The PBOC proposes to allow banks and securities firms to only sign an agreement with trading platforms to conduct market making business.
The PBOC (People’s Bank of China) has issued a consultation on new measures to enhance its administration of financial institutions carrying out market making business in the interbank bond market.
In a draft notice, the PBOC proposes to lower the requirements for market makers and scrap the regulatory approval process, in favour of allowing banks and securities firms to only sign an agreement with trading platforms to conduct market making business.
NAFMII (National Association of Financial Market Institutional Investors) – in its quasi-regulatory role – shall continue to optimise its evaluation of market making business, disclose its evaluation results to the market in a timely manner, and enhance the transparency of data and information, the PBOC said.
An incentive and restraint mechanism must also be built into the market making agreements with trading platforms, to ensure market discipline is enforced.
While the notice enriches the rights of market makers, it also emphasises their obligations to maintain market stability, promote price discovery, and and enhance standards for providing quotations and quotation spreads, the PBOC said.
Market makers should “provide the best market-making price that the institution can provide”, comply with information confidentiality obligations, and enhance internal controls to prevent business risks and conflicts of interest.
Manipulating the formation of fair market prices, using inside information to make decisions and transactions, colluding with other participants, and conducting false transactions or frequent quotation withdrawal to mislead the market are strictly prohibited.
The draft notice, available here, is open for comment until 7 November 2020.