Jan 09, 2019 08:51 PM

Banks Gear Up to Let Customers Trade Wealth Management Products

A wealth manager assists a customer at a China Construction Bank branch in Nantong, Jiangsu province, on Jan 3. Photo: VCG
A wealth manager assists a customer at a China Construction Bank branch in Nantong, Jiangsu province, on Jan 3. Photo: VCG

China Construction Bank (CCB), the country’s second-largest bank by assets, has started allowing clients to trade wealth management products (WMPs), aiming to improve liquidity in the market and create more demand for products with longer maturities.

The new service, which CCB opened at the end of December, provides a trading platform for customers to sell their WMPs to other investors before they mature, although they will have to sacrifice some of the original yield based on how close the product is to maturity.

Although some smaller Chinese banks have been providing a secondary market for WMPs to customers for some time, CCB is the first of the “big four” state-owned commercial banks to test the water. The others —  Industrial and Commercial Bank of China, Bank of China, and Agricultural Bank of China — have not indicated so far that they will open WMP trading platforms for their customers.

The CCB’s initiative follows an overhaul of the $15 trillion asset management industry in April and new regulations governing banks’ sales of WMPs in December, both of which placed tighter controls and oversight on such products as part of the government’s campaign to rein in financial risks.

Under the new rules, banks will be required to issue long-term WMPs to match their long-term investments, a shift from the traditional practice of pooling clients’ money for investments through the sale of short-term WMPs and then rolling them over. Authorities were concerned that this mismatch between the duration of products and the maturity of the assets they were investing in posed risks for the banks in the event of a shortfall in demand for new products.

Regulatory overhaul

But customers prefer to buy short-term investments — those with a maturity of six months of less — as they don’t have to tie up their money for long periods of time and assume there’s less risk attached. This has made it difficult for the banks to grow demand for long-term WMPs, products with a maturity of more than one year and potentially as long as 10 years, and they’ve been looking for ways to boost sales to comply with the new regulations, which come into force at the end of 2020.

By allowing WMPs to be traded, banks can increase market liquidity and adapt to the new regulations during the transition period allowed by the government, according to Zeng Gang, a researcher with the Institute of Finance and Banking of the Chinese Academy of Social Sciences, a state-run think tank.

“The new regulations are going to lead to a much more prominent role for trading wealth management products,” Zeng said. At the moment, “it’s difficult for banks to sell long-term closed-end wealth management products, so allowing them to set up a trading service will go some way to solving this problem. The more developed the secondary market becomes, the better it will be for issuance of wealth management products.”

Smaller joint-stock banks, including Zheshang Bank, Citic Bank, China Merchants Bank, and Shanghai Pudong Development Bank, started offering trading services for WMPs as far back as 2014. Some banks allow buyers and sellers to negotiate prices directly, while others let sellers offer a fixed price or ask for bids.

But volumes have been small because most lenders don’t have a trading platform and allow trading to take place only offline directly between individual buyers and sellers, online financial service platform Rong360 said in a report in December.

Shanghai Pudong Development Bank recorded trading volume of only 15 billion yuan ($2.2 billion) in its internal secondary market for WMPs in 2018, Zhang Wenqiao, vice general manager of the banks’ asset management department said at a Shanghai conference in December. But despite the relatively small amount, he said the secondary market will play an important role in promoting the issuance of long-term WMPs, and said the bank plans to extend the platform from individuals to institutional investors once its wealth management unit is set up.

Currently, there are no specific rules to cover trading of WMPs on secondary markets, but as the size of the business increases, the authorities are expected to follow with a regulatory framework, market participants and analysts told Caixin.

“This is an emerging financial exchange market, so matters like the pricing of the products and the detailed trading mechanisms need to be regulated and clarified,” a senior banking analyst told Caixin.

Contact reporter Leng Cheng (

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