On September 26, 2025, the People’s Bank of China (PBOC), the State Administration of Foreign Exchange (SAFE), and the China Securities Regulatory Commission (CSRC) jointly issued an Announcement (the Announcement) on further supporting overseas institutional investors in conducting bond repurchase (bond repo) business in China’s interbank bond market. The Announcement permits overseas institutional investors who already have qualifications to conduct cash bond trading in the interbank bond market to engage in bond repo businesses.
On the same day, the National Interbank Funding Center, China Central Depository & Clearing Co., Ltd. (CCDC), and Shanghai Clearing House (SHCH) jointly issued the Circular on Jointly Supporting Overseas Institutional Investors to Conduct Bond Repurchase Business in the Interbank Bond Market (the Circular), providing services for overseas institutional investors to engage in bond repo businesses.
Below is a summary of the key concerns for overseas investors:
1. Application Scope and Participation Methods
The overseas institutional investors referred to in the Announcement are those eligible to engage in cash bond trading in China’s interbank bond market. They include: (i) overseas central banks or monetary authorities, international financial organizations and sovereign wealth funds; (ii) financial institutions legally established outside of mainland China, including commercial banks, insurance companies, securities firms, fund management companies, futures companies, trust companies and other asset management institutions, as well as (iii) non-financial institutional investors such as pension funds, charitable funds and endowment funds.
Currently, overseas investors could invest in interbank bond market through three channels: (1) Qualified Foreign Institutional Investor (QFII) or RMB Qualified Foreign Institutional Investor (RQFII) programs (collectively QFI), (2) Direct investment in the interbank bond market under the CIBM direct access mechanism (CIBM Direct), (3) the Northbound Bond Connect.
According to the Announcement and the Circular, overseas institutional investors eligible for cash bond trading in the interbank bond market may engage in bond repo businesses via all three channels.
Specifically, overseas institutional investors operating through the CIBM Direct or QFI must conduct bond repo transactions via their settlement agents in the interbank bond market through the National Interbank Funding Center (the Settlement Agency Model), and overseas investors accessing China’s bond market through the Northbound Bond Connect must engage in bond repo transactions in the interbank bond market with market makers recognized by the PBOC.
In terms of transaction and settlement arrangements, the National Interbank Funding Center will provide matching services for bond repo transactions conducted by overseas institutional investors in the interbank bond market. Offshore electronic trading platforms, once approved by the PBOC, may connect to the National Interbank Funding Center’s system and provide bond repo transaction services to overseas institutional investors.
CCDC and SHCH are responsible for providing registration, custody and settlement services to overseas institutional investors under the Settlement Agency Model. As for Bond Connect-related bond repo business, the Hong Kong Central Moneymarkets Unit (CMU) will provide related services via connectivity with CCDC and SHCH.
2. Trading Mode
According to the Announcement, overseas institutional investors participating in the interbank bond market can engage in two types of bond repo transactions: pledged repo and outright repo. The fundamental distinction between these two lies in whether the ownership of the underlying bonds is transferred during the transaction. Internationally, the prevailing form of bond repo transactions generally involves a title transfer, which closely resembles China’s outright repo.
Initially, overseas investors are permitted to only use outright repos as specified by the Circular. Plans are underway to introduce pledged repos with underlying bonds to be transferred and reused in the near future, with detailed information to be announced separately. Currently, the specific guidelines such as the detailed transactions rules and the business regulations respectively released by the National Interbank Funding Center, CCDC and SHCH only apply to outright repos. This implies that a single outright repo transaction can involve one or multiple repo bonds, requiring the return of coupon interest and principal during the repo period.
The Circular stipulates that the maximum term for bond repo transactions conducted by overseas investors in the interbank bond market shall be 365 days. The settlement method of the transactions shall be Delivery versus Payment (DVP), and the settlement mechanism shall be gross settlement.
3. Master Agreement
According to the Announcement, overseas institutional investors shall comply with the relevant requirements and sign bond repo master agreements (Repo Master Agreements). For overseas investors, they are accustomed to conducting bond repo transactions by signing the Global Master Repurchase Agreement (GMRA) issued by the International Capital Market Association (ICMA). CCDC has noticed the needs of overseas investors and have included a comparison between the NAFMII Repo Master Agreement and the GMRA, highlighting their similarities and differences in its white paper entitled Promoting RMB Bond Collateral Participating Global Repo Transactions, co-authored with ICMA, to facilitate understanding and familiarity with the NAFMII Repo Master Agreement among overseas investors. Overseas investors are concerned by whether they can enter the market and conduct bond repo transactions based on their existing or newly signed GMRA and this point remains unclear.
Article 7 of the Announcement stipulates that self-regulatory organizations shall file the Repo Master Agreement with the PBOC, the CSRC or other financial regulatory authorities as applicable. In our understanding, this reserves room for overseas investors to use the GMRA. We anticipate that the Chinese financial regulatory authorities will soon clarify and confirm whether they will accept the use of the GMRA, which is more familiar to overseas investors.
Unlike Article 33 of the Futures and Derivatives Law, which stipulates that master agreements and other standard contracts for derivatives shall be submitted for filing in accordance with the relevant regulations, Article 7 of the Announcement specifies that self-regulatory organizations and industry associations are responsible for filing master agreements. It remains to be clarified whether overseas commercial institutions can qualify as eligible entities to file their own master agreements with the PRC regulatory authorities, including the PBOC.
4. Entities Subject to PBOC’s Regulatory Oversight
Article 5 of the Announcement stipulates that, if overseas financial market infrastructures, self-regulatory organizations and industry associations provide services to overseas institutional investors engaged in bond repo business in the interbank bond market, they must comply with the PRC laws, regulations and regulatory provisions, and be subject to the regulatory oversight of the PBOC. In our understanding, overseas financial market infrastructures and self-regulatory organizations include, but are not limited to the financial market infrastructures operating under the Bond Connect in Hong Kong. Overseas industry associations such as ICMA and ISDA will fall within the scope of the entities subject to regulatory oversight of the PBOC, if they provide services to overseas institutional investors for bond repo business in the interbank bond market.
5. Regulatory Requirements
The Circular introduces stringent and prudential regulatory requirements to enhance risk management, i.e., it stipulates that participants in bond repo transactions in the interbank bond market must adhere to macro-prudential management guidelines set by the PBOC, and for market makers engaging in cross-border interbank financing activities, the net amount of funds lent out cannot exceed 6% of their Tier 1 capital or core capital, which are subject to further adjustments based on the provisions of the PBOC regarding cross-border interbank financing. According to Article 11 of the Circular, overseas institutional investors conducting bond repo businesses in the interbank bond market are required to carefully manage their leverage ratios, and it encourages the adoption of risk management measures such as marking-to-market the value of repo bonds during the transaction period. For sovereign entities, RMB clearing banks and participating banks, their positive repo financing balance shall not exceed 100% of their held bond positions; for other types of overseas institutions, the initial stage limit is set at no more than 80% of their held bond positions, with adjustments to be made in the future as dictated by actual circumstances.
These measures reflect the PBOC’s commitment to maintaining a balanced approach, supporting market growth while ensuring stability through prudent regulation.
Our Observations
With the opening-up of China’s bond market in recent years, there has been a sustained increase in both the number of overseas institutional investors and their investment scale. Consequently, the demand for liquidity management through interbank bond repo business among these overseas institutional investors has become increasingly pressing. To respond to the demands of overseas investors and enhance the appeal of China’s interbank bond market, the PBOC has been advancing the opening-up of bond repo business in the interbank bond market. In January this year, the PBOC collaborated with the Hong Kong Monetary Authority to launch an offshore bond repo business using bonds under the Northbound Bond Connect as the underlying assets. Now, a formal opening-up of interbank bond repo business for overseas institutional investors has been finally announced after more than a year of preparation. Both policies hold significant importance for achieving a higher level of opening-up in China’s interbank bond market. They will help overseas investors manage their RMB liquidity risks and control funding costs more effectively. These opening-up initiatives will also increase the appeal of China’s interbank bond market to overseas capital, making it an important choice for global asset allocation among overseas investors.
We will continue to monitor and share the latest developments with our clients.
For further information, please contact:
XIE, Qing (Natasha), Partner, JunHe
xieq@junhe.com
