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Since its formal launch on July 25, the SSE's comprehensive electronic platform of fixed income securities has been running smoothly and seen active trading. The platform, with its price discovery mechanism highly recognized by the market, has also boosted the trading activity and enhanced price continuity on the off-floor market. Market insiders generally hold that the launch of this system will play a significant role in the development of the bond markets of the exchange and China at large.
The 11th batch of book-entry treasury bonds issued in 2007 are 3-year ones issued by the Ministry of Finance on July 13 and became the first one listed on the electronic platform. Initially, RMB6.61 billion of these book-entry treasury bonds was under custody on the exchange. On July 25, when it was first launched, the system ran smoothly and 13 primary dealers actively had continuous asks and bids, with 38 deals concluded on the very day and the turnover totaling RMB0.6 billion.
Within the 13 trading days as of August 10, a total of 85 dealers and 165 traders logged on the platform and concluded 312 deals, with the total trading volume of 3,125,000 lots and the total turnover of RMB3.1 billion. In average, there were 24 transactions in a day, with the daily trading volume of 247,300 lots and the daily turnover of RMB238 million.
Driven by the electronic platform, the trading of the 11th batch of book-entry treasury bonds on the off-floor market is increasingly active. Currently, the 11th batch of book-entry treasury bonds, as the most active one on China's treasury bond market, has become the new pricing benchmark for medium-term bonds.
Introduced after nearly one month of soft operation, the price discovery mechanism of the electronic platform received high recognition from the market, and the pricing mechanism, with primary dealers taking the lead, has played a key role in offering the best continuity of asks and bids for the whole market, thus determining the market price. Data show that the electronic platform greatly influenced the off-floor asks and bids and activated the exchange's auction market.
According to Director Feng Bo of the SSE Bonds and Funds Department, the comprehensive electronic platform of fixed income securities operates in: forming true and continuous price signals, contributing to mapping out a true bond yield curve and promoting the liquidity of the secondary treasury bond market; it not only activates trading on the auction market of the exchange, but also leads directly to the increase of trading volume on the off-floor market through co-listed cross-market bonds, thus boosting active trading on the whole secondary market of treasury bonds; furthermore, the active spot trading increases the chance of arbitraging on the exchange and off-floor market, thus better interlinking the exchange and the off-floor market.
