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China supervisory body approves launch of credit default swaps soon: sources
[HONG KONG] One of China's interbank market supervisory bodies has approved the launch of credit default swaps, two sources with direct knowledge of the matter told Reuters on Thursday, signifying another step forward towards helping firms hedge rising risks in the country's corporate bond market.
The National Association of Financial Market Institutional Investors (NAFMII), which supervises issuance of commercial paper and some other types of debt in China's interbank bond market, has already notified relevant institutions to prepare, and will soon release guidelines for trading, the sources said.
Credit default swaps are a type of derivative providing insurance against third party defaults, and were widely used in the lead-up to the financial crisis in the United States.
Bond defaults have risen quickly in the past year and a half in China following many years when most debt was assumed to enjoy an implicit government guarantee. Market participants still have few formal hedging tools to protect against such risk, however, which has added urgency to efforts to introduce default swaps in China.