Anika Begay
SHANGHAI (Reuters) – Trading accounts in China’s interbank bond market should not be borrowed or transferred, as doing so could lead to an increase in non-compliant transactions, distort market prices and increase credit risks, a central bank-affiliated newspaper said.
The article in the Financial News on Friday came after Chinese regulators began investigating small financial institutions over their trading practices this week, as the People’s Bank of China (PBOC) stepped up efforts to cool a sharp rally in the Treasury bond market.
The National Association of Financial Market Institutional Investors (NAFMII), an industry body overseen by the PBOC, said Wednesday night it would launch an investigation into four rural commercial banks for suspected bond market manipulation.
NAFMII said on Thursday it had found malpractice in bond trading by some small financial institutions involving borrowed accounts and had reported some serious rule violators to the central bank for punishment.
According to Financial News, borrowing, or allowing non-owners to use trading accounts in exchange for a rental fee, “often results in non-compliant cash flows and potential interest shifting.”
This would further distort market prices and could also increase credit risks because account holders cannot control transactions, the newspaper, considered the central bank’s mouthpiece, said.
According to the newspaper, in April, NAFMII investigated several small financial institutions for improper conduct in business activities, such as taking out loans on bank accounts.
According to the article, staff at some financial institutions collaborated with outside actors and conducted illegal activities based on expectations of falling Treasury yields.
The central bank has repeatedly warned against reckless buying during a bond rally driven by a gloomy economic outlook, worried about a potential bubble that could spiral into a Silicon Valley-style banking crisis.
The PBOC also said it intends to maintain a rising yield curve to help provide positive incentives for investment.
