After Bank of Communications' successful participation in the SSE bond market through a business units rented from a broker, urging more listed commercial banks to enter the SSE bond market seems to be a hot issue in the discussion at the session "Building a Prosperous Chinese Bond Market" of the Lujiazui Forum. President Zhang Yujun of the Shanghai Stock Exchange (SSE) said at the forum that all 16 listed banks are expected to enter the SSE market before the end of this year.
Although the International Board and the SSE bond market were both listed as priority work of the SSE this year, compared with the International Board, Zhang was apparently more willing to discuss the SSE bond market at the forum. He predicted that nearly a half listed banks would enter the SSE bond market till the first half of 2011 and all 16 listed commercial banks are expected to be bond market participants before the end of the year. Moreover, it is quite hopeful that substantive progress in integration of different bond markets will be seen this year.
"Though there has been a favorable policy for banks to enter bond markets at bourses, it is obvious that listed banks are not paying much attention to it and haven't recognized the opportunity." Zhang told the reporter during the break of the meeting that the SSE has set up a special work team to deal with it. At present, the team is visiting listed commercial banks one by one to provide door-to-door services.
In fact, the year of 2011 has witnessed some progress in commercial banks' entry into bond markets at bourses. The recent order submission to the SSE auction system by Bank of Communications through its business units rented from Haitong Securities marked the success of the mode whereby listed commercial banks participate in the trading of bonds at the bourses through their business units rented from securities companies.
Zhang said that the SSE is now perfecting its independent bond trading system and rules and improving the mode of bond trading in a bid to create a more convenient trading condition for listed commercial banks and more innovations will be seen in the future.
While calling on institutional investors to enter the SSE market, the bourse is expanding the capacity of its bond market. Zhang predicted at the forum that over 100 bonds of various types would be introduced to the market this year. In 2009, the total trading volume of bonds at the SSE market was RMB4 trillion. In 2010, the figure jumped about 80% to about RMB7.5 trillion. "As the first four months of the year witnessed a total trading volume of over RMB4 trillion, a year-on-year rise of over 50% is expected to be achieved this year."
Besides, Director Xie Duo of Financial Market Department of the People's Bank of China (PBC) stressed at the forum that practices show that it's better to highlight such market-oriented restraint mechanisms as credit rating and information disclosure than to tighten administrative regulation and examination. "It is also one of the main drivers behind the significant development of China's corporate credit bonds in recent years." In the whole year of 2001, less than RMB15 billion were raised through corporate credit bonds. In 2010, that figure rocketed to about RMB1.2 trillion. A surge of nearly 80 folds was achieved in the past decade.
With the growing issuance size of corporate credit bonds on the bond market, the quality of the issuers and the issued credits would gradually decline. Board Chairman Xu Zhen of Shanghai Clearing House noted that apart from the spot market, the bond market will see an increasing demand for derivatives used for hedging, such as derivatives based on interest rate and credit.
Under this circumstance, Shanghai Clearing House, a less-than-two-year-old independent professional clearing institution, has been well prepared for the introduction of bond derivatives. According to Xu, the House will adopt the central counterparty clearing in the current growth phase of spot bonds and start-up stage of bond derivatives to lay a solid foundation for further development of derivatives market.
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Shanghai Stock Exchange's President Zhang Yujun: Call On All Listed Banks To Be SSE Bond Market Participants
Date 24/05/2011