A senior official from the Chinese central bank has highlighted the need for greater regulation of wholesale transactions on China’s financial markets.
Sun Tianqi (孙天琦), head of the Financial Stability Department of the People’s Bank of China (PBOC), recently published an essay calling for the “accelerated establishment and improvement of a regulatory system for conduct on China’s financial sector wholesale market.”
Sun defines the wholesale market of China’s financial sector as being one in which financial institutions are the main parties to transactions while individual retail investors are few. These include the money market, interbank bond market, interbank forex market, and off-the-counter derivatives market.
Sun writes that China’s financial sector wholesale market continues to lack systemic regulation of conduct, and multiple forms of illegal and illicit conduct continue to prevail despite the rest of the finance sector taking major strides in recent years when it comes to external opening, risk prevention and ability to serve the real economy.
“To a significant extent this restricts efficiency in servicing the real economy and the market properly exercising its function,” writes Sun.
Sun pointed in particular to excessive resources swapping between institutions, rebates for issuance infractions and structured issuance all leading to a distortion in the ability of the market to discover prices.
In order to deal with these issue Sun called for “accelerating establishment and improvement of a regulatory system for financial sector wholesale market conduct in China,” by “considering the developmental state and features of China’s financial markets and making reference to the actual practices of developed market economies when it comes to regulation of conduct on the financial wholesale market.”
Sun made recommendations for seven areas in particular:
- Research and formulate regulatory provisions and establish on-site inspections for domestic wholesale currency markets and offsite regulatory work systems;
- Improve financial sector wholesale market self-disciplinary measures; diversify self-disciplinary mechanism management scopes.
- Optimize assessment and appraisal systems for various markets, establish multi-vector assessment systems.
- Drive the development of online underwriting and trading of various securities, and raise the transparency of issuance and transaction.
- Standardize the conduct of bond issuers, strictly implement firewalls between investment bank underwriting, issuance and pricing and investment transaction operations.
- Strengthen market entry and withdrawal administration.
- Steadily drive the implementation of rectification policies. Sun said that when standardising the financial sector wholesale market overall consideration must be given to potential market impacts, and rectification policy must be steadily advanced.