(Yicai Global) Oct. 17 -- China's central bank has officially introduced triparty repos, which allow reduced-risk borrowing for lenders, to the nation's inter-bank bond market.

Only bond registration, depository and settlement agencies can serve as third parties for the repurchases, the People's Bank of China said in a statement yesterday. Large banks will be able to provide the services in the future.

Triparty repos are a common bond repurchasing tool in mature markets around the world. They allow investors to entrust an agent to select collateral, settle payments and manage securities on their behalf. Before now, bond repos in China were done over the counter or in bilateral deals.

Ming Ming, chief fixed-income analyst at Citic Securities, believes the move is aimed at improving money market operations to lower the risk of default by the counterparty.

"There have been a lot of repurchase transactions in recent years," he told Yicai Global. "But the money market has been volatile over the last year or two, and liquidity has been tight during certain periods, such as at the end of quarters. There have also been occasional repo defaults.

"There should be specific terms in future, such as a basic agreement to avoid defaults when an institutions carries out repos with third parties," he added.

Editor: James Boynton