Sources: China tightens bond trading rules in deleveraging campaign - RTRS

According to the people familiar with the matter, China’s financial authorities have published new rules to regulate bond trading, Reuters reports.

The latest move is introduced mainly with a focus on restricting leverage and banning under-the-table deals designed to skirt regulations. The rules are jointly issued by the People’s Bank of China (PBOC) and China’s banking, securities and insurance regulators.

Key Details via Reuters:

“Under the new rules, institutions must sign written deals when conducting bond repurchase or bond forward transactions. Any deals designed to dodge regulatory requirements are to be banned, the rules stated.

The new rules order financial institutions to report financial data to regulators if their outstanding repurchase agreements, known as repos, and reverse repo volumes exceed a certain limit.

The new rules would effectively terminate the practice, which traders have used to keep increased leverage off the regulatory radar. They would also restrict leverage by setting a cap on repo or reserve transactions, tools which help some institutions to channel short-term borrowings into longer-term assets for profit.”