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New rules issued for transfer of default bonds

(ATF) China’s National Interbank Funding Centre – transaction centre – has issued new rules for the transfer of default bonds in the interbank market. The rules will be implemented on a trial basis, Sina Finance has reported.

The new technical term “maturity default”, which will be now used, is defined in the new rules. It refers to the maturity redemption date stipulated in bond issuance documents, when the principal or interest of the bond has not been paid in full and on time, or when the bond has matured early due to statutory or agreed reasons such as bankruptcy and circumstances in which the principal or interest of the bonds aren’t paid in full and on time.

According to the rules, the trading centre provides participating institutions with services such as quotations, transactions, market monitoring, and market information about default maturity bonds.

Qualified investors from non-financial institutions participate in the transfer of default maturity bonds organized by the trading centre through the Beijing Financial Assets Exchange (otherwise known as the “Beijing Institute”). Financial institutions and qualified institutional investors can participate in the transfer of default maturity contracts organized by the Beijing Institute.

For bond transfers, the transaction shall be quoted through the trading centre.

The rules say participating institutions can do a transfer of default maturity bonds through agreement or anonymous auctions of bonds.

If the participating institutions carry out the transfer by agreement, the transferees must submit a stamped “Explanation of the Expiry of Default Bonds” in advance to the trading centre. It should include information on the proposed bonds, transfer prices, settlement arrangements and other elements, as well as corresponding background information such as pricing instructions.

Participating institutions that carry out anonymous auctions of bonds should follow the “Notice on Launching Anonymous Auction of Bonds”. Qualified investors from non-financial institutions can participate in anonymous auctions of bonds at the trading centre by submitting an anonymous auction intention declaration forms and centralized bidding emergency orders to the North Gold Exchange.

They must settle according to a transaction order issued by the trading centre. The settlement method for the transfer of default maturity bonds is Delivery versus Payment (DVP).

Chris Gill

With over 30 years reporting on China, Gill offers a daily digest of what is happening in the PRC.


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