Chinese bond market authorities will suspend new account openings by non-bank financial institutions, the latest move in a growing crackdown on self-dealing in China’s fast-growing bond market

Friday April 26, 2013

China suspends new bond accounts

SHANGHAI: Chinese bond market authorities will suspend new account openings by non-bank financial institutions, the latest move in a growing crackdown on self-dealing in China’s fast-growing bond market, multiple sources told Reuters.

The move could effectively bar brokerages, fund companies, trusts, and possibly even banks from issuing new bond-based products to investors.

China’s main bond clearinghouse, the China Central Depository & Clearing Co Ltd, will suspend applications from trust plans, brokerages, and fund companies to establish special-purpose accounts they use to manage funds for bond-based wealth management products (WMPs), bond mutual funds, and other bond-based investment products.The clearinghouse is overseen by the People’s Bank of China. The sources did not know how long the suspension would last.

China’s interbank bond market has exploded in recent years, with the blessing of regulators keen to reduce the economy’s reliance on bank lending. Much of the funds invested in the bond market come from the sale of WMPs, which retail investors have welcomed as alternatives to low-yielding bank deposits and a volatile stock market.

While commercial banks are still the largest investors in the Chinese bond market, the share held by WMPs, funds, and trusts has steadily grown.

The suspension applies directly to bond accounts established by non-bank institutions. But it could also hit banks, which partner with brokerages and trusts who serve as passive custodians for funds raised from banks’ own WMPs in what is known as “passageway business.”

The suspension follows the arrest of four senior bondmarket executives have been in recent weeks for alleged profit skimming in China’s interbank bond market.

The recent arrests are related to the alleged use of a complex trading practice known as “substitute holding” in which fund managers temporarily sell a portion of their portfolio to a third party. – Reuters

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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