Interbank Market Brokerage Business Launched

The People's Bank of China issued the Circular of the People's Bank of China on the Issues of the Entrance of Money Brokerage Company into the Interbank Market (No. Yinfa[2006]231) several days ago. It marked the launching of brokerage business at the interbank bond market and interbank lending market.

Money brokerage companies are specialized institutions engaging in brokerage business in the financial market, providing information for financial product transaction and brokering deals. With specialized information collection and standardized operation procedures, a money brokerage company is capable of integrating market demand information, improving market liquidity, lowering transaction cost and raising market efficiency. Money brokerage companies have become an important component in the operation mechanisms of matured financial markets globally.

In the early days of interbank bond market and interbank lending market in China, despite the lack of diversity in terms of participants and products, the transaction model of market participant directly seeking counterpart basically met the demand of the market. However, with the rapid development of the interbank market in recent years, the market participant categories have expanded from the commercial banks only to banks, non-bank financial institutions and thousands of large and medium industrial and commercial enterprises. The products have developed from the interbank lending, treasury bonds, policy financial bonds and central bank bills to diversified transaction products and instruments including subordinated bonds, financial bonds, cooperate short-term financing bills, asset backed securities, bond forward transaction and RMB interest rate swap. As a result of such diversification, the existing transaction model and information collection means could hardly follow the pace of market development. It is imperative to begin brokerage business in the interbank market.

The issuance of the Circular indicated the launching of brokerage business in the interbank market and an improvement of the market operation mechanism. The introduction of money brokerage companies will effectively boost market liquidity and transaction efficiency, lower transaction cost and facilitate price discovery. It is of great importance to expanding the width and depth of the interbank market, and to its rapid and healthy development.

Source: www.pbc.gov.cn