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AmCham blueprint for debt, derivatives
June 29, 2012, Friday
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Print Edition
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A report co-authored by the American Chamber of Commerce Shanghai and the US think-tank Brookings Institute offers some suggestions for China to improve its bond and derivatives markets. AmCham Shanghai strongly supports Shanghai?s 2020 plan to further develop an international financial center. Our recommendations are specific, while still keeping the larger context in mind.
This work is not intended as a fixed blueprint to be compared with other plans, then accepted or rejected in its entirety. On the contrary, the hope and expectation are that the ideas presented here could contribute to the dialogue as policies and regulations are put in place.
To reform the country?s debt capital market, China should:
￥ Establish a transparent regulatory structure with clarified roles between regulatory bodies in China?s bond market. Efforts should be made to eliminate overlap and conflicts between regulators during approval processes and supervision.
￥ Clarify criteria and requirements for issuers and investors to enter the bond market. Lift capital requirements for financial bonds issuance, or consider the capital base of and support from the parent company of foreign invested institutions.
￥ Further develop the exchange bond market. Encourage more institutional investors, such as commercial banks, to participate in the exchange market. Streamline the trading system, pricing mechanism and regulatory framework between the interbank and exchange bond markets.
￥ Implement a credit ratings system that provides accurate and transparent rating process
To reform the country?s derivatives market, China should:
￥ Simplify the regulatory structure to avoid inconsistency of multiple regulatory bodies in terms of licensing, approval procedures and market restrictions. Clear roles should be established among various regulators to ensure a coordinated regulatory approach to market activities.
￥ Ensure equal treatment in terms of capital requirements and distribution permission of foreign financial institutions. For example, an increase in the market reserve limit above 3 percent for companies to trade non-hedging derivatives would provide better access for foreign companies to participate in trading activities.
￥ Gradually liberalize interest rates to increase China?s interest rate derivatives market for small corporate and retail borrowers, and work to derive an effective pricing system for credit derivatives products.
￥ Adopt an effective bankruptcy law with a close-out netting process to eliminate uncertainty addressed in the current close-out/liquidation procedure, working towards building a well established legal framework that aligns with international standards.
(Compiled by Feng Jianmin)
This work is not intended as a fixed blueprint to be compared with other plans, then accepted or rejected in its entirety. On the contrary, the hope and expectation are that the ideas presented here could contribute to the dialogue as policies and regulations are put in place.
To reform the country?s debt capital market, China should:
￥ Establish a transparent regulatory structure with clarified roles between regulatory bodies in China?s bond market. Efforts should be made to eliminate overlap and conflicts between regulators during approval processes and supervision.
￥ Clarify criteria and requirements for issuers and investors to enter the bond market. Lift capital requirements for financial bonds issuance, or consider the capital base of and support from the parent company of foreign invested institutions.
￥ Further develop the exchange bond market. Encourage more institutional investors, such as commercial banks, to participate in the exchange market. Streamline the trading system, pricing mechanism and regulatory framework between the interbank and exchange bond markets.
￥ Implement a credit ratings system that provides accurate and transparent rating process
To reform the country?s derivatives market, China should:
￥ Simplify the regulatory structure to avoid inconsistency of multiple regulatory bodies in terms of licensing, approval procedures and market restrictions. Clear roles should be established among various regulators to ensure a coordinated regulatory approach to market activities.
￥ Ensure equal treatment in terms of capital requirements and distribution permission of foreign financial institutions. For example, an increase in the market reserve limit above 3 percent for companies to trade non-hedging derivatives would provide better access for foreign companies to participate in trading activities.
￥ Gradually liberalize interest rates to increase China?s interest rate derivatives market for small corporate and retail borrowers, and work to derive an effective pricing system for credit derivatives products.
￥ Adopt an effective bankruptcy law with a close-out netting process to eliminate uncertainty addressed in the current close-out/liquidation procedure, working towards building a well established legal framework that aligns with international standards.
(Compiled by Feng Jianmin)
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