Beijing Hunts Down Bond Trading Rule-Breakers Amid Bubble Fears

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A branch of the Jiangnan Rural Commercial Bank in Changzhou, East China's Jiangsu province, Jan. 24, 2021. Photo: IC Photo

As China attempts to cool the government bond market bull run, regulators have amped up efforts to crack down on financial institutions’ misconduct.

Four rural commercial banks in East China’s Jiangsu province are suspected of manipulating market prices and illegally transferring profits when trading government bonds on the secondary market, according to a notice released Wednesday by the National Association of Financial Market Institutional Investors (NAFMII).

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Chinese regulators are cracking down on financial institutions for misconduct in the government bond market, suspending four rural commercial banks in Jiangsu province for manipulating prices and transferring profits.
The National Association of Financial Market Institutional Investors (NAFMII) found violations including the illegal transfer of trading profits, and some cases were referred to the People’s Bank of China (PBOC) for penalties.
The PBOC aims to prevent a bubble in the bond market by maintaining a normal yield curve and curtailing market risks, borrowing treasury bonds from financial institutions to stabilize the market.

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Who’s Who

Jiangsu Changshu Rural Commercial Bank Co. Ltd.: Jiangsu Changshu Rural Commercial Bank Co. Ltd. (601128.SH), a Shanghai-listed bank, is one of four rural commercial banks in Jiangsu province suspected of manipulating market prices and illegally transferring profits in government bond trading. It was suspended from trading government bonds on the secondary market and saw its share price decrease by 1.45% on Thursday following the suspension.

Jiangsu Suzhou Rural Commercial Bank Co. Ltd.: Jiangsu Suzhou Rural Commercial Bank Co. Ltd. (603323.SH) is one of the four rural commercial banks in Jiangsu province suspected of manipulating market prices and illegally transferring profits in government bond trading. The bank was suspended from trading government bonds on the secondary market. As a result, its shares fell by 3.4% on Thursday. The case is part of broader regulatory measures to control misconduct and market risks in China's bond market.

Yuekai Securities Co. Ltd.: Yuekai Securities Co. Ltd. is an analytic firm referenced in the article for their report comparing China's current bond market situation to the collapse of Silicon Valley Bank (SVB). They noted that the People's Bank of China (PBOC) is attempting to prevent similar risks by maintaining a normal yield curve and curtailing market dangers through measures like borrowing treasury bonds from financial institutions.

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What Happened When

August 7, 2024：: A notice was released by the National Association of Financial Market Institutional Investors (NAFMII) suspecting four rural commercial banks in Jiangsu province of manipulating market prices and illegally transferring profits when trading government bonds.

August 7, 2024：: The four lenders were suspended from trading government bonds on the secondary market.

August 8, 2024：: Shares of Jiangsu Changshu Rural Commercial Bank Co. Ltd. (601128.SH) and Jiangsu Suzhou Rural Commercial Bank Co. Ltd. (603323.SH) closed down by 1.45% and 3.4%, respectively.

August 8, 2024：: NAFMII announced that those involved in severe violations have been referred to the People’s Bank of China (PBOC) for administrative penalties.

August 9, 2024：: Financial News, backed by the PBOC, published an article citing analysts about the risks of lending bond trading accounts in the interbank market.

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