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China moves to further integrate trading of US$13.7t bond market


CHINA took a further step in integrating its fragmented bond markets, a move which analysts say could reduce complexity and attract foreign investors.

Bond traders on the interbank market and stock exchanges can now trade bonds listed on both venues, the People's Bank of China and the China Securities Regulatory Commission said in a joint statement on Sunday. The regulators will allow market intermediary agencies for the two venues to connect issuance, trading and settlement.

China's US$13.7 trillion bond market, now the world's second largest, has expanded rapidly in the past decade and attracted growing participation from global investors following a series of moves to widen their accessibility. However, the complexity of the system has long been cited as one of the hurdles for foreign investors to understand and trade in the market.

"To connect China's different bond markets can better serve the real economy," according to a research note by Everbright Securities Co. "It's noteworthy that foreign institutions can also get benefits from the easier process in trading, clearance and settlement, which will attract more overseas investors."

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One of the biggest hurdles for investors remains the coexistence of two separate bond trading venues that are overseen by three different regulators. The country's dominant interbank bond market hosts corporate debt issued by China's largest state-run firms as well as short- and medium-term corporate notes. The smaller but fast-growing bond market on stock exchanges handles trading of bonds by listed and unlisted firms.

Intermediaries such as trustee agencies in the interbank and exchange bond markets should also set up a mutual nominal account, which will be used to record the outstanding value of bonds that investors hold, the regulators said on Sunday. BLOOMBERG

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