Mar 15, 2023
China Bond Data Disrupted After Report of New Regulatory Curbs
(Bloomberg) -- An abrupt suspension of widely used bond price feeds in China blindsided investors and sent volumes in some corners of the market tumbling, reviving concern about sudden regulatory shifts in a country that makes up a growing portion of global fixed-income portfolios.
Information providers that previously supplied aggregated bond quotes showed blank screens, prompting desperate traders to turn to chatrooms available on Tencent’s QQ and WeChat to share prices and do deals.
There has been no official explanation for the sudden halt in data feeds considered by traders to be essential to the functioning of the 145 trillion yuan ($21 trillion) market, the world’s second largest. Fixed-income brokers failed to respond to requests for comment, as did the regulator, which Reuters reported was behind the decision.
The China Banking and Insurance Regulatory Commission told brokers including the joint ventures of Tullett Prebon and NEX International Ltd. to stop providing their bond feeds to outside parties due to data security concerns, Reuters reported on Tuesday, citing people familiar with the matter.
Transactions plunged by 30% to 60% from the previous day, according to broker estimates. Even the most-widely traded note, a 10-year policy bank bond, saw turnover fall 14%. The issue of pricing is especially acute in China, which has a predominantly over-the-counter market where identifying counterparties and accessing quotes have long been headaches for traders.
Taken by Surprise
The shock nature of the halt also jolted overseas investors at a time when China is opening its bond market to the world. Not least because of the fact using social media to trade bonds typically goes against compliance regulations for international firms.
“The move took the market by surprise,” said Brock Silvers, managing director at private equity firm Kaiyuan Capital Ltd. in Hong Kong. “Investors can survive a short-term aberration, but many Western entities don’t even allow the use of socials. On a longer-term basis China’s bond market can’t be effectively run this way.”
Official silence over the issue is adding to unease in the market, especially given the increasing encroachment by the state over sectors dominated by private enterprise. The most popular data vendors such as Qeubee and Dealing Matrix are privately-run firms that emerged about a decade ago to fill demand for real-time price quotes from brokers.
The reported move comes just after China announced plans to set up an enlarged national regulator that will absorb the banking and insurance watchdog and oversee all financial sectors except the securities industry.
Five of China’s six fixed-income brokers, which also include joint ventures of BGC Partners and Cie Financiere Tradition SA, received the notice from the regulator to halt their feeds, Reuters said. Conducting data feed operations was outside the remit of brokers’ licensed business, the news agency reported.
A rival system run by central bank affiliate was still offering live prices from two brokers on Wednesday, according to traders. Unlike its privately-run competitors, the service provided by China Foreign Exchange Trade System (CFETS) doesn’t charge a fee, according to three users, although the system is considered hard to use and less comprehensive.
“There are already issues arising in trading today,” said Li Kai, founding partner of Beijing Shengao Fund Management Co. “Some can’t sell their bonds while others have difficulty buying the bonds they want. There is no good alternatives apart from adding WeChat and QQ chat groups at the moment.”
The other data vendors declined to say why they had stopped receiving the data feeds.
An official at Wind Information Co. told Bloomberg News that starting from Wednesday, bond quotations from China’s money brokers will no longer be available on Wind’s terminal. Instead the firm will only provide trading data from CFETS and the stock exchanges, said the official, who didn’t want to be named.
An official at another platform, Dealing Matrix, said the company wasn’t able to receive quotes from brokers on Wednesday. There have been many rumors about the data, but they haven’t been verified and there are no official documents, said the official. Ningbo Sumscope Information Technology Co., which operates the popular Qeubee data platform, didn’t immediately respond to a request for comment.
Bloomberg LP, the parent company of Bloomberg News, also offers fixed-income trading, data and information to the financial services industry.
Qu Qing, head of Huachuang Securities Co.’s investment advisory unit, said traders will ultimately adjust to the change.
“It will certainly take some time for traders to get accustomed to the new norm,” Qu said. “But looking from a long-term perspective, trading demand won’t be affected by the change of trading methodology — it will continue to be decided by macro environment, micro factors such as trading strategies. As the old platform is phased out, there will be replacements.”
Global investors may be less forgiving. The latest move comes against a backdrop of sudden interventions by Beijing in the country’s financial markets that have undermined confidence overseas. The disappearance of a high-profile investment banker last month added to doubts about whether President Xi Jinping’s crackdown on private enterprise such as tech and property has run its course.
Foreign funds have turned negative on the nation’s assets after a brief rebound sparked by the country’s U-turn on Covid Zero. The MSCI China Index of stocks is down 15% from this year’s high, while overseas holdings of Chinese debt in the interbank market fell to the lowest since 2020 in January.
“If this becomes the new normal, the market will become more insular,” Kaiyuan Capital’s Silver said. “The market still awaits an explanation.”
--With assistance from Ken Wang, Kevin Kingsbury, Alice Huang, Qingqi She, Zhang Dingmin, Shuiyu Jing, Yujing Liu, Wenjin Lv, Helen Sun, Yuling Yang and Lorretta Chen.
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