Fintech

Tencent sets up an online trading platform for Chinese bonds

China’s biggest social media and gaming company has teamed up with a finance start-up to launch QTrade, a service to help traders meet online and negotiate prices

PUBLISHED : Friday, 22 June, 2018, 4:41pm
UPDATED : Friday, 22 June, 2018, 4:41pm

Tencent Holdings is joining forces with a finance start-up to create a system for over-the-counter bond deals, banking on its appeal to the army of traders that already rely on its popular messaging services.

China’s biggest social media and gaming company and its partner launched the service on Friday after almost two years of fine-tuning.

As envisioned, the QTrade service will help traders meet online and negotiate prices. It verifies both parties’ identities and logs their conversations and transactions for at least five years, thus complying fully with securities regulations, said Zhou Jingyu, a co-founder of the start-up registered as Shenzhen Pingguo Shuju Keji in Chinese but does not have an English name.

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Internet giant Tencent is potentially offering a way out for brokers grappling with tightening scrutiny from China’s securities watchdog, which from December was banning traders from using individual email and messaging accounts to place orders – their main transaction avenue.

While the government has its own chat system for dealers, more than 70 per cent of bond trades are now conducted over personal messaging accounts such as Tencent’s QQ messaging service, according to the start-up.

That is a source of growing concern for regulators wary of financial and security risks, given that China issued bonds worth 40.8 trillion yuan (US$6.3 trillion) last year.

“There’s been a discrepancy between where traders complete their deals and where they negotiate,” said Fiona Liu, another co-founder of the Shenzhen-registered start-up. “We want to provide a safe and compliant instant messenger to make sure that trading activity is regulatory compliant.”

The service is targeted at professional investors. While deals can be negotiated through the platform, all transactions still have to be processed through official channels, such as the China Foreign Exchange Trade System, also known as CFETS.

QTrade will also provide analysis tools that allow regulators to search by users or timeline and format trading data, said Zhou.

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The stepped-up scrutiny on traders using social media is not unique to mainland China. Hong Kong’s securities watchdog banned a brokerage employee from the industry for four months after he used his smartphone and Tencent’s WeChat service to take orders from clients.

Last year, a former Jefferies Group banker was fined in the UK for sharing confidential data on messaging service WhatsApp.

Tencent, whose QQ service has more than 800 million active users, said in a statement the platform will leverage its messaging, big data and machine learning technology, while complying with regulations to lower risk.

Zhou, a former Tencent employee, joined forces with ex-trader Liu two years ago to found the start-up, which now has operations also in Beijing and Shanghai. They said they knew at the time it would be extremely hard to get traders to move away from QQ, so they collaborated with the social media giant.

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QTrade allows users to import their contact lists on QQ, and add up to 100,000 people.

Zhou would not disclose how it is sharing revenue with Tencent. He said the company is in the process of securing a second round of fundraising, but declined to comment on whether Tencent is an investor or disclose its backers.

“Tencent is able to do so much, but it can’t possibly cover everything, that’s why it prefers to be a platform and work with companies within different verticals to share the benefits,” said Zhou. “Finance is a highly professional field, we have a very experienced team in this area. That’s why they want to work with us.”