Bonds settlement on agency basis

General

Bonds settlement on agency basis refers to the service that the legal person of a financial institution taking public deposits (referred to as legal person of financial institution), assigned by other participants of inter-bank bond market, handles bond transaction and settlement on agency basis for them.

Features

1.        High credit rating: The bonds issued in inter-bank bond market have high credit rating and low price fluctuation. Therefore the market risk may be controlled and the safety degree of principal is high.

2.        Considerable earnings: When a customer purchases the bonds, the customer may obtain price gap earnings through purchase and sale of existing bonds in inter-bank market besides the fixed bonds interest income.

3.        Good fluidity: In case of capital shortage, it is able to obtain capital through sale of bonds and finance capital through mortgage of bonds via counter-purchase.

Conditions for application

Any financial institution or non-financial institution that has the legal personality in China (general enterprises)

Term of wealth management

765 days

Application procedure

1.        Opening account

Basic intent to open an account of the customer through negotiation with the bank;
Submittal of relevant information and payment of 500 yuan for opening the account by the customer;
Opening or designation of capital settlement account in the bank by the customer;
Bank¡¯s initial review of the information for opening the account and certificate for transfer of fees for opening the account;
Signing of CGB Bonds Agency Agreement and Master Agreement for Repurchase in National Inter-bank Market by the customer
The branch delivers the information to the head office, which will transact specific procedures for opening account at treasury bonds company upon receipt of such information.
The bank forwards the notice on opening account from the government loan company upon receipt to the customer;

2.        Transaction

Receipt of bonds information by the customer;
Conclusion of transaction intention between the customer and the bank or other market members through negotiation;
Drawing up trade ticket and stamping seals of both parties to become effective;
CGB acknowledges trade ticket, confirmed by seals of both parties and makes agency bonds settlement for the customer;

Service Channel

China Government Securities Depository Trust & Clearing Co., Ltd.

FAQs

1.        What is the difference between inter-bank bond market and exchange market?

There are two markets available for the bond investment of government sponsored institutions and enterprises: inter-bank bond market and exchange market. Inter-bank bond market and exchange market demonstrate great discrepancy in issuance subjects, market members, type of transaction, bond custody and system of settlement and deliver.

2.        What kinds of bond settlement on agency basis are available?

Basic types of transaction include distribution and purchase of new bonds, sale and purchase of existing bonds, and repurchase, etc.

Distribution and purchase of new bonds means that the investor submits the purchase intention to CGB prior to issuance of the bond and CGB will make bid for the investor instead, and when the contract is awarded, purchase the new bonds at the price in the bid.

Sale and purchase of existing bonds mean the transaction to transfer the ownership of bonds at the agreed price on the basis of fair, honesty, integrity and self-regulation.

Repurchase transaction refers to a kind of financing service of short-term bonds pledge ranging from one day to one year. As regulated in Notice on Relevant Issues of Engagement in Bonds Settlement on agency Basis by the People¡¯s Bank of China, non-financial institutions may only perform bonds transaction through agency bank. The financial institutions may transact with other market participants directly or through assignment with agency banks.

Open repurchase is generally used for short-term capital application by the customer. The customer buys bonds from CGB and sells those bonds back to CGB in some days as agreed. The difference between the two prices of transaction is the income of the customer. Currently that service is mainly used to satisfy the customer for capital demand within a month, and the earning rate will rise higher than that of bank deposit with the rising of market condition.

3.        What about the commission and fees for maintaining the account?

As regulated by People¡¯s Bank of China and China Government Securities Depository Trust & Clearing Co., Ltd.:

(1)       Payment of RMB 500 in one time as fees for opening the account;

(2)       Payment of commission for CGB during transaction of sale, purchase and repurchase of bonds by the customer (not higher than 1/10,000);

(3)       As regulated by China Government Securities Depository Trust & Clearing Co., Ltd., the transfer fees for bond settlement (RMB 120 for each repurchase, and RMB 150 for each transaction of existing bonds) through agency collection by CGB

(4)       Relevant fees need to be paid by the customer during allocation of capital

4.        What are settlement member and custody account? What types are available?

Any member of national inter-bank bond market, as approved by People¡¯s Bank of China, may become a settlement member of China Government Securities Depository Trust & Clearing Co., Ltd. after it opens a custody account in the central settlement bank. The direct settlement member refers to the member who directly opens bond custody account and directly assigns China Government Securities Depository Trust & Clearing Co., Ltd. for bond settlement. The indirect settlement member refers to the member who opens custody account in the China Government Securities Depository Trust & Clearing Co., Ltd. in its own name through direct settlement member and assigns direct settlement member for transaction of settlement business. The direct settlement members are classified into Class-A Member, the direct settlement member has the qualification for transaction of agency settlement business as approved by People’s Bank of China, and Class-B Member, the direct settlement member who does not have the qualification for agency settlement business. A bond custody account is used by a settlement member for custody of its bonds in the China Government Securities Depository Trust & Clearing Co., Ltd. Class-A Account is the account of Class-A Member; Class-B Account is the account of Class-B Member; Class-C Account is the account of a indirect settlement account.

Related Financial Instruments

Pledge repurchase

Sale and purchase of existing bonds

Bond forward

Outright repurchase