October 26, 2018 / 10:37 AM / a year ago

China to launch credit risk hedging tool for exchange-traded bonds -source

SHANGHAI, Oct 26 (Reuters) - Two Chinese investment banks will launch the country’s first credit derivative tools next week that would allow investors to hedge default risks associated with exchange-traded corporate bonds, a source with direct knowledge of the plan said on Friday.

Citic Securities and Guotai Junan Securities plan to issue so-called credit risk protection tools via the Shanghai Stock Exchange, said the source, who declined to be identified because he’s not authorized to speak to the media.

Regulators have encouraged the creation of such innovative tools that make it easier for private firms to obtain funding, he said.

China has unveiled a slew of measures over the past week seeking to aid cash-strapped small- and medium-sized enterprises against the backdrop of a slumping stock market, a slowing economy, and an escalating trade war with the United States.

Although China has launched credit risk-hedging tools in the interbank bond market, there are no such tools yet in the rapidly-growing exchange-traded bond market.

According to the source, Citic and Guotai Junan, which are also bond underwriters, will issue the credit derivative tools to drum up investor interest in corporate bonds issued by private firms.

The tools will be launched first via the Shanghai Stock Exchange, and the Shenzhen bourse will follow suit, the source said.

The Shanghai Stock Exchange and Citic Securities declined to comment, while Guotai Junan could not be immediately reached for a comment. (Reporting by Samuel Shen and Andrew Galbraith; Editing by Simon Cameron-Moore)

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