China regulators plan new bond market rules, to coordinate more after turmoil -sources

Compagnie Financiere Tradition SA

20/04/2023 03:30

BEIJING/SHANGHAI, April 20 (Reuters) - Chinese
authorities plan to further "reshape" the country's bond market
but have learnt lessons from the chaos that ensued when a data
feed ban was abruptly imposed last month, two regulatory sources
with knowledge of the matter said.
    The turmoil highlighted how regulatory action in China can
come with little warning and in a seemingly arbitrary manner. In
this case, it also exposed a lack of coordination between
various regulatory bodies including the China Banking and
Insurance Regulatory Commission (CBIRC) and the central bank,
according to market sources.
    "After the chaos, coordination between bodies will be
strengthened," one of the regulatory sources said.
    On March 15, interdealer brokers were suddenly banned from
providing real-time bond price data to Chinese financial
information platforms. Turnover in the market - the world's
second-largest bond market with $21 trillion in notes
outstanding - slid and traders said they had to scramble to chat
groups for quotes.
    Two days later, the ban was lifted, allowing interdealer
brokers to provide real-time data again to information platforms
except qeubee, then the dominant terminal, according to market,
industry and regulatory sources.
    Chinese authorities have not commented publicly on the
reasons for their actions. 
    At the time, interdealer brokers had been told by regulators
that the provision of price data to terminals was outside their
scope of business and that data security was a concern,
according to sources.
    But regulatory desire to break up an exclusive deal that
qeubee's owner, Ningbo Sumscope Information Technology Co, had
with Tullett Prebon SITICO (China) Ltd was also a key factor,
the two regulatory sources said.
    According to a third regulatory source with direct knowledge
of the matter, concern about the exclusive deal was the "most
essential reason" for the ban.
    The sources were not authorised to speak to media and
declined to be identified. 
    Sumscope said it has always operated within the law but
declined further comment. TP ICAP  TCAPI.L , Tullet Prebon's
parent company, declined to comment while calls to Tullet
Prebon's Chinese joint venture were not answered.
     
    ONCE DOMINANT 
        Tullet Prebon likely accounts for 30% of the available
quotes on Chinese bonds, according to an executive at a rival
data vendor who also declined to be identified.
    Sumscope had, however, frequently raised qeubee prices in
recent years, according to market sources. According to one fund
manager who asked to be identified only by his surname Yang,
qeubee costs his company more than two other terminals combined.
    In contrast to the pre-ban market, Tullet Prebon's data is
now available on all other bond market information platforms
including Wind, Dealing Matrix and government-affiliated iDeal.
    China's interbank bond market operator also said on March 20
that iDeal now offers price data from six interdealer brokers.
That compares with just two before the ban. 
    The strength of the market's reaction to the data ban had
surprised authorities, according to one of the regulatory
sources.
    Officials at the CBIRC, which oversees the nation's
interdealer brokers, as well as officials from the People's Bank
of China and affiliated body China Foreign Exchange Trade System
(CFETS) attended a March 16 emergency meeting with interdealer
brokers and market makers to address the bond market turmoil,
sources said.
    The CBRIC, the central bank and CFETS did not respond to
Reuters requests for comment.
    Nor did the State Administration for Market Regulation
(SAMR), which according to three of the sources had opened an
antitrust probe into exclusive deals in the interdealer
brokering industry late last year.
    Reuters was not able to determine the status of the
investigation.
    Compared to overseas markets, in China's bond market, market
makers such as big banks - which match buyers and sellers as
well as trade bonds themselves - are much less active.
    A lack of liquidity in many types of Chinese bonds as well
as a lack of diversity in the institutions that buy bonds mean
market makers can be vulnerable to losses, analysts say.
    Two of the sources said regulators were still intent on
further reshaping the market, including specifying how data
should be handled and clarifying the business scope and limits
of interdealer brokers. They did not elaborate further.
    Xu Ya, a bond analyst at SWS Research, said regulators were
also likely intending to "strengthen supervision from a data
security perspective over certain interdealer brokers and
financial terminal vendors." 
        She noted that data security has been a hot-button topic
for Chinese regulators in recent years, especially where
businesses are foreign-owned. 
     Five of China's six interdealer brokers providing bond data
are joint ventures with foreign companies such as NEX
International, part of CME Group  CME.O , and Compagnie
Financiere Tradition  CFT.S . The other broker is wholly
foreign-owned.

 (Reporting by Xu Jing, Hou Xiangming, Samuel Shen, Bian Jing
and Brenda Goh; Editing by Edwina Gibbs)
 ((samuel.shen@thomsonreuters.com;  +86 21 20830018; Reuters
Messaging: samuel.shen.thomsonreuters.com@reuters.net))