCDC and Shanghai Clearing House will conduct relevant operations after receiving the
electronic or printed application materials. If the materials are confirmed complete and
accurate, the account will be opened within 3 working days. If the account is opened based on
electronic application materials, subsequently the printed application materials shall be
submitted CCDC and Shanghai Clearing House later.
3. The Commercial Bank shall assist the FCB by applying through the interbank market
account opening system (https://ibrs.chinamoney.com.cn/AAMS) to NIFC for opening a
trading account in the Chinese (mainland) interbank market trading system.
NIFC will conduct relevant operations after receiving the electronic application materials. If
the materials are confirmed complete and accurate, the trading account will be opened within 3
working days.
The above cash account, bond account and trading account are all opened in the name of the
FCB.
If the internal control policy of the FCB allows, all steps in Sections (i), (ii) and (iii) can
take place simultaneously.
(iv) Preparation before trading
1. Authorization: The FCB shall exchange specimen signatures of authorized signatories and
contact information of front-office and back-office personnel with the Commercial Bank.
2. Transfer funds into the dedicated RMB cash account: The FCB shall ensure that its
dedicated RMB deposit account with the Commercial Bank has a sufficient balance to pay for
relevant investments. The Commercial Bank will give timely feedback after receiving money.
The FCB may transfer funds from other RMB accounts within and outside China to this
account, or transfer the RMB proceeds of foreign currency conversion in the interbank foreign
7 http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/2971831/index.html
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exchange market into this account (for details, please see the Interbank Foreign Exchange
Market Business Procedures).
3. Prepare the transaction agreement
The same content as I (iv) 3. The Commercial Bank’s assistance can be used.
(v) Investment and settlement
The cash account, bond depository account and trading account opened by the Commercial
Bank on behalf of the FCB are all real-name accounts. In agency trading and settlement, the
counterparty knows the identity of the FCB.
1. Give trading instructions: The FCB shall give compliant and valid transaction instructions to
the Commercial Bank in a way agreed upon by both parties, such as by fax, by email and
through the NIFC client, and authorize the Commercial Bank to complete bond settlement
after the transaction is completed. The FCB may determine the subject matter of transaction or
entrust the settlement agent to make inquiries and determine the subject matter of transaction.
2. Conclude the transaction: The Commercial Bank shall, after completing the compliance
review of transaction elements, give trading instructions and conduct the transaction in the
trading system on behalf of the FCB.
3. Send the trade ticket information: The Commercial Bank shall take the trade ticket or
transaction confirmation issued by NIFC as the transaction contract and send it to the FCB
through the NIFC client or by SWIFT, mail or other means agreed upon by both parties. Or the
FCB may inquire about the trade ticket on itself in real time through the client provided by
NIFC.
4. Bond Settlement and fund clearing: The Commercial Bank shall complete bond delivery
and fund payment through the bond settlement fund account corresponding to the FCB’s cash
account with the Commercial Bank and its bond account with CCDC or Shanghai Clearing
House. After the settlement is completed, the Commercial Bank shall send relevant settlement
documents to the FCB. The Commercial Bank can implement T+0, T+1 or T+2 settlement
according to the instructions of the FCB.
5. The FCB that conducts derivatives transactions such as RMB interest rate swaps can be
exempted from centralized clearing at Shanghai Clearing House. The same as I (v) 5.
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(vi) Daily inquiries and sending of other documents
To be agreed upon with the Commercial Bank. The FCB can directly inquire about market
performance, transaction details, etc. through the IFC client. The FCB also can directly inquire
about the balance of the bond depository account, details of the bond settlement contract,
balance of cash account and details of cash account transactions etc. through the English client
provided by CCDC. The FCB may, directly or through the settlement agent, inquire about the
balance of the bond depository account, settlement details and other information via the
Shanghai Clearing House client. Please refer to I (vi) for inquiry methods.
(vii) Outbound fund transfer
The FCB can freely transfer RMB funds from its dedicated deposited account with the
Commercial Bank. They can be directly transferred to any other RMB account of the FCB
within or outside China or converted into foreign currencies in the Chinese interbank foreign
exchange market for outbound transfer.
(For details, please see the Interbank Foreign Exchange Market Business Procedures).
III. Direct Investment
(i) Registration
The same as I (i).
(ii) Opening the cash account and the bond depository account
1. The FCB shall open an RMB deposit account exclusively for its bond transactions with the
Commercial Bank on its own. The Commercial Bank shall open the account for the FCB in
accordance with the Circular of the General Office of PBC on Matters Related to Opening of
RMB Bank Settlement Accounts by Foreign Central Banks and Similar Institutions with
Domestic Banking Institution8s (Y.B.F. [2015] No. 227), without the need to issue the permit
8 http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/2971831/index.html
-- 107 --
for basic deposit account opening or other supporting documents. The Commercial Bank is not
necessarily eligible as settlement agent in the interbank bond market.
2. The FCB shall open the RMB bond account and the bond settlement fund account with
CCDC and Shanghai Clearing House on its own. To open an account, the following materials
shall be submitted:
(1) Application Forms for Overseas Institutional Investors (Annex 2);
(2) Sign the necessary agreements9 for opening an account;
(3) Apply to China Unicom or China Telecom for telecom network access for connection with
the systems of CCDC and Shanghai Clearing House.
CCDC and Shanghai Clearing House will conduct relevant operations after receiving the
electronic or printed application materials. If the materials are confirmed complete and
accurate, the account will be opened within 3 working days. If the account is opened based on
electronic application materials, subsequently the printed application materials shall be
submitted CCDC and Shanghai Clearing House later.
Contact information:
CCDC:
Pu Yuanyang
Customer Service Department (Fund Management System Project Department)
Tel: 010-88170765
Email: [email protected]
Shanghai Clearing House:
Hu Ying
Service hotline
Tel: 021-23198686
Email: [email protected]
9 http://www.chinabond.com.cn/cb/cn/zqsc/fwzc/zlzx/cyywbgxz/zqzh/20150619/21058455.shtml
http://www.shclearing.com/cpyyw/czxzjzn/zhgl/201901/t20190127_478656.html
-- 108 --
3. The FCB shall apply on its own to NIFC for opening a trading account in the Chinese
(mainland) interbank market trading system and submit a network access application.
Materials to be submitted include:
(1) Application Forms for Overseas Institutional Investors;
(2) Application for network access/exit (for overseas institutions only). Network access
methods include the following: One is access via private line (the point of access is Beijing,
Shanghai or Hong Kong), and the other is access via the MPLS VPDN network of value-added
service provider BT Radianz or TNS.
(3) Application Form for Digital Certificate of the RMB Trading System;
(4) Participation of at least two front-office members in the trade training organized by NIFC;
The above materials can be downloaded from http://www.chinamoney.com.cn - Market Guide
- RMB Market Guide - Market Access - Market (CIBM) Access Guide for Overseas
Participants. NIFC will conduct relevant operations after receiving the electronic application
materials. If the materials are confirmed complete and accurate, the trading account will be
opened within 3 working days.
Contact information: Qin Jian
Marketing Department II of NIFC
Tel: 4009787878-2-2
Email: [email protected]
(iii) Preparation before trading
1. Exchange of information: NIFC sends the system administrator’s user ID to the FCB
through the interbank market account-opening system
(https://ibrs.chinamoney.com.cn/AAMS). The FCB shall, prior trading, log into the RMB
Trading System with the system administrator’s user ID to conduct information maintenance
and permissions setting, including the FCB’s cash account number, trading account group,
trader’s user name, password and trading rights. In addition, the FCB also shall maintain and
submit the depository account number in the interbank market account-opening system, and
-- 109 --
NIFC should confirm the completion of the work within one working day prior to trading.
2. Transfer funds into the dedicated RMB cash account: The same as those listed in II (iv)
2.
3. Prepare the transaction agreement: The same content as I (iv) 3. The FCB handles it on
its own.
(iv) Investment and settlement
The cash account, bond depository account and trading account opened by the FCB are all
real-name accounts. In trading and settlement, the counterparty knows the identity of the FCB.
1. Conclude the transaction: The FCB shall directly log into the NIFC client to trade with
counterparties by sending the request and quotation to the market-maker (RFQ) or directly
clicking the bilateral quotation of the market-maker (One-Click).
2. Trade ticket information: The FCB can inquire about and print the trade ticket or
transaction confirmation through the NIFC client on its own.
3. Bond Settlement and fund clearing: The FCB can complete the bond settlement and fund
clearing directly through its bond account with CCDC or Shanghai Clearing House and the
corresponding bond settlement fund account, and can realize T+0, T+1 or T+2 settlement.
After the settlement is completed, the FCB can print relevant settlement documents on its own.
4. The FCB that conducts derivatives transactions such as RMB interest rate swaps can be
exempted from centralized clearing at Shanghai Clearing House. The same as I (v) 5.
(v) Daily inquiries and sending of other documents
The FCB can directly inquire about market performance, trade ticket, etc. through the client
provided by NIFC. The FCB also can directly inquire about the balance of the bond depository
account, details of the bond settlement contract, balance of cash account and details of cash
account transactions etc. through the English client provided by CCDC. The FCB may directly
inquire about the balance of the bond depository account, settlement details and other
information via the Shanghai Clearing House client. Please refer to I (vi) for inquiry methods.
(vi) Outbound fund transfer
The same as II (vii).
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Annex 1
中国银行间市场投资备案表
Chinese Inter-Bank Market Investment Registration Form
机构名称： 地址：
Name of Institution Address
申请机构简介
Brief Introduction
拟投资产品
Expected Investment
Products
国债 □
Government Bonds
金融债 □
Financial Bonds
公司债 □
Corporate Bonds
其他债券 □
Other Bonds
债券回购 □
Bond Repo
债券借贷 □
Bond Lending
债券远期 □
Bond Forward
衍生品 □
Derivatives
拟选择代理人
Selected Agent(s)
中国人民银行 □
PBC
银行间市场结算代理人 □
Inter-bank Bond Market Settlement Agent
投资负责人简介
Introduction to Key
Persons in Reserve
Management Function
姓名 Name 职位 Position 电话 Tel. 邮箱 Email
联系人
Contact Persons
姓名 Name
职务 Position
电话 Tel.
传真 Fax
邮箱 E-mail
有权签字人
Authorized Signatory
姓名 Name
职务 Position
签名 Signature
日期 Date
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填表说明 Note：
1.表格用中文或英文填写。
Please fill out this form in Chinese or English.
2.申请机构简介包括成立时间、监管法律、组织结构（含储备管理和投资职能）等内容。
Brief Introduction: Background on establishment of the institution and governing law,
investment mandate, organization structure (Including Reserve Management/ Investment Function)
etc.
3.拟投资产品请在方框内打√，如选择其他，请备注。
Expected Investment Products: please tick the box to choose financial products intended to
invest and specify any other options.
4.拟选择代理人请在方框内打√。并注明拟选择结算代理人的名称（如适用）。
Selected Agent(s): please tick the box to choose selected agent(s) and specify the name of
selected inter-bank bond market settlement agent (as applicable).
5.投资负责人简介须填写债券投资管理人及投资主要负责人的基本情况。
Introduction to Key Persons in Reserve Management Function: please fill out the basic
information of key persons in the Reserve Management Function.
a) Head of Investment/ Reserve Management
b) Head of Dealing Room (Front Office),
c) Head of Settlements (Back Office)
d) Head of Risk Management (Middle Office)
6.有权签字人指储备投资部门负责人。
Authorized Signatory: signed by Executive In-charge of Reserve Investments or Governor.
7.中国人民银行负责对此表格进行解释。
The form is subject to the interpretation of PBC.
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Annex 2
Business Application Form for Overseas Institutional Investors
Important statement: We guarantee that no false record, misleading statement or
major omission is provided in this application form. We promise to bear full legal
responsibility for the form’s authenticity, accuracy, integrity and validity.
Basic information
Full name of the
investor (up to 30 characters)
Abbreviated name
of the investor (up to 8 characters)
Place of
registration (country / region)
Bond account (not applicable for the first-time account opening applicant)
Settlement type ■Settle through the settlement agent
Full name of the
settlement agent
Account number of
the settlement
agent
(Account number at CCDC)
(Account number at SHCH)
Application for account opening with CFETS
□ Applying for networking with CFETS bond market
Administrator of
the RMB trading
system
Name Department
Title Telephone
Address
Postcode
Email (very important as account information will be delivered to this Email)
Application for account opening with CCDC
□ Applying for a bond account □ Applying for a dedicated cash account for bond settlement
Beneficiary
account for
withdrawing DVP
settlement funds
■Use the corporate
settlement account
opened with a
commercial bank
Bank number in the
payment system (12-digit)
Bank name in the
payment system
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Cash account
number
Cash account name (up to 30 characters）
Beneficiary
account for
principal and
interest payments
Use the corporate settlement account opened with a commercial bank (the same as
the beneficiary account for DVP settlement funds)
Use the dedicated cash account for bond settlement at CCDC
Invoice contact
person
Name Telephone
Address
Postcode
Application for account opening with SHCH
□ Applying for a bond account □ Applying for a dedicated cash account for bond settlement
Beneficiary
account for
withdrawing DVP
settlement funds
■Use the corporate
settlement account
opened with a
commercial bank
Bank number in the
payment system (12-digit)
Bank name in the
payment system
Cash account
number
Cash account name (up to 30 characters)
Automatically return the balance in dedicated cash account at the end of day (by
default)
Withdraw the balance in dedicated cash account on the investor’s own initiative
Beneficiary
account for
principal and
interest payments
Use the corporate settlement account opened with a commercial bank (the same as
the beneficiary account for DVP settlement funds)
Use the dedicated cash account for bond settlement at SHCH
Invoice contact
person
Name Telephone
Address
Postcode
Operator responsible for the networking and account opening application
Name Institution and department
Business phone Mobile phone
Fax Email
Address
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Postcode
Reserved seal
Official seal of overseas institutional investor or
signature of legal (or authorized) representative
Official seal of settlement agent (seal for settlement
agency business)
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Appendix IV
Operational Guide on Networking and Account Opening for
Overseas Institutional Investors to China Inter-bank Bond Market
Article 1 This Guide is formulated with the approval of the Financial Market
Department of the People’s Bank of China (PBC) to clarify the networking and
account opening procedures for overseas institutional investors in China inter-bank
bond market (CIBM) according to the requirements of PBC Announcement [2016] No.
3.
Article 2 This Guide applies to financial institutions lawfully registered and
incorporated outside the territory of the People’s Republic of China, including
commercial banks, insurance companies, securities firms, fund managers and other
asset management institutions, investment products issued by the aforementioned
institutions to clients in accordance with the laws and regulations, and other medium
and long term institutional investors approved by PBC, such as pension funds, charity
funds and endowment funds.
Article 3 When accessing CIBM, an overseas institutional investor needs to have its
settlement agent submit written applications for networking or account opening
respectively to China Foreign Exchange Trade System and National Inter-bank
Funding Center (hereinafter referred to as “CFETS”), China Central Depository &
Clearing Co., Ltd. (hereinafter referred to as “CCDC”) and Shanghai Clearing House
(hereinafter referred to as “SHCH”).
Article 4 Documents required for networking or account opening:
(1) Registration notice issued by the PBC Shanghai Head Office,
(2) Business Application Form for Overseas Institutional Investors (see Annex), and
(3) Signature page(s) of business agreement(s) required for account opening.
Standard texts of relevant business agreements on account opening are published
separately on the official websites of CCDC and SHCH.
Article 5 CFETS, CCDC and SHCH will begin to process the relevant business after
receiving the documents for networking or account opening from the settlement agent.
If the documents are correct and complete, networking or account opening procedures
will be completed within three working days; otherwise, the settlement agent will be
informed of the inadequacies all at once.
Article 6 In the situation where an overseas institutional investor needs to alter its
registered information as required by the PBC Shanghai Head Office, after the
alteration is made and registered, its settlement agent shall submit to CFETS, CCDC
and SHCH respectively the following documents:
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(1) Notice on altering the registered information issued by the PBC Shanghai Head
Office,
(2) Business Application Form for Overseas Institutional Investors, and
(3) Signature page(s) of business agreement(s) required for alteration(s).
Article 7 For any alteration(s) to the basic information of overseas institutional
investors such as the reserved seal, the settlement agent shall submit the Business
Application Form for Overseas Institutional Investors in written form to CFETS,
CCDC and SHCH respectively.
Article 8 CFETS, CCDC and SHCH will begin to process the relevant business after
receiving the documents for alteration(s) from the settlement agent. If the documents
are correct and complete, procedures for such alteration(s) will be completed within
three working days; otherwise, the settlement agent will be informed of the
inadequacies all at once.
Article 9 To exit CIBM, the overseas institutional investor shall have its settlement
agent submit the Business Application Form for Overseas Institutional Investors in
written form to CFETS, CCDC and SHCH respectively to apply for network
termination or account revocation.
Article 10 After receiving the documents for network termination or account
revocation from the settlement agent, unless documents are incorrect or incomplete,
or there is balance in the account, or there are any unsettled claims and liabilities or
unpaid fees, CFETS, CCDC and SHCH will process the network termination or
account revocation procedures within three working days; otherwise, the settlement
agent will be informed of the inadequacies all at once.
Article 11 If an unincorporated product reaches maturity, CFETS, CCDC and SHCH
will automatically perform network termination or account revocation procedures at
the end of the third working day after its maturity.
Article 12 CFETS, CCDC and SHCH are responsible for the interpretation and
amendment of this Guide.
Article 13 This Guide will take effect on the date of its release.
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Annex
Business Application Form for Overseas Institutional Investors
Important statement: We guarantee that no false record, misleading statement or
major omission is provided in this application form. We promise to bear full legal
responsibility for the form’s authenticity, accuracy, integrity and validity.
Basic information
Full name of the
investor (up to 30 characters)
Abbreviated name
of the investor (up to 8 characters)
Place of
registration (country / region)
Type of the
investor (please
check the
corresponding box)
Commercial bank (□ RMB clearing bank □ overseas participating bank □ others)
Insurance company
Securities company
Fund management company
Other asset management institutions (in detail)________________
Pension fund (□ legal person□ unincorporated)
Charity fund(□ legal person□ unincorporated)
Endowment fund (□ legal person□ unincorporated)
Unincorporated product of a commercial bank
Unincorporated product of an insurance company
Unincorporated product of a securities company
Unincorporated product of a fund management company
Unincorporated product of other asset management institutions (in detail)_____
Others (in detail)________________ (□ legal person□ unincorporated)
QFII (□ legal person□ unincorporated)
RQFII (□ legal person□ unincorporated)
Information on the
investor
(applicable for
unincorporated
products only)
Outstanding
amount of the
product
Origination date of
the product
Maturity date of the
product YYYY/MM/DD□ no fixed maturity
Bond account (not applicable for the first-time account opening applicant)
Settlement type ■Settle through the settlement agent
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Full name of the
settlement agent
Account number of
the settlement
agent
(Account number at CCDC)
(Account number at SHCH)
Full name of the
investment
manager
(if applicable）
Full name of the
custodian (if applicable)
Business to be applied
1. Market entry
Applying for bond market networking with CFETS
Applying to open a bond account at CCDC
Applying to open a dedicated cash account for bond settlement at CCDC
Applying to open a bond account at SHCH
Applying to open a dedicated cash account for bond settlement at SHCH
2. Information
alteration26
Changing the name of the institution
Former full name of the institution: _____________________________
Changing the settlement agent
Full name of the former settlement agent: ________________________
Changing the maturity date
Changing the reserved seal
3. Market exit
Applying to terminate networking with CFETS
Applying to revoke the account at CCDC
Applying to revoke the account at SHCH
4. Other business (Please provide detailed information based on the business to be applied for)
Application with CFETS
Administrator of
the RMB trading
system
Name Department
Title Telephone
Address
Postcode
26For any alteration(s) regarding the name of investors, settlement agents and the maturity of
unincorporated products, the overseas institutional investor needs to apply to the PBC Shanghai
Head Office for the filing of alteration(s).
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Email (very important as account information will be delivered to this Email)
Application with CCDC
Beneficiary
account for
withdrawing DVP
settlement funds
■Use the corporate
settlement account
opened with a
commercial bank
Bank number in the
payment system (12-digit)
Bank name in the
payment system
Cash account
number
Cash account name (up to 30 characters）
Beneficiary
account for
principal and
interest payments
Use the corporate settlement account opened with a commercial bank (the same as
the beneficiary account for DVP settlement funds)
Use the dedicated cash account for bond settlement at CCDC
Invoice contact
person
Name Telephone
Address
Postcode
Application with SHCH
Beneficiary
account for
withdrawing DVP
settlement funds
■Use the corporate
settlement account
opened with a
commercial bank
Bank number in the
payment system (12-digit)
Bank name in the
payment system
Cash account
number
Cash account name (up to 30 characters)
Automatically return the balance in dedicated cash account at the end of day (by
default)
Withdraw the balance in dedicated cash account on the investor’s own initiative
Beneficiary
account for
principal and
interest payments
Use the corporate settlement account opened with a commercial bank (the same as
the beneficiary account for DVP settlement funds)
Use the dedicated cash account for bond settlement at SHCH
Invoice contact
person
Name Telephone
Address
Postcode
Information on the operator responsible for the application
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Name Institution and department
Business phone Mobile phone
Fax Email
Address
Postcode
Reserved seal
Official seal of overseas institutional investor or
signature of legal (or authorized) representative
Official seal of settlement agent (seal for settlement
agency business)