Rules on interbank bond trades tightened

The mainland's central bank is tightening rules on interbank bond market trading by ordering all transactions to be conducted through the National Interbank Funding Centre as it seeks to boost transparency.

Transactions including forward deals and repurchases could not be reversed or changed once agreed between the two parties, the People's Bank of China (PBOC) said in a statement on its website yesterday.

Clearing agencies should not settle trades outside the interbank market, it said, and alterations to bond ownership, such as inheritance, that were not related to trading, needed to be supported by legal documents explaining the nature of the transaction.

Mainland authorities are seeking to clean up the US$3.8 trillion market and encourage companies to raise funds through bonds rather than relying on bank lending. The State Council approved trading of government debt futures for the first time in 18 years to allow investors to hedge risk, the China Securities Regulatory Commission said this month.

"It's a continuation of the changes the government is making on an operational level to improve the bond-market system," said Becky Liu, a Hong Kong-based rates strategist at Standard Chartered. "We should expect more steps from the regulators to clamp down on illegal bond-trading activities."

The mainland opened its interbank bond market in December 2011 to more than 200 qualified foreign institutional investors, which were previously restricted to exchange-traded securities. The central bank allowed money-market rates to rise to records last month as it sought to discourage lenders from using short-term financing to cover longer-maturity loans.