Asian Market Developments
On 24 September 2021, China’s Southbound Bond Connect arrangement was officially launched. Southbound Bond Connect enables Mainland institutional investors to invest in the Hong Kong bond market through a connection between Mainland and Hong Kong financial market infrastructures.
Capital market regulatory developments in China
Momentum in Northbound Bond Connect
Northbound Bond Connect had been in operation for more than four years before the launch of Southbound Bond Connect. Over this time, Northbound Bond Connect became a crucial channel for overseas investors to access China’s domestic interbank bond market, offering optimized trading and settlement mechanisms. Northbound Bond Connect witnessed rapid growth in the number of investors, trading volumes, and outstanding bonds. As of the end of 2021, bonds outstanding of overseas investment in China’s domestic bond marketof had reached 4 trillionand yuan (around Connection the interbank
exchange bond markets for international investors In May 2022, PBOC, CSRC and SAFE made an announcement to further facilitate overseas institutional investors’ access to China’s bond markets. Effective from 30 June 2022, international institutional investors that already have access to the interbank bond market (CIBM) may participate in the exchange-traded bond market. Investors can either use their existing CIBM account to trade through the Infrastructural Connection Mechanism between the interbank and exchange markets or directly participate in the exchange bond market by applying for an Investor ID with CSDC. On 29 June 2022, CSDC jointly with Shanghai Stock Exchange and Shenzhen Stock Exchange also published the implementation rules for the direct access scheme for international investors to access the exchange-traded market.
Transition bonds piloted by NAFMII and SSE NAFMII published a notice about piloting Transition Bonds in China’s interbank bond market on 6 June 2022. Issuers from eight traditional industries may issue transition bonds and should use 100% of the proceeds to finance projects that contribute to energy efficiency or reduce pollution and/or carbon emissions but do not meet the technical criteria of the China’s Green Bond Catalogue. Clean coal and natural gas are among the transition project categories. Issuers should also disclose their transition plan in their main business activities. Separately, Shanghai Stock Exchange also introduced low-carbon transition bonds for the exchange-traded bond market. Issuers of this type of bond are required to either use 70% of the proceeds for low-carbon transition activities or have sustainability-linked features with low carbon transition SPTs.
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by Mushtaq Kapasi, Ricco Zhang and Yanqing Jia Futures and Derivatives Law On 20 April 2022, China passed the Futures and Derivatives Law. It recognises close-out netting under master transaction agreements for derivatives for the first time at the legislative level and lays a foundation for regulating cross-border derivative transactions.
Master agreement for bond lending in the interbank market Subsequent to the publication of the PBOC rules for bond lending in February 2022, NAFMII published the Master Agreement for Bond Lending and Borrowing Transactions in the Interbank Market (2022 Version).
CBIRC green finance guidelines extended to cover insurance companies CBIRC published its Green Finance Guidelines for the Banking and Insurance Industries in June 2022. The guidelines aim to encourage financial institutions (FIs) to provide funding to green and low-carbon efforts in the economy, improve their ESG risk management and FIs’ own ESG performance. The guidance stipulates high-level requirements for both banks and insurance companies on management responsibility, credit and investment policies and procedures, internal control, and information disclosure.
Launch of ETF Connect CSRC and SFC approved on 28 June 2022 the inclusion of ETFs as eligible securities under the Stock Connect scheme. Effective from 4 July 2022, mainland China and Hong Kong investors may trade eligible ETFs listed on each other’s exchanges. Contact: Yanqing Jia yanqing.jia@icmagroup.org
