China's central bank seeks comment on draft rules for interbank bond issuance

The People's Bank of China has released draft Rules for the Administration of Bond Issuance in the Interbank Bond Market for public comment, Yicai, CLS, Jiemian and 36Kr reported on October 16. According to Yicai and 36Kr, the central bank drew up the rules to regulate bond issuance in the interbank bond market, maintain market order and promote high-quality development of the bond market. CLS and Jiemian reported that the draft has 28 articles and strengthens rules on issuance conduct across three dimensions: issuers, underwriters and investors. [ 1 , 2 , 4 , 5 ]

For issuers, the draft bans subscribing, directly or in disguised form, to bonds they issue themselves, and bars anyone from directly or indirectly helping them do so, CLS and Jiemian reported. Issuers would also be barred from interfering with investors' subscription decisions or disrupting pricing through means such as fee rebates. The draft sets pricing requirements for different issuance methods and pushes issuers to improve how they select underwriters. [ 2 , 4 ]

For underwriters, the draft bans low-price underwriting, stating that underwriting fees must not be obviously below the fair industry level, and bans promising bid prices or issue prices (rates) in advance. It regulates firm-commitment underwriting and bidding and paying on behalf of others, and strengthens internal controls on conflicts of interest and information barriers. CLS reported that Article 8 requires underwriters, securities service institutions and others to set service fees on market principles and bars them from winning clients through unfair competition such as low-price firm-commitment underwriting or disguised forms of it. [ 2 , 3 , 4 ]

For investors, the draft bans false bids, deliberately submitting and withdrawing large orders to disrupt issue prices (rates) and allocation, and bidding at prices clearly below fair market prices in order to interfere with pricing. It also explicitly prohibits insider trading and transfers of benefits. Bookbuilding venues would have to record all inquiry, adjustment and pricing decision information throughout the process, in records that cannot be altered, for later checks. [ 2 , 4 ]

The draft states that the People's Bank of China supervises bond issuance in the interbank bond market, and Yicai reported that the National Association of Financial Market Institutional Investors (中国银行间市场交易商协会) performs self-regulatory duties. According to CLS and Jiemian, the central bank and its branches could order rectification, hold supervisory talks and impose administrative penalties, and suspected crimes would be referred to judicial authorities. Yicai reported that issue prices, interest rates and commissions are to be set by the market, and that no organisation or individual may affect fair pricing of bonds. [ 1 , 2 , 4 ]