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Trading
Trading

Trading Mechanism

  • Trading BC
    • Trading Mechanism
    • Trading Calendar
    • Market Makers
    • Custodians
    • FX Settlement Banks
  • Related Services
    • Defaulted Bond Transfer
    • Backup Trading
    • Settlement Failure
    • Data Interface

Instruments
Bond Connect offers offshore investors the access to all Cash Bonds in CIBM, namely, all types of rates and credit bonds.

Rates Credit
  • Chinese government bonds (CGBs)
  • Local government bonds (LGBs)
  • Policy financial bonds (PFBs)
  • Negotiable certificate of deposits (NCDs)
  • Asset backed securities (ABS)
  • Panda bonds
  • Financial bonds
  • Enterprises bonds
  • CPs, SCPs, MTNs, PPNs, ABNs
  • Others

Trading Participants
Bond Connect supports cross-border trading between onshore market makers and offshore institutional investors. 

There are 47 onshore market makers participating in Bond Connect and providing market liquidity currently. The onshore market makers range from commercial banks to securities companies with Chinese or foreign backgrounds.

Diversified offshore institutional investors have chosen Bond Connect to enter CIBM, spanning across global asset managers, sovereign wealth funds, banks and private banks, securities houses, pension funds, insurance companies, hedge funds, etc. The entrance of offshore institutional investors in the China interbank bond market is governed under the Public Notice No. 3 in 2016 and Public Notice No. 220 in 2015 issued by PBOC. Please refer to our onboarding page for more details.

Trading System and Access Platforms
All Bond Connect trades are executed on the CFETS RMB Trading System, which is the exclusive trading venue designated by PBOC for the RMB market of CIBM. Trading links have been built up between the CFETS RMB Trading System and two global access platforms, namely, Tradeweb and Bloomberg, enabling offshore investors to trade through the established international interfaces and allowing onshore market makers to complete Bond Connect trades using their CFETS terminals. Offshore investors can choose to use either Tradeweb or Bloomberg, or both, for Bond Connect trades.

RMB trade flow

Counterparty Enablement
Onshore market makers and offshore investors need to establish a mutual counterparty relationship through the trading links before transactions. Offshore investors can initiate the process in Tradeweb or Bloomberg terminals and add as many onshore market makers from the market maker pool as they wish.

Trading Protocol: Request for Quotation (RFQ)
CIBM is an OTC market. Bond Connect adopts the RFQ (Request-for-Quote) protocol, of which the trading workflow is itemized below.
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Offshore investors

Obtain tradable price quotes on a particular bond by sending out RFQs through Tradeweb or Bloomberg: 
  • Entering RFQ including the bond code, direction (bid or offer), settlement cycle, and nominal amount (at a minimum and increment of RMB 10,000);
  • Setting a valid time for the request up to 30 min; and
  • Sending the RFQ to one or multiple onshore market makers to solicit quotations in competition.
The trade parameters will be transmitted to the selected onshore market makers in real time.
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Onshore market makers

Respond to the request by:
  • Quoting a price to the full amount requested; and
  • Setting a valid time for the response.
The onshore market makers may also reject the requests, in particular for bonds they may not be able to trade.
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Offshore investors

Confirm trade by accepting one price quote within its valid time frame. The trade is then executed on the CFETS RMB Trading System which will generate a ticket. Offshore investors can check the transaction ID and live trade details in English from the terminals of Tradeweb or Bloomberg. Upon execution, the trade cannot be amended or cancelled, and all other responses shall lapse automatically.

Offshore investors may also cancel the RFQ by not accepting any pricing quotes.
 Trade Completed

Pre- and Post-trade Allocation
Bond Connect allows offshore investors to execute a single block trade and split in specific percentages or amounts to up to 50 individual accounts. The allocation can be done either prior to or following the block trade, which is supported by both Tradeweb and Bloomberg.

Clearing and Settlement
All the bond registration, depository, settlement, interest and principal payment, and corporate actions under the Bond Connect scheme are facilitated by CCDC and SHCH, the designated central securities depositories (CSDs) of CIBM, and the HKMA CMU, the dedicated offshore CSD for Bond Connect. Cross-border cash settlement is completed through CIPS (The Cross-border Interbank Payment System).

Bond Connect adopts a multi-tier custody structure. CMU acts as the single nominee of all Bond Connect investors and holds one omnibus bond account with CCDC and another account with SHCH. Offshore investors can open subaccounts with the CMU through a Hong Kong custodian that carries CMU membership, or through their global custodian, who then appoints a Hong Kong custodian for subaccounts handling.




When executing a trade, offshore investors can choose from T+0 / T+1 / T+2 / T+3 settlement cycle at their own discretion. As soon as the trade is concluded, the transaction data are automatically passed from CFETS to CCDC or SHCH for clearing and settlement.

On settlement day, following the settlement instructions from offshore investors based on cash and securities readiness in accounts, bonds are transferred between CMU and onshore market makers through the CCDC or SHCH systems. Cash is remitted across the border between CMU’s master cash account at Bank of China (Hong Kong), who is a direct participant of CIPS, and ultimately the cash accounts of onshore market makers. All settlement is effected on the basis of delivery versus payment (DVP).

For more information on CMU and custodian operations, please refer to the CMU Reference Manual.

FX Conversion and Hedging
All Bond Connect trades are denominated and settled in CNY. Offshore investors may use their own sources of CNH funding or engage an FX Settlement Bank to convert foreign currencies into CNY at the onshore USD/CNY rate to settle Bond Connect trades. Offshore investors may also hedge FX exposure with FX Settlement Banks by engaging in various FX trades which match with the bond position. FX Settlement Banks may square positions in either offshore or onshore FX markets.  

The FX Settlement Banks are banks in Hong Kong approved by CFETS to access the FX market of CIBM as RMB participation banks. Offshore investors can contact their Hong Kong custodians, who will appoint one FX Settlement Bank for its FX conversion and hedging.

The FX conversion and hedging transactions are required to comply with the "genuine and reasonable" principle, and solely for the purpose of Bond Connect investments. After investment, a similar proportion of CNY is required to be converted back into foreign currency if not being re-invested in CIBM market again.