China launched a nationwide platform for centralized commercial paper trading on Dec 8 in Shanghai, a move to enhance transparency, efficiency and regulatory standards in the fast-expanding market.
Shanghai Commercial Paper Exchange Corp Ltd, initiated and supervised by the People’s Bank of China, the central bank, adds to existing financial infrastructure that serves increasing market demand, said Pan Gongsheng, deputy governor of the central bank.
Financial market infrastructure is critical to secure the safe and efficient operation of the market. Compared with that of other subdivisions, infrastructure in the commercial paper market in China relatively lagged behind, which affected the efficiency of resource allocation and hindered the monitoring and prevention of risks, said Pan.
“A nationwide, centralized commercial paper exchange platform will help the market become better regulated, market-oriented and professional, which makes the market more consolidated, and gives it greater accessibility and transparency,” he said.
Pan added that commercial paper trading platforms which were not approved by the State Council and financial regulatory authorities are operating contrary to a government circular on commercial paper trading released in 2011. These fragmented, unauthorized trading exchanges pose risks to the entire financial system, he said.
China’s commercial paper market has been expanding rapidly in recent years, as commercial paper trading has been used as a major alternative short-term financing tool among small and medium-sized enterprises, which account for 27 percent of the total credit balance of enterprises’ short-term financing, according to the central bank.
Unregulated trading has increased the risk of fraud as some firms use forged papers, or use the same paper to get guaranteed financing from lenders in various cities, taking advantage of loopholes in the poorly connected commercial paper information system.
This fragmented market, which lacks efficiency and transparency, has resulted in bill-financing scandals involving tens of billions of yuan, reported Shanghai Securities News.
“A centralized commercial paper exchange will not just make the market more transparent and efficient. It can also use all participants’ behavior records to form a big data analysis system to help rate the quality of their credit, which will help lower credit risks and costs,” said Zhao Cila, an analyst at CITIC Bank’s Shanghai branch.
Yi Huiman, chairman of the board of directors of the Industrial and Commercial Bank of China, said the launch of the Shanghai exchange marks solid progress in China’s financial market in pushing forward digitalized transactions.