China gets tough on under the table bonds

Author: Karry Lai | Published: 7 Feb 2018

China has set new rules for the bond market to tackle unofficial deals, the latest in a flurry of new regulations aimed at reducing financial risk and deleveraging. 

Issued by the People’s Bank of China, China Banking Regulatory Commission (CBRC), China Securities Regulation Commission and China Insurance Regulatory Commission, the regulations focus on banning deals carried out outside of the official framework, and place more scrutiny over bond repurchase and bond forward transactions.

Financial institutions are required to report financial data to regulators if their outstanding repurchase agreements and volumes exceed a certain cap. All bond repurchase and bond forward transactions must be signed in written form and any under the table deals are banned.

The new rules aim to ban the daichi or pledged financing practice in China. The practice involves repurchase agreements (repo) made through informal verbal agreements.The new rule came into effect immediately after it...



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