Within one week, the China Interbank Market Dealers Association (known as the Association of Transaction Dealers) initiated self-regulatory investigations into three institutions, with corresponding self-regulation of five financial institutions and individuals. According to the reporter’s statistics, as of 13 May, eight financial institutions, including the construction of banks, the China Export and Import Bank, and the Business Bank, had been initiated by the traders’ associations to conduct self-regulatory investigations far beyond the same period last year.
In recent days, the Association of Dealers has indicated that the next step will be to strengthen the self-regulation of inter-bank transactions, to develop better rules of self-regulation, to strengthen transaction detection, to keep the market environment clean and to maintain the normal operating order of the market.
Proportion of bank-type financial institutions in default
IATA has previously informed that, on the basis of feedback from the regulatory sector, and in accordance with the Rules on Self-regulation of the Interbank Bond Market, it has conducted a self-regulatory survey of suspected irregularities in debt financing instruments for China’s construction of bank equity companies. On 9 May, prior to that date, the Association of traders announced that it had conducted self-regulatory investigations into alleged irregularities in the issuance of financial bonds from China’s import and export banks, as well as on alleged irregularities in the marketing operations carried out by CNP.
Since May, IATA has conducted self-regulatory surveys of three banks within a week. This was preceded by a self-regulatory survey of business banks on 4 April. The reasons disclosed in the bulletin indicate that the issuance of multiple debt financing instruments to which the owner of the business bank is responsible is seriously deviant from the reasonable level of the market, interferes with the market order and is suspected of violating the self-regulation regulations governing the inter-bank bond market. The Association of Dealers has conducted self-regulatory surveys of business banks.
In addition to the large banks mentioned above, on 31 March this year, the Association of traders announced the initiation of self-regulatory investigations into four financial institutions involved in issuing irregularities. In particular, PVC, as the principal distributor and bookkeeping manager, does not conduct the distribution work in compliance; Gylin Bank Co. Ltd. and Chiininau Bank Co. Ltd. do not receive significant financial support from the issuer; and SN Asset Management (Changhai) Ltd. assists the issuer in obtaining, directly or indirectly, their own bonds. IATA indicated that four financial institutions were suspected of violating the rules governing the self-regulation of the inter-bank bond market and that self-regulatory investigations had been carried out in four institutions.
According to the work dynamics statistics issued by the Association of traders, five of the eight financial institutions that have been subject to self-regulatory surveys have been involved since this year in the bond distribution chain and three in the distribution chain. The banking sector accounts for the vast majority of financial institutions, including policy banks, national banks, city firms, etc.
The financial councillor of the Chinese Market Institute informed the press of the Economic Reference newspaper that the regulatoryization of future banking activities would have a comparative impact on the bond market, as banks played a very important role in the bond market.
Strict identification of irregular bond transactions
In addition to conducting self-regulatory surveys of the above eight institutions, in recent times the Association of Dealers has concentrated on a pool of financial institutions dealing with irregular bonds. On 8 May, IATA announced that there were irregularities such as bond-based transactions in various institutions, such as large company banks. The Zheng State Bank, the Jiangxi Bank and the Yingong Island Bank, which are not controlled or in a form, do not effectively assess the reasonableness of transactions, participate in the bond trading chain as intermediaries, for example, by buying and selling vouchers or doing business, and have a larger number of transactions.
The announcement shows that large company banks, as interbank bond market trading agencies, operate on a daily rolling basis to deal with tickets in the opposite direction, at different speeds of settlement, with interest-rate bonds active and larger. In this case, between 11 and 15 October 2021, the Bank carried out transactions relating to the temporary holding of bonds for other persons, circumvented the relevant regulatory provisions, overstated the amount of market transactions, did not reflect real or legitimate purposes of transactions, did not strictly adhere to the norms governing the conduct of business in the city and did not effectively prevent the occurrence of transactions. In the same time period, the Zheng State Bank, Jiangxi Bank, etc., has provided the facilities for the agencies in question to hold bonds on behalf of others, to conduct business-related transactions that do not reflect real or legitimate purposes, and to effectively identify transaction risks or prevent transactions from occurring. In addition, the FGC did not strictly perform the functions of a product manager and the related trust scheme facilitated the realization of gains and losses on bonds held on behalf. The Trader Association considered the decision at its eighth and ninth self-regulatory meetings in 2023, and has accordingly disciplined itself against those bodies and individuals.
The Association of Dealers noted that, as the cornerstone of the interbank market, doing business has an important role to play in increasing market liquidity and promoting price discovery, it should effectively enhance its ability to deal with the market, strengthen internal controls and risk management, ensure a sound business of compliance, “do the market, do business”. At the same time, escrow products are important players in interbank bond investment transactions, and product managers should effectively perform the responsibilities of managers, strengthen the supervision of the conduct of practitioners, regulate operations and effectively prevent the occurrence of irregular transactions, as required by relevant regulatory and self-regulatory rules.
Under the Rules on Self-regulation of the Interbank Bond Market, the corresponding self-regulatory measures include trespassing, reporting criticism, suspension of related operations, cancellation of operational qualifications, etc. Of these, the cancellation of operational qualifications refers to the cancellation of business qualifications related to the inter-bank bond market for the target group and the non-acceptance of business qualification applications for two years.
Streamlining of bond markets continues
While conducting self-regulatory investigations against the eight financial institutions described above, the Association of Transaction Business (ATA) stressed that interbank bond market participation institutions must be firmly engaged in related operations, in strict compliance with the relevant regulatory and self-regulatory rules, in conformity with exhibits and in consciously maintaining order in interbank bond markets.
The 2023 conference on bond regulation, held on 10 February by the Chinese Supervisory Board, made it clear that a comprehensive deepening of the focus of bond risk prevention was undertaken in an effort to promote greater risk of bond default and to protect the legitimate interests of investors; a comprehensive deepening of bond science and technology regulation and the improvement of bond-specific regulatory mechanisms was undertaken. According to market sources, the Association of Dealers has in recent days brought together a number of State-owned major banks, some policy-oriented banks and equity-based banks to convey clear regulations.