The People’s Bank of China (PBOC) is planning to further open up its bond repo market for overseas institutional investors, potentially adopting the International Capital Market Association’s (ICMA) Global Master Repurchase Agreement (GMRA), which governs cross-border repos.
Further aligning interbank market bond repo mechanisms with international standards and facilitating the transfer and reuse of underlying bonds will both improve the bond repo business for both overseas institutional and domestic investors, the PBOC states.
The announcement was made alongside the China Securities Regulatory Commission (CSRC) and the State Administration of Foreign Exchange (SAFE).
ICMA has contributed to the PBOC’s consultation process for this expansion, and states that it is reviewing the final rules to ensure that title-transfer repo transactions will be effectively provided.
It noted, “[We] will continue to closely monitor the evolving landscape of China’s repo market, both onshore and offshore. ICMA remains committed to working constructively with Chinese regulators to strengthen legal certainty around close-out netting enforceability in China.”
Offshore repo using bonds accessible through Northbound Bond Connect as collateral was made available earlier this year, in partnership with the Hong Kong Monetary Authority (HKMA). Overseas RMC clearing and participating banks have been able to trade bond repo in the interbank bond market since 2015.
As of end-August, PBC states, 1,170 overseas institutions spanning 80 countries and regions are involved in China’s bond market, holding a total RMB 4 trillion (US$561.9 billion).
This latest expansion is in line with the CPC Central Committee and the State Council’s ongoing opening-up initiatives, PBOC explains.
ICMA concluded, “[We] believe that these developments mark an important step in the ongoing reforms to deepen China’s capital markets and to enhance opportunities for all market participants.”
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