Relevant Restrictions on Institutional Investment in the Interbank Bond Market to be Relaxed
Securities Times reporter Sun Lulu
On August 4, the People’s Bank of China issued a “Notice on Matters Concerning OTC Business in the Interbank Bond Market (Draft for Comment),” signaling the relaxation of restrictions on institutional investors investing in the interbank bond market through Over-The-Counter (OTC) transactions. The notice specifically emphasizes the need for internal control measures for OTC business operators in order to enhance counter business convenience and institutional participation.
The “Notice” primarily focuses on relaxing restrictions related to institutional investors investing in the interbank bond market through OTC transactions. It also reinforces the requirements for internal control systems and investor suitability management of OTC business operators. The notice outlines several key changes and requirements. Firstly, it clarifies that institutional investors now include licensed financial institutions, asset management institutions, and various products managed by the aforementioned institutions. Secondly, it expands the range of bonds that institutional investors are allowed to invest in, including financial bonds, corporate credit bonds, and other bonds available in the interbank market. Additionally, it broadens the types of transactions institutional investors can engage in, such as bond lending and derivatives. Thirdly, it permits institutional investors to invest in all bonds traded and circulated in the interbank bond market without requiring approval from the issuer. Simultaneously, it eases the restrictions on institutional investors opening accounts with OTC bond issuing institutions and the upfront placement of issuer’s interest payment and redemption funds. Lastly, it mandates OTC business establishments to establish a suitable investor suitability management system, strengthen internal control management and system construction, and effectively mitigate business risks.
According to the central bank, the counter business in the interbank bond market has played a vital role in expanding government bonds, creating diverse investment channels for individual investors, and strengthening the construction of a multi-level market. The OTC business model for institutional investors, however, is still in its early stages, with the OTC business scale remaining relatively small. The central bank believes there is untapped potential for the OTC model to promote market stratification and further contribute to the interbank bond market.
“In 2022, several financial institutions will offer opinions and suggestions on investment scope, transaction methods, account opening, and other issues related to the counter business model for institutional investors,” the central bank stated. It believes that the “Notice” will further clarify relevant requirements, promote further development of the counter business model, support the expansion of the government bond market, facilitate efficient investment of residents’ savings, improve market operation efficiency and liquidity, and accelerate the construction of a multi-level bond market system.
Editor:
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