China Market Series – CIBM Direct

The China Interbank Bond market (CIBM Direct) scheme creates a faster and simpler route for foreign institutional investors looking to access China’s onshore bond market.

To find out more on the CIBM Direct scheme and how it opens investment opportunities, watch the latest video from our China Market Series.

Transcript

The CIBM Direct scheme creates a route for foreign investors to invest in the China Interbank Bond market – the second largest bond market in the world.

Investors can trade onshore bonds, such as government bonds, policy bank bonds and commercial paper, directly through an onshore settlement agent.

It enables investors to diversify their fixed income portfolios, and gain access to this rapidly growing and increasingly important market.

Ten years ago, China’s CIBM Direct only allowed foreign central banks as the main qualified foreign investors to invest in the CIBM, subject to the China central bank’s approval and quota limits.

But since 2016, the scope has been expanded to cover most foreign financial institutions with a simple regulatory filing, such as commercial banks, asset managers (including alternative fund managers), insurance companies, securities houses, and sovereign wealth funds.

CIBM Direct offers a faster and simpler route to access China’s onshore bond market.

CIBM allows flexible funding currency. The new rule allows more options to deal with multiple FX counterparties.

A variety of hedging solutions are also permitted under CIBM Direct. Investors can trade derivatives such as FX forward, SWAP and CCS to hedge FX risk. Onshore interest rate derivatives and bond derivatives are also allowed for hedging purposes.

In addition, it is worth mentioning that CIBM Direct is the only inbound investment scheme that allows bond repo trading for central and commercial bank investors.

Foreign investors can start making investments via CIBM Direct in two easy steps.

First, appoint a bond settlement agent.

Second, the bond settlement agent will work with foreign investors to submit regulatory filings, and help them open onshore cash accounts as well as market accounts with depositories for bond settlement.

Then, investors can start trading!

China is making it easier for foreign investors to trade through CIBM Direct by extending the settlement cycle and trading hours, offering more FX hedging options, and simplifying the filing process for asset managers. With the new rule, registration only needs to be done at the Asset Manager level, which means they do not need to submit individual filings for each fund or product they launch.

There are also plans to give investors direct access to corporate bonds traded on the stock exchanges through CIBM Direct’s existing infrastructure.

As China liberalises its capital market, foreign investors can expect to see more improvements.

BNP Paribas (China) is one of the few foreign banks with a Bond Settlement Agent license. That means we can provide a one stop-shop solution to investors, from regulatory filings to trade execution, settlement and custody.

In addition to our Bond Settlement Agent and custody capabilities, we can support investors’ diverse investment strategies by providing various FX and hedging solutions.

Our deep experience in China bond market, together with our understanding of foreign investors’ requirements and business models, has made us the preferred choice for foreign investors who would like to access China bond market via CIBM Direct.

With a highly experienced and client-focused team aimed at servicing inbound investments, BNP Paribas (China) makes it easy for foreign investors to access China markets with our strong support.