China regulators plan new bond market guidelines, to coordinate extra after turmoil -sources

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BEIJING/SHANGHAI — Chinese language authorities plan to additional “reshape” the nation’s bond market however have learnt classes from the chaos that ensued when a knowledge feed ban was abruptly imposed final month, two regulatory sources with data of the matter mentioned.

The turmoil highlighted how regulatory motion in China can include little warning and in a seemingly arbitrary method. On this case, it additionally uncovered a scarcity of coordination between varied regulatory our bodies together with the China Banking and Insurance coverage Regulatory Fee (CBIRC) and the central financial institution, in accordance with market sources.

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“After the chaos, coordination between our bodies shall be strengthened,” one of many regulatory sources mentioned.

On March 15, interdealer brokers had been instantly banned from offering real-time bond worth knowledge to Chinese language monetary info platforms. Turnover available in the market – the world’s second-largest bond market with $21 trillion in notes excellent – slid and merchants mentioned they needed to scramble to talk teams for quotes.

Two days later, the ban was lifted, permitting interdealer brokers to offer real-time knowledge once more to info platforms besides qeubee, then the dominant terminal, in accordance with market, trade and regulatory sources.

Chinese language authorities haven’t commented publicly on the explanations for his or her actions.

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On the time, interdealer brokers had been instructed by regulators that the supply of worth knowledge to terminals was outdoors their scope of enterprise and that knowledge safety was a priority, in accordance with sources.

However regulatory need to interrupt up an unique deal that qeubee’s proprietor, Ningbo Sumscope Data Know-how Co, had with Tullett Prebon SITICO (China) Ltd was additionally a key issue, the 2 regulatory sources mentioned.

In accordance with a 3rd regulatory supply with direct data of the matter, concern concerning the unique deal was the “most important cause” for the ban.

The sources weren’t approved to talk to media and declined to be recognized.

Sumscope mentioned it has at all times operated inside the legislation however declined additional remark. TP ICAP, Tullet Prebon’s father or mother firm, declined to remark whereas calls to Tullet Prebon’s Chinese language three way partnership weren’t answered.

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ONCE DOMINANT

Tullet Prebon probably accounts for 30% of the obtainable quotes on Chinese language bonds, in accordance with an government at a rival knowledge vendor who additionally declined to be recognized.

Sumscope had, nonetheless, incessantly raised qeubee costs in recent times, in accordance with market sources. In accordance with one fund supervisor who requested to be recognized solely by his surname Yang, qeubee prices his firm greater than two different terminals mixed.

In distinction to the pre-ban market, Tullet Prebon’s knowledge is now obtainable on all different bond market info platforms together with Wind, Dealing Matrix and government-affiliated iDeal.

China’s interbank bond market operator additionally mentioned on March 20 that iDeal now affords worth knowledge from six interdealer brokers. That compares with simply two earlier than the ban.

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The power of the market’s response to the information ban had shocked authorities, in accordance with one of many regulatory sources.

Officers on the CBIRC, which oversees the nation’s interdealer brokers, in addition to officers from the Folks’s Financial institution of China and affiliated physique China International Trade Commerce System (CFETS) attended a March 16 emergency assembly with interdealer brokers and market makers to deal with the bond market turmoil, sources mentioned.

The CBRIC, the central financial institution and CFETS didn’t reply to Reuters requests for remark.

Nor did the State Administration for Market Regulation (SAMR), which in accordance with three of the sources had opened an antitrust probe into unique offers within the interdealer brokering trade late final yr.

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Reuters was not capable of decide the standing of the investigation.

In comparison with abroad markets, in China’s bond market, market makers comparable to massive banks – which match patrons and sellers in addition to commerce bonds themselves – are a lot much less energetic.

A scarcity of liquidity in lots of varieties of Chinese language bonds in addition to a scarcity of variety within the establishments that purchase bonds imply market makers could be weak to losses, analysts say.

Two of the sources mentioned regulators had been nonetheless intent on additional reshaping the market, together with specifying how knowledge needs to be dealt with and clarifying the enterprise scope and limits of interdealer brokers. They didn’t elaborate additional.

Xu Ya, a bond analyst at SWS Analysis, mentioned regulators had been additionally probably meaning to “strengthen supervision from a knowledge safety perspective over sure interdealer brokers and monetary terminal distributors.”

She famous that knowledge safety has been a hot-button subject for Chinese language regulators in recent times, particularly the place companies are foreign-owned.

5 of China’s six interdealer brokers offering bond knowledge are joint ventures with overseas corporations comparable to NEX Worldwide, a part of CME Group, and Compagnie Financiere Custom. The opposite dealer is wholly foreign-owned. (Reporting by Xu Jing, Hou Xiangming, Samuel Shen, Bian Jing and Brenda Goh; Modifying by Edwina Gibbs)