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According to the announcement of the Shanghai Stock Exchange (SSE), the old and new general collateral repos will be integrated on June 8, 2007. This means the 14-year-old general collateral repo, with its historical tasks completed, is about to retreat from the capital market.
To promote the development of the treasury bonds market?the SSE introduced the general collateral repo in 1993. Through years' development and improvement, it has gradually formed a standard, flexible and efficient repo system. The old repo witnessed its booming period in 2003, when its daily trading volume reached 60 billion, with the repo scale of 220 billion. In the past 10-odd years, the treasury bonds repo has made great contribution to the development of the capital market by directly promoting the vitality of the bond market and solving the financing problems of the treasury bonds.
However, the risk of treasury bonds repo broke out due to a continuous decline of treasury bonds and illegal operations by some securities dealers since 2003. Under the leadership and organization of the China Securities Regulatory Commission, the SSE, together with China Securities Depository and Clearing Corporation Limited (CSDC) and other related parties, took effective measures to strengthen the supervision and management of repo business, with the new general collateral repo system launched on May 8, 2006.
In addition to some key improvements in supervision over appropriation through transfer of pledged bonds, management over conversion ratio of standard bonds and inquiry of bond balance, the new repo system also implements the front balance control on trading. All this, with an aim to protect the investors' interests, further regulates the business operation by giving attention to both market efficiency and convention. The old and new repos differ the most in that the new repo, traded by securities accounts and settled according to standard bonds, realize the appropriation through transfer of pledged bonds. By the end of April 2007, the accumulative stock trading volume of the new general collateral repo was RMB1, 131.5 billion, with the undue balance of about RMB27 billion and the average daily trading volume of RMB6 billion. But the undue size of the old general collateral repo, suffering from stagnant trading with few institutional participants, was about RMB438 million. Recognized widely by the market participants, the new treasury bonds repo has become the major financing channel on the exchange market thanks to its safety, efficiency and healthy development upon one year's practice. All this indicates the coming of the right time for integration of the old and new repos.
It is learn that the SSE and the CSDC have made technical preparations to ensure the successful switch from the old repo to the new one.
