Commercial Paper Trading Platforms to Be Nationally Consistent, Not Regionally Divided, PBOC Says

Song Yikang / Yicai

2016-12-08

(Yicai Global) Dec. 8 -- China's central bank is to launch a centrally-ruled commercial paper trading platform to more closely monitor a CNY100 trillion (USD14.54 trillion) industry and scrap regional divisions, said Pan Gongsheng, deputy governor of the People's Bank of China.

"Commercial paper trading platforms should be nationally consistent, rather than being regionally divided. Trading platforms that are established without the approval of the State Council and the financial management department violate the spirit of State Council documents." Pan said today at the opening ceremony of the Shanghai Commercial Paper Exchange Corp.

Commercial paper, sometimes referred to as corporate bills in China, are short-term, unsecured negotiable instruments usually issued by banks and companies to investors. Mainland China has the world's most active market for bank bill transactions, which exceeded CNY1 trillion (USD152 billion) in late 2014.

Pan also said the establishment of a nationally consistent bill trading platform will help enhance market transparency, improve market efficiency and prevent any risk to the commercial paper market, which is being increasingly drained by small-to-medium companies for short-term finance.

In a bid to control and consolidate the market, Pan may target regional local bill exchange centers, a commercial paper market veteran from a large state-owned bank told Yicai Global.

Prior to the official opening of the Shanghai Commercial Paper Exchange, bill trading centers boomed in many regions. For example, the approved Beijing-Tianjin-Hebei Bill Exchange Center, the Wuhan Bill Exchange Center and the Shenzhen Qianhai Financial Instruments Offer and Trading System Co.

The commercial paper trading volume jumped 68 percent to CNY102.1 trillion in 2015, PBOC said. Small- and medium-sized enterprises were responsible for two-thirds of all bank instruments issued that year.

Increasing risks associated with the market have necessitated central control. In one notable instance this year, two employees of Agricultural Bank of China Ltd. [SHA:601288] embezzled CNY3.8 billion through bankers’ acceptances. China Citic Bank Corp. [SHA:601998] and China Bohai Bank have also had similar scandals.