Chinese banks have been given the green light to trade in domestic bond futures, a landmark in the reopening of a market that was shut in the 1990s after a panicked sell-off that saw the collapse of the country’s largest brokerage, reported the Financial Times.
China’s securities regulator said on Friday that the five largest state-owned commercial banks, including the world’s largest bank by assets, Industrial and Commercial Bank of China, will take part in a pilot program that allows them to trade in Treasury derivatives. Certain insurance companies will also be permitted to join the test run before a planned wider rollout.
The reform has been more than 20 years in the making, and is part of a multiyear plan by Chinese regulators to broaden participation in the $13 trillion bond market, the world’s third largest.
Foreign banks are not part of the pilot, but the introduction of new hedging instruments for Chinese banks is expected to boost liquidity and help with price discovery for bonds. Policymakers hope this will attract more foreign investors, who often complain about the lack of liquidity despite the size of the market.