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The bond lending business credit risk analysis and countermeasures

Author: ChenXu From: www.yourpaper.net Posted: 2009-03-31 03:16:05 Read:
The central bank released the November 2, 2006 (2006) 15 GN bond lending business management Interim Provisions ", after China Government Securities Depository Trust & Clearing Co., Ltd. (hereinafter referred to Government Securities Depository Trust Company) released the" bond borrowing Clearing Rules and the 2006 11 January 20 formally implemented, this marks the bond borrowing as innovative funds business varieties officially from theory to reality, to practice by explore.
According to the central bank's regulations, "Bond borrowing bond integrate into the square pledged property to a certain number of bonds, from bonds melt out party borrowed the underlying bond, agreed at a future date at the same time return the borrowed underlying bond, by the bonds financial party to return the corresponding pledged property bond facility behavior ";" market participants, securities lending, bonds into the Party shall bond financial out the side to provide the full amount of the bonds for the pledge, pledge bonds should be hosted in the Government Securities Depository Trust Company's own bonds. "Obviously, credit the way securities lending, the bond lending business in China is to establish bonds pledged credit support way.
A. Credit Risk Analysis
(A) disposal of pledged bonds risk
Bonds pledged as a form of pledge of rights, not a transfer of ownership of credit support for the way in our country under the existing legal framework, even if the bonds integrate into the square in full pledge bonds, but bonds into the party (pledgor) post-default as pledgee bonds financial out the side and not immediately pledge bond ownership and disposal.
China's "guarantee provisions of the Act, the pledgor and the pledgee shall not agree to fulfill the expiry of the pledgee is not repaid, the transfer of ownership of the pledged property as pledgee in debt, but the debt performance period expiry pledgee is not repaid, the agreement with pledgor pledger discount can also be to auction or sell the said property. " "Securities lending Settlement Rules also provides that securities lending after the expiration if the bonds into the breach of contract damages, start the pledge bond liquidation procedures shall be submitted to the Government Securities Depository Trust Company one of the following three: (1) Securities lending agreement by both parties recognized settle the transfer application form; (2) arbitration authorities issued a legally binding ruling; (3) a judgment or order of the court.
Shows that integration into the breach in the bond case, start the pledged bonds liquidation procedures there are still uncertainties: (1) consent of bonds into the written consent coordination takes time, there is coordination into wood; (2) If the levy have bonds into the written consent of unsuccessful litigation or arbitration procedures you need more time to coordinate the negotiations, the cost is higher. Obviously, China's securities lending credit support exists certain non-validity of financial bonds out square face greater risk of disposal of pledged bonds, can not be fast to protect its interests.
(B) pledge bond guarantee risk
Pledge bonds with the market value of the underlying bond because interest rates or other market factors change, there are fluctuations may be, may be the same fluctuations may also reverse fluctuations, the market value of pledged not sufficient to compensate for the market value of the underlying bonds in the bond into breach the contract. case, even if the bond is integrated into agree auction pledge bonds settled by: clearing pledge bonds has been lower than the market value of the market value of the underlying bond, there is the compensation gap, bonds melt out party will continue to face the risk of the fully secured pledge bonds. This risk arises from changes in interest rates or other market factors, market risk and credit risk intersect, is a dynamic areas of credit risk prior to settlement.
(C) settlement risk
Settlement risks include: (1) the underlying bonds in the period of the borrowings coupon payment as a result of bonds into default by not timely and sufficient financial bonds out of the party designated to pay the coupon, melt out side will face the risk of borrowing coupon payment ; (2) the underlying bonds in the period of the borrowings are not paid coupon bonds integrate into default by not full and timely return of the underlying bond, or (and) is not full and timely payment of bond borrowing costs, melt out side will face the underlying bond payment risk and borrowing costs.
The three types of risk are credit risk of the securities lending business. Among them, the settlement risk is the manifestation of the credit risk of the securities lending business, pledge bonds disposal risk with the pledge bonds secured risk are the settlement risk exposure, perform credit support existing risks failed to effectively resolve the settlement risk.
Second, specific countermeasures
(A) The unified credit management, careful selection of securities lending business counterparties
Because the bond pledged credit support under the existing legal framework in China there are still certain degree of non-validity pledge bonds itself, there are also risks of fluctuations in market value, may not be able to provide full security for the underlying bond for the effective prevention of settlement risk, select reliable qualifications, integrity and quality, there is a strong risk resistance ability of institutional investors is the first line of defense to prevent the bond lending business credit risk. Recommended that participating agencies to bond lending business into the unified credit management system, based on the internal rating system carefully selected securities lending business counterparties. (B) improve the bond borrowing text of the contract, clearly defined case of breach of contract and breach of the the occurrence conditions under priority disposal
Although the short term under the existing legal framework is not yet change the non-validity of the bond pledge, participating institutions can be reached about the the pledge bonds in breach of contract under the conditions of the priority disposal counterparty, such as requiring bonds integrate into the party promised breach at maturity when agreed to bond financial the out party pledge bond auction, bond pledge in order to improve the effectiveness of and reduce the cost of disposal of pledged bonds.
Not only that, the participating institutions also further improve the bond loan contracts, the integration of clarity bond side various possible breach (such as not timely designated to pay in full the underlying bond coupon is not full and timely return of the underlying bond, is not in full and on time pay the borrowing costs, etc.) and the corresponding liquidated damages measures to reduce preservation costs of debt.
(C) over pledge supplemented pledge bond complementary mechanisms
Pledge bonds to provide security on the underlying bond, but the guarantee degree dynamically changing, possibly because of changes in interest rates and other market factors and lead to lack of guarantees, therefore, consider not completely guarantee the risk on the underlying bond, due to the lowering of the pledged bonds involved in institutions necessary for the first phase of the guarantee ratio (ie, the first phase of pledge bond market capitalization / market value of the underlying bond) control.
The first clear the first phase of the guarantee ratio should be at least 100%, but even so, it may be as sensitive indicators of the the pledge bonds underlying bond duration differences in the yield curve, with translation, reverse hump changes when the guarantee ratio declined to less than 100%. To set the bonds relative change in the value of drive factor too much, can not accurately model the effective first guarantee ratio, taking into account the need to reduce the cost of management and control credit risk, it might be the first phase of guarantee ratio is set at 100 % level (ie over pledge, such as the first phase of the guarantee ratio unified set to 105%, or differences according to the length of the period of the borrowings and counterparty creditworthiness, setting the ladder of the first phase of the guarantee ratio).
In addition, to prevent the market from extreme changes in lead originally set over pledge remains inadequate, it is recommended that the participating institutions specified hand tracking evaluate regularly the risk of exposure to the underlying bond and pledge of bonds touched guarantee ratio bottom line as much as possible to establish complementary mechanisms.
(D) favorable due for settlement as possible to guard against the risk of exposure to borrowing costs
Government Securities Depository Trust Company securities lending settlement rules, the first phase of the securities lending are coupons coupons deal (DVD) method of settlement there is no balance sheet risk, bond borrowing maturity of three billing methods to choose from, in addition to the coupon coupons deal (DVD) The, there Fanquan Pay solution coupons (BLDAP), the DVP (BLDVP) two billing methods. Pledge bonds solution coupons after two billing methods, based on the full amount of bonds into the square underlying bond and borrowing costs in full as a precondition, there is no settlement risk, but the coupon coupons deal (DVD) method of settlement solution coupons only bonds into the square the underlying bonds in full, there is the risk of exposure to borrowing costs. Therefore, to guard against the risk of borrowing costs open doors recommended the participating institutions due for settlement way as much as possible to circumvent the coupon coupons deal (DVD) choose Fanquan to Pay solution coupons (BLDAP) the DVP (BLDVP).
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