According to the website of the National Association of Financial Market Institutional Investors of China on April 12, recently, the National Association of Financial Market Institutional Investors found that some small and medium-sized financial institutions were suspected of holding and lending bond accounts in violation of regulations. In accordance with the Rules for Self-Discipline in the Interbank Bond Market, the National Association of Institutional Investors initiated self-regulatory investigations against six small and medium-sized financial institutions.
Image source: National Association of Financial Market Institutional Investors (NAFMII) website
The National Association of Institutional Investors said that recent market institutions have reported that some employees of small and medium-sized financial institutions have conspired with outsiders to take advantage of the expected decline in treasury bond interest rates to hold on behalf of others and transfer benefits and other violations of laws and regulations. All market members should strengthen internal control, attach great importance to the compliance inspection of bond business, and avoid the occurrence of such violations of laws and regulations.
It is understood that bond holding on behalf of others refers to the business of asking others to hold bonds on behalf of them through transactions in the interbank market that do not transfer substantive ownership. In terms of prohibiting the lending of bond accounts, the "Guiding Opinions on Promoting the High-quality Development of the Reform and Opening-up of the Corporate Credit Bond Market" jointly issued by the central bank and other departments clearly prohibits the lending of bond accounts and any form of benefit transfer, insider trading, circumvention of internal control or supervision, and other violations of laws and regulations such as facilitating the evasion of internal control or supervision by others.
The reporter learned from the industry that in some cases, bond "holding" has become a means for institutions to "deleverage" off-balance sheet. Since last year, bond market yields have shown a downward trend, corresponding bond prices have risen, and the relative returns of fixed income products have been higher. Against this backdrop, some market participants have adopted the illegal trading arrangement of "escrow holding" and entered into "escrow" transactions with other institutions, thereby circumventing regulatory requirements such as internal control and capital occupation, amplifying trading leverage, and seeking greater returns. As market volatility increases, "escrow" transactions may lead to trading disputes and affect market order.
Over the past six months, the yield on the 10-year Treasury to maturity, which is representative of the bond market, fell from a high of 2.741% to 2.296% on April 12, according to Investing.com.
Image source: Investing.com
The People's Bank of China and other regulatory authorities have pointed out that these imprudent trading behaviors objectively increase the vulnerability of the bond market and have great potential risks. In fact, in recent years, violations such as escrow holding have also been the focus of the regulatory authorities. In May last year, the dealers association also investigated and dealt with illegal bond holding transactions.
Market participants also reminded that in the past period, the bond market was in a "bull market" with relatively good returns, and some market participants with strong profit-seeking motives and weak internal control have directly or disguised leverage in various forms on and off the market to win high returns. However, at present, bond yields are generally at historical lows, and term spreads and credit spreads have been compressed to low levels, investors should participate rationally and pay attention to changes in market operation. Recently, the volatility of the bond market has been amplified, and excessive amplification of trading leverage may bring certain risks.
The dealers association said that in the next step, it will strengthen the analysis of the bond transaction settlement chain, increase the crackdown on illegal transactions, and strengthen market warning education, maintain market order, and promote the standardized and healthy development of the interbank bond market.
Reviewer: Ni Mingya Editor: Zhang Lijing
Proofreader: Ya Wenhui Producer: Zhang Nan
Issued by: Sun Hong