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
April 26, 2013 Leave a comment
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
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