【Financial Str. Release】SSE, SZSE allow part of bond ETFs to be collateral for pledged bond repo from Mon.

File photo shows the exterior view of Shanghai Stock Exchange at Pudong New Area in Shanghai, east China.

BEIJING, Oct. 24 (Xinhua) -- China's Shanghai and Shenzhen stock exchanges permitted from Monday part of their on-board bond exchange-traded funds (ETFs) to be collateral securities for pledged bond repurchase (repo) transactions, reported Xinhua Finance.

Shanghai Stock Exchange (SSE) announced on October 21 to add policy bank bond ETFs to the basket of collateral bonds for pledged bond repo trading, including single- and cross-market policy bank bond ETFs.

As the SSE announcement says, single-market policy bank bond ETFs here refer to those tracking indexes for Shanghai-listed policy bank bonds only, or ones tracking cross-market indexes and whose portfolio securities for subscription and redemption decided via sampling and replication of the underlying bonds of the tracked indices include only SSE-listed policy bank bonds.

Cross-market policy bank ETFs mean ones that adopt cash subscription and redemption and track policy bank bonds listed on both the SSE and interbank bond markets.

Previously, SSE has allowed its on-board single-market T-bond and local government bond ETFs as the collateral securities for pledged bond repo trading.

For investors who purchase these bond ETFs, entrance into the bond repo collateral base of SSE is allowed to be reported in the same day, said SSE. The bond ETFs to be reported to enter the bond repo collateral base of SSE is calculated in units and reported in 100 units or the integer multiple of 100 units and the maximum quantity of a reporting shall be no higher than 100,000 units.

For Shenzhen Stock Exchange (SZSE), the exchange announced to allow single- and cross-market ETFs investing in T-bonds, local government bonds and policy bank bonds to be collateral bonds for pledged bond repo transactions also from October 24.

For cross-market bond ETFs whose portfolio securities contain interbank bond market-traded bonds, the qualified ones are limited to bond ETFs which invest only in policy bank bonds and adopt cash subscription and redemption.

Generally, bond repos are used by market participants for short-term borrowing and for the party in need of fund, bonds are used as collateral securities that it will buy back in terms and prices pre-determined with the fund providers. (Edited by Duan Jing with Xinhua Silk Road, duanjing@xinhua.org)