Caixin
Jan 04, 2021 08:03 PM
FINANCE

Regulator Punishes Local Bank for Unfair Competition in Bond Underwriting

What’s new: China’s interbank bond market regulator has punished a local bank for unfair competition in underwriting bond issuance as financial regulators have been cracking down on misconduct in the field.

Shenzhen-listed Bank of Ningbo Co. Ltd. has been suspended from doing interbank bond-related business for two months as the National Association of Financial Market Institutional Investors (NAFMII) accused the local lender of underwriting a number of bond issues with coupon rates well below reasonable valuations since 2020, according to a statement (link in Chinese) released by the central bank-backed self-regulatory agency for the interbank bond market on Thursday.

The violations broke the rules for fair competition and disrupted market order, the statement said.

What’s the background: Last year, some bond underwriters competed for market share by colluding with issuers to underwrite bonds at low coupon rates (link in Chinese), resulting in a large gap in bond prices between the primary and secondary markets. In general, such a practice can reduce the issuers’ financing costs.

A major incentive for underwriters in doing so is that, although they face losses when underwriting bonds this way, they can benefit from other business cooperation with their clients, industry insiders said.

Quick Takes are condensed versions of China-related stories for fast news you can use.

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Contact reporter Guo Yingzhe (yingzheguo@caixin.com) and editor Heather Mowbray (heathermowbray@caixin.com)

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