Market makers rule fix aims to boost bond trades

PUBLISHED : Friday, 12 January, 2007, 12:00am
UPDATED : Friday, 12 January, 2007, 12:00am

The central bank yesterday outlined a plan to boost domestic bond trading by lowering the requirements for market makers in the interbank market.

The new measures, which go into effect on February 1, allow any of the country's top 80 bond traders to apply to become market makers, provided they have registered capital of more than 1.2 billion yuan.

'Increasing the number of market makers will promote market liquidity and efficiency,' said Lin Zhaohui, an analyst at Guotai Junan Securities. 'Some buyers have trouble finding sellers and vice versa.'

Under the new rules, market makers must be ready to deal in amounts of at least one million yuan and provide prices within 30 minutes after being asked.

They will also have to provide prices for at least six bonds, including one corporate bond, one government bond and one financial development bond and post prices for at least four of the five maturities in the market, which range from less than a year to more than seven years.

Turnover in the interbank bond market was 36.6 trillion yuan last year, 21.9 trillion yuan in 2005 and 11.8 trillion yuan in 2004.

The interbank bond market is mostly made up of government bonds issued by the Ministry of Finance, short-term corporate bills issued by large state-owned enterprises and central bank bills used by the People's Bank of China to manage liquidity in the financial system.

The increase in interbank turnover in the past two years is largely due to the issue of central bank bills, which were used to 'sterilise' money entering the system as a result of its intervention in currency markets to manage the level of the yuan.

Short-term corporate bills were launched in May 2005 but already dwarf the more established corporate bond market, accounting for 300 billion yuan worth of turnover in the interbank market last year.


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