China Interbank Bond Market (CIBM) regulation: what is it?
The Chinese bond market is the third largest in the world (USD 8.74 trillion in Q2 2017, source BIS/BNP Paribas). Announced in February 2016, the liberalisation of the domestic bond market is a further step in opening up Chinese financial markets to international
investors and encouraging them to invest in Renminbi.
It creates a route for international investors to access onshore bonds, complementing long-established QFII and RQFII schemes and “dim sum” bonds traded in Hong Kong.
Under CIBM scheme, foreign institutions can trade bonds directly through banks holding a Type A licence (with only five foreign banks including BNP Paribas).
Under CIBM framework, international investors are able to access cash bonds (both rates and credit bonds).
The CIBM scheme applies to a large range of investors: commercial banks, asset managers, insurers, securities houses, pension funds, charitable funds and other long-term investors
approved by People’s Bank of China (PBoC).
It defines three categories of investors:
- Type A (such as BNP Paribas) can trade, settle and provide custody for interbank bond market instruments both for themselves and on behalf of Type C investors
- Type B can trade and settle in the interbank bond market for themselves, and trade directly with others
- Type C investors must appoint a Type A investor for settlement to carry out bond trading on their behalf. As of December 2017, all foreign investors are Type C
Further clarification on the CIBM model
- Cash remittance in CNY or foreign currency: forex conversion can be made on-shore or off-shore, without any approval from SAFE (State Administration of Foreign Exchange)
- In case an investor enters the CIBM with one single currency, the first repatriation amount cannot exceed 110%. However, there is no limit starting from the second repatriation
- No lock-up period
- Offshore investors must invest (within a 9-month period) at least 50% of the investment amount that they mentioned in their filing form
- New instruments are available for hedging purpose (i.e. bond lending, bond forwards, forward rate agreement) subject to complete legal documentation
Industry implications of CIBM
Before trading, offshore investors (including those with a QFII or RQFII licence) must appoint an onshore settlement agent. The settlement agent submits the two-page filing form, which contains basic information including the offshore investor’s estimated level of investment and the settlement agent agreement signed by the onshore settlement agent and its client.
PBoC will acknowledge the filing within 20 calendar days (usually 10 calendar days). The settlement agent manages the account opening on behalf of its clients – on a segregated basis – with the China Foreign Exchange Trade System (CFETS), China Central Depository & Clearing (CCDC) and the Shanghai Clearing House (SHCH). The settlement agent manages the offshore investor’s daily transactions and mandatory reporting to regulators (if required).
The CIBM scheme complements long-established QFII and RQFII schemes and significantly facilitates access to the Chinese fixed income market for foreign institutional investors:
- Investment quotas are removed under this scheme
- The process is easier: a simple registration to PBoC is required before trading
BNP Paribas (China) Ltd. was granted a Type A licence by PBoC in March 2015 and can provide settlement agent services for foreign investors (Type C) who have an interest in the China Interbank Bond Market.
BNP Paribas Securities Services' view
We welcome this major step in the continuing liberalisation of China’s financial markets. It enables international investors to diversify their fixed income portfolios, and gain access to this rapidly growing and increasingly important market. In addition, as international credit ratings agencies are allowed to establish a presence in China since July 2017, foreign investors may be more secure in gauging Chinese corporate debt which may be complex.
Foreign institutional investors are now able to rely a single Type A partner – such as BNP Paribas (China) Ltd – to access the onshore fixed income market. In this role, we fully manage the administrative process required to gain access to the scheme. We ensure a seamless process from trade execution to settlement and custody.
March 2015 - BNP Paribas (China) Ltd. granted Type A licence by People’s Bank of China (PBoC)
24 February 2016 – PBoC announcement of the new scheme to invest on CIBM
Q1 2017 - Offshore investors can hedge their forex exposure linked to their bonds positions
June 2017 - The settlement cycle can be T+2 for offshore investors, in addition to the existing T+0 and T+1 cycles
Download the regulatory memo:
CIBM - a grand opening
Bond Connect: a new frontier in China market access
Market Compass for China
All about RMB