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China's U.S. dollar bond market trading mode selection

Author: DongYongXia From: www.yourpaper.net Posted: 2009-03-30 12:55:53 Read:
Abstract: Since September 2003 the China Development Bank (CDB) in the country for the first time since the issuance of U.S. dollar bonds, the dollar bonds of the construction of the secondary market has become a hot topic in the market at all levels of participants. Although the domestic stock of dollar bonds only country CDB $ 500 million of five-year bonds, but with the development of China's economy and foreign exchange reserves increase, the domestic demand for dollar bonds will become increasingly large, and how to establish a sound dollar bonds market, especially in the secondary market, has become an urgent problem in the current bond market. Learn from the development experience of the international bond market trading patterns, combined with the actual bond market, the choice of China's dollar bonds secondary market trading patterns.
Keywords: dollar bonds; trading patterns; market maker

First, financial markets trading patterns Overview

Trading mechanism, also known as the market structure in the financial markets, the pricing market microstructure factors, such as market participants, in the form of market organization and transactions. Here to discuss the form of market organization and transactions, and the two called the transaction model.

(A) the market form of organization
Market form of organization is to describe the characteristics of the market place, sub-exchange market and the OTC market. The exchange market is in a fixed place focus on transactions and the implementation of a centralized clearing market form of organization, it has a higher transaction efficiency, easy supervision; OTC market refers to the parties to the transaction through a one-on-one negotiations on the elements of the transaction reached unanimously after transactions, liquidation, which transactions are not concentrated in a fixed place reached by the two sides agreed, liquidation is not centralized processing forms of organization, it has to meet the need of multi-level and personalized trading market supervision difficult and so on.

(B) transactions
Transactions specific to the pricing of financial products, is the most important content of the study the market structure. Transactions can usually be divided from two perspectives: from a time point of view (ie transaction time whether continuous), divided into intermittent and continuous transactions; can be divided into two from the price point of the quote-driven trading and order-driven trading.
1, intermittent trading, and continuity transaction. Intermittent transactions is called a collection of transactions, trading Time Period in collection transactions that investors make trading entrusted not immediately traded, but within a specified time by the relevant agencies will different time orders received accumulated to a certain time and then a centralized call auction. The stock market's opening, the primary bond market, as well as some of the active trading of financial products generally call auction. In continuous trading, as long as the order is matched with each other, in each period of the trading day, the transaction will be uninterrupted happen. Commonly used continuity of the stock market, the foreign exchange market and futures market transactions.
2, the quote-driven trading and order-driven trading. Quote-driven trading is first sent by the party to the offer, seeing the response after the quotation and trading intentions, both sides and then certain rules deal way, such as over-the-counter market Inquiry trading and market-maker system. Order-driven trading, the parties to the transaction or commission agents buy and sell orders submitted to the market in the market, buyers and sellers orders in accordance with certain rules (such as price priority and time priority), brokered the deal, such as the stock market day trading and futures trading.

Second, the international bond market trading mode selection

Experience from the international point of view, the majority of developed markets coexist venue market and over-the-counter market, but with the development of information technology, the exchange market and over-the-counter market boundaries become increasingly blurred. The manual mode of the traditional over-the-counter market, more and more electronic transactions instead of trading increasingly concentrated, by agreement with the clearing bank, the liquidation of the OTC market also tends to concentrate. This development makes the over-the-counter market at the same time remain able to meet the the market personalized trading needs and demand for large transactions, both on-exchange market information centralized turnover efficient. Conducting market microstructure design, market organization has been gradually weakened, trading system, the main difference is reflected in the price formation mechanism that is the choice of the transactions.
Developed countries, bond trading is mainly concentrated in the over-the-counter market, through inquiry and market makers to trade the most representative Italian screen market (MTS). In 1988, the Italian Ministry of Finance in order to change the situation of domestic bond issuance costs, financing capacity to take a lot of measures to improve the liquidity of government bonds in order to increase the attractiveness of bonds. The most important measure is to establish a system of dealers require bond dealers in the secondary market on a continuous bilateral quotations in a market bear offtake obligations. For real-time monitoring of the behavior of the secondary market dealers, the Italian Ministry of Finance and the central bank co-founded the large-screen market (MTS) based on the electronic trading platform, which is the form of organization for the over-the-counter market, transactions for the quote-driven trading mode. After years of development, MTS has become the main trading platform of the bond market in many countries, more than 500 users in 15 countries, the daily spot trading about 25 billion euros, repurchase transactions of about 50 billion euros.

Third, the choice of the domestic bond market trading patterns

Bond trading for the domestic bond market of the Shanghai Stock Exchange and Shenzhen Stock Exchange (referred to as the Exchange market) is the concentration of brokered transactions, that the organizational form of the exchange market, order-driven trading. The inter-bank bond market transactions by trading both sides Inquiry reached, that the organizational form of the over-the-counter market, quote-driven trading. With the development of the bond market, the two markets, whether it is hosting the amount or the trading volume in recent years have increased, and the rapid development of the inter-bank market: 14.805184 trillion yuan of the inter-bank bond market trading volume in 2003, the Shanghai Stock Exchange over the same period bonds The trading volume of 5.84819 trillion market turnover mainly concentrated in the inter-bank bond market, only in the first quarter of 2007, the inter-bank spot bond and repo markets, including bonds total turnover amounted to 10.29 trillion yuan. (Source: the inter-bank market data from the Chinese currency from the website of the Shanghai Stock Exchange, the Shanghai Stock Exchange trading volume data)
From the development of the market, the bond trading or mainly in the over-the-counter market, especially as ˫߱ system perfect and final launch of the market-maker system, domestic bonds fairs gradually to one or more electronic trading platform support under development led to quote-driven trading mode.

Fourth, the recommendations of the organizational forms and transactions of the domestic dollar bonds secondary market

View from the international experience and the direction of the development of the domestic market, the domestic dollar bond trading should follow the trading patterns of the inter-bank bond market, in order to support the electronic trading platform to offer driver-oriented manner.

(A) to the electronic trading system as the platform for the deal, is conducive to the market aggregate information, help to improve the efficiency of transactions and regulatory
Although in the over-the-counter market, the traditional way of telephone or fax is still trading process plays an important role, but with the development of electronic and communications technology, the advantages of the electronic trading system is more and more obvious: through the electronic trading system, offer transaction and other market information to achieve high efficiency of the centralized, which provides good support to improve the transparency of the OTC market, trading and regulatory efficiency. The inter-bank bond market is a successful example of effective concentration offer information and transaction information through the electronic trading system of a unified national market played a big role in the price discovery, the central bank's monetary policy intentions conduction. Offer different ways of trading systems (such as the anonymous quote, micro-offer bilateral quotations) to meet the trading needs of different levels, improve market liquidity and reduce transaction costs.
U.S. dollar bonds issued in the domestic and RMB bonds denominated in units and participate in the main slightly different, both in essence is the same. Dollar bond trading should learn from the successful model of the RMB bond trading transactions in the unified national electronic platform. So that on the one hand help to improve the efficiency of the transaction, on the other hand is also conducive to centralized information to facilitate monitoring.

(B) the establishment of a market maker system, to improve the liquidity of dollar bonds
The development of the bond market is the most basic requirement is to have good liquidity, dollar bond issue was basically underwriters long-term holding, rarely traded, almost no mobility. Therefore, from the long-term development of the U.S. dollar bond market point of view, it should be to improve the liquidity of the system design, the first consideration is the market-maker system. Bilateral quotation system launched as a useful attempt maker system, to improve market liquidity does play a role. Dollar bonds, can emulate MTS dealers mode, select few an underwriter as a market maker, through the appropriate institutional arrangements, allowed to assume the obligation to maintain market liquidity.
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