SHANGHAI (Reuters) - China’s official bond clearing house will expand a trial on centralized clearing for trading deals to the whole interbank bond market in a significant step to bolster debt market transactions and reduce trading costs, it said on Thursday.
The Shanghai Clearing House will adopt the central counter party (CCP) clearing mechanism on a trial basis for all bond and repurchase transactions in the Shanghai-based interbank bond market starting March 30, it said in a statement.
In a central counter party clearing process securities deals are cleared by a single, central counterparty after netting them at the end of the day. The Shanghai house has so far only experimented in some types of spot bond transactions.
In contrast, trading in the interbank bond market has mostly been cleared via the delivery-versus-payment model in which trading parties directly exchange bonds and funds each time they transact.
The expanded trial program “will help improve the infrastructure of the interbank market, promote innovation in bond trading and enhance the efficiency of clearing debt transactions,” the clearing house said.
Market members need to apply for the new method of clearing, which they can do immediately, while non-members must apply via members.
To participate in the program, applicants will need to deposit a 1.2 percent margin of their total transaction value for spot bond trading, 0.5 percent for bond forwards and 0.12 percent for bond repurchase agreements, the house said, adding that it may adjust the ratios in line with market conditions.
China’s bond market has expanded swiftly in recent years along with the rapid growth of the world’s second-largest economy and official efforts to push companies to borrow more from the market instead of from state-dominated banks.
By the end of June last year, outstanding bonds in the interbank market had reached 30.05 trillion yuan ($4.8 trillion), up from 27.68 trillion yuan by the end of 2013, official data shows.
Reporting by Lu Jianxin and Pete Sweeney; Editing by Shri Navaratnam