The Shanghai Stock Exchange (SSE) released the “Notice on Relevant Issues of SSE Bond Market’s Institutional Investors Accepting Services of Money Brokers” on March 2, specifying issues on intermediary services provided by money brokers for bond trading upon entrustment by institutional investors in the SSE bond market. The market holds that investors in the exchange-traded bond market could make their transactions easier with the help of money brokers, which will play a positive role in improving the liquidity of the secondary bond market.
As information and trading intermediaries, money brokers are professional organizations in the financial market that provide information for trading of financial products and facilitate trading. In international mature markets, money brokers have served as intermediaries for trading financial instruments. They have played an important role in the financial market with their businesses covering major products on the currency, capital and foreign exchange markets. Money brokers were first introduced in China in 2005. Now, 5 money brokers, including Shanghai CFETS-ICAP International Money Broking Co., Ltd., Tullett Prebon SITICO (China) Ltd., Ping An Tradition International Money Broking Company Ltd., China Credit BGC Money Broking Company Limited and CITIC Central Tanshi Money Broking Company Limited, were approved by the China Banking Regulatory Commission to run brokerage business in domestic and overseas foreign exchange, currency, bond and derivatives markets. In accordance with related regulations, the services provided by them are financial intermediary services. Different from the existing securities brokerage businesses run by securities companies, money brokers serve as intermediaries to provide information for both transaction parties and facilitate trading through electronic technologies and other means, and charge the entrusting parties service commission according to agreed rates. They do not run proprietary business or conduct trading or settlement on behalf of their clients.
According to an SSE official, the introduction of money brokers in the bond market is a common practice in international bond markets. Money brokers can supplement and support the market-making system. The introduction of money brokers in the SSE bond market is essential to meet market demand, improve the price discovery mechanism and build the multi-layer bond market. Since different products are different in standard and liquidity, the bond market needs diversified trading modes. Investors could fully understand the supply and demand of the market through trading information collected and sent by money brokers, which could reduce information asymmetry, thus lower trading cost, promote price discovery and increase trading efficiency. For the bond products listed or transferred on the SSE, such as bonds, asset backed securities (ABS) and agreed repo of bonds, market participants could decide by themselves whether to trade through money brokers.
According to the notice, institutional investors in the SSE bond market could entrust money brokers with providing services to facilitate their transactions. These bond products include SSE-listed bonds (ABS included), bond repurchase, bond derivatives and other related products. After an investor reaches a transaction intention through a money broker, both sides of the transaction should order through the trading system and conclude the deal after being confirmed by the exchange.
