China’s interbank bond market is tightening regulations, with authorities emphasizing that trading accounts must not be borrowed or transferred. This move is intended to prevent non-compliant transactions, protect market integrity, and reduce credit risks, according to a report from a central bank-affiliated publication.
In an article published on Friday by Financial News, the central bank-backed newspaper highlighted the growing concern over the potential consequences of improper account use. This follows a recent investigation by Chinese regulators into the trading activities of smaller financial institutions, as the People’s Bank of China (PBOC) intensifies efforts to moderate a rapid surge in the treasury bond market.
The National Association of Financial Market Institutional Investors (NAFMII), a body overseen by the PBOC, announced on Wednesday that it is examining four rural commercial banks for suspected manipulation in the bond market.
On Thursday, NAFMII revealed that it had identified inappropriate practices in bond trading by certain smaller financial institutions, involving the use of borrowed accounts. The organization reported serious violations to the central bank for potential disciplinary action.
The practice of borrowing trading accounts, often in exchange for rental fees, can lead to non-compliant financial flows and the transfer of interests, Financial News warned. Such activities not only distort market pricing but also heighten credit risks, as account owners lose control over the transactions conducted through their accounts.
This isn’t the first time NAFMII has addressed these issues. In April, the association investigated similar misconduct among smaller financial institutions.
The article also noted that staff from some financial institutions have been colluding with external parties to engage in illegal trading activities, driven by expectations of declining treasury yields.
The central bank has repeatedly cautioned against reckless buying during the current bond market rally, which is being fueled by a bleak economic outlook. The PBOC has expressed concerns about the formation of a potential bubble, drawing parallels to crises like that of Silicon Valley Bank.
Additionally, the PBOC reiterated its commitment to maintaining an upward-sloping yield curve, which is designed to encourage positive investment incentives.
