On the morning of April 10, China Financial Futures Exchange (CFFEX) held the launch event for commercial banks’ participation in the China government bond (CGB) futures market. This marks a new stage of development of China's CGB futures market, and is of great significance to building a consolidated and efficient financial market. Fang Xinghai, China Securities Regulatory Commission (CSRC) Vice Chairman and member of the CSRC Party Committee, and Chen Mingbo, Deputy Secretary-General of the Shanghai Municipal Government, attended the event. Also present at the event were representatives from the banks, including Ren Deqi, Secretary of the Party committee and chairman of the board of directors of the Bank of communications (BOCOM), and officials from the CSRC Department of Futures Supervision, the Shanghai Financial Work Bureau and other regulatory agencies.
Vice Chairman Fang said in his speech that under the coordination of the State Council Financial Stability and Development Committee, and with the strong support from the Ministry of finance, the People's Bank of China, the Banking and Insurance Regulatory Commission and the Shanghai Municipal Government, commercial banks officially became members of CFFEX today to participate in CGB futures trading for the first time. This achievement did not come by easily and would not have been possible without the diligence and wisdom of the financial community. It marks a new stage of China's CGB futures market development, and is of great significance to building a consolidated and efficient financial market.
Vice Chairman Fang also pointed out that interest rates are the most important financial market benchmarks, while CGB futures, a tool for interest rate discovery and risk management, plays an important role in China's financial market. After over 6 years of development, China has built a CGB futures market covering the 2-year, 5-year, and 10-year terms, which are key nodes along the yield curve. And so far, the CGB futures market has operated smoothly, and has helped to improve the liquidity and price discovery of the CGB spot market and enhance the yield curve. Today, commercial banks, the largest holders of CGBs, shall officially begin participating in the CGB futures market. This will further increase the price efficiency and market representativeness of CGB futures, promote the integration of different financial factor markets, and improve the efficient allocation of resources in financial markets. At the same time, commercial banks can make full use of CGB futures to manage interest rate risk and stabilize asset values. In addition, CGB futures, featuring high liquidity and turnover rates, can be used by commercial banks to hedge against selling pressure when price fluctuates in the CGB spot market, so as to tame market volatility, and promote the overall stability of the CGB spot market.
Vice Chairman Fang further reviewed that this year, due to the COVID-19 outbreak, the global financial market has experienced extreme volatility and increased market risks. Against this backdrop, China's financial futures market has maintained steady growth, and has effectively served the needs of financial institutions. Currently, China is speeding up the process of resuming industrial production and returning to normal lives while normalizing COVID-19 prevention and control measures. At the same time, China is facing many challenges in economic and social development. Therefore, guided by the Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, CFFEX should focus on its purpose of serving the real economy, give play to its pivotal role in risk management for the capital market, and steadily diversify its product mix of financial futures and options, while continuously improving market operations and market depth, and making financial derivatives an effective tool in facilitating smooth operation of financial institutions and the healthy development of the market.
Chen Mingbo pointed out that commercial banks’ participation in the CGB futures market is beneficiary to the city’s overall financial ecosystem. It will not only serve to diversify CGB futures market investor base, enhance correlation between spot and futures markets, and strengthen the risk management function of CGB futures market, but also enrich commercial banks’ risk management toolkit, and improve their CGB asset management. Next, in accordance with the strategic plan of Opinions on Further Accelerating the Establishment of Shanghai as an International Financial Centre and Financial Support for the Integrated Development of the Yangtze River Delta, Shanghai shall implement the 30 Guidelines of Financial Sector Development, and vigorously support the development of financial derivatives market and other factor markets. By providing high-quality and efficient services that meet the specific needs of the market and bring convenience to the industry, Shanghai shall continue to optimize its business environment.
The leaders from the head offices of the three banks also addressed the event. Ren Deqi, chairman of BOCOM said that allowing commercial banks to access the CGB futures market is a milestone event in the process of deepening financial sector reform. It will improve commercial banks’ ability to manage interest rate risk, and materializing the cooperation between banking and futures industry to better serve the real economy. It will also contribute to enhancing the depth and breadth of the CGB spot and futures market, promoting financial market innovation, and building Shanghai into an international financial center. Furthermore, BOCOM will continue to shoulder its responsibilities as a state owned commercial bank, and contribute to the high quality development of CGB futures market and Shanghai’s status as an international financial center.
Liao Lin, vice president of ICBC, said that the pilot program of commercial banks’ participation in CGB futures market is an important achievement in putting financial reform and interest rate marketization into practice. ICBC as one of the largest institutional investors, market makers and underwriters of the CGB interbank market, has extensive experience in interest rate derivatives trading. To participate in the CGB futures market, it will uphold its role as a leading bank and contribute to the smooth and healthy operation of the market.
Sun Yu, vice president of the Bank of China, said that granting commercial banks access to CGB futures market will further improve the efficiency and enrich toolkits for interest rate risk management. He stressed his confidence in bringing the CGB futures market new vitality with the bank’s participation, and wished the market a bright future.
Hu Zheng, Secretary of the Party Committee and Chairman of CFFEX, announced the decision on admitting Industrial and Commercial Bank of China (ICBC), Bank of China (BOC) and Bank of Communications (BOCOM) as CFFEX members and expressed appreciation for their efforts. He also emphasized that CFFEX will continue to contribute to the goal of building a regulated, transparent, open, energized and resilient capital market under President Xi Jinping’s instruction on capital market development and the leadership of CSRC party committee, in line with the principle of “seeking progress while keeping performance stable” and the policy of “ four owes and one synergy”. CFFEX will take this as an important opportunity to further promote the high quality development of the financial derivatives market and contributing to building Shanghai into an international financial center by willingly shouldering its responsibility, bravely embracing innovation and actively driving progress.
CFFEX signed membership agreements with each of the three banks. The launch event was concurrently initiated in Shanghai and Beijing by leaders from the CSRC, Shanghai Municipal government and member banks. Representatives from the member banks and the press attended the event.