Interbank bond market review expected

Central bank move aimed at cracking down on insider trading and other irregular transactions

Non-financial institution bond trading accounts will be supervised or closed as part of a review of bond trading in China's interbank market, Liu Shiyu, deputy governor of the People's Bank of China, said on Wednesday.

The central bank is expected to release regulations to tighten controls of the interbank bond market, which will require commercial banks to conduct in-house examinations of their bond trading businesses by the end of this week.

Li Jing, a spokeswoman for the National Association of Financial Market Institutional Investors, said it is researching a market monitoring and punishment mechanism to strengthen self-regulation among bond traders.

Analysts said the measures should go some way to cracking down on insider trading and other irregular transactions in China's fast-growing interbank bond market, and send clear message that the central bank governor intended to tighten regulation to prevent soaring risks.

The bond market was rocked last week by the arrest of Zou Yu, the fixed-income department director of Wanjia Asset Management Co Ltd, on suspicion of being involved in insider bond trading.

A spokesman for the China Securities Regulatory Commission said that the case remains under investigation.

Executives in charge of the fixed-income investment departments at E-fund Management Co Ltd and Southwest Securities Co Ltd have also been sued for illegal trading.

Their activities were identified on the 23.1 trillion yuan ($3.74 trillon) interbank market, an over-the-counter trading platform and the biggest component of China's bond market.

"We cannot simply say that those activities are illegal now, due to the lack of specific laws," said Yang Tao, head of the financial market research lab of the Financial Research Institution of the Chinese Academy of Social Sciences.