Recently, the Shanghai Stock Exchange (SSE) issued a notice on extending the trading hours for the bond collateralized repo. In an interview, an SSE official has answered the questions about the significance of and the specific arrangements for the adjustments of the business.
1. What is the significance of extending the trading hours for the bond collateralized repo in the market?
Since the launch of the bond collateralized repo business, the SSE has provided an efficient liquidity management platform for the institutions in the market. With the development of the repo market in recent years, the SSE has further adjusted and improved the repo trading mechanism according to the actual market conditions. The implementation of the arrangements for extending the trading hours of the repo is an important measure made by the SSE to respond to market concerns, and it is also of great significance for advancing the healthy development of the exchange-traded bond market.
First of all, it is conducive to expanding and stabilizing the supply of the repo funds. Extending the trading hours for the repo will facilitate the participation of the investors in the transactions on the repo market and increase the size of capital supply. The fund supply side will also have more time to make decisions and implement transactions. It is expected that the liquidity supply will be more stable, and the move will ease the tightness of the financing funds for repo to a certain extent and play a positive role in preventing the liquidity risks in repo.
Secondly, it is conducive to improving the efficiency of fund management at the institutions in the market. Extending the trading hours for the repo will provide more sufficient time and create more trading opportunities for the repo buyers and sellers, so that the financing parties can arrange the proportions of capital demands in different markets and the market institutions can also expand the space for liquidity management.
Thirdly, it is conducive to smoothing the sharp fluctuations in the repo rates. Extending the trading hours for the repo will help to disperse the pressure on the centralized trading approaching the closing, smooth the concentration of capital demands, stabilize the market expectations for supply and demand, facilitate the rational participation of the investors in the repo trading, and play a positive role in suppressing the fluctuations in the repo rates before the market closing.
2. What are the specific arrangements for extending the trading hours for the bond collateralized repo?
The trading mechanism is only adjusted in the trading hours, as the closing time of the trading of collateralized repo will be extended from 15:00 to 15:30, and other system arrangements including entrustment, order placing, bidding principle and market price release will remain unchanged. The newly added trading time will not affect the continuity of the trading, and the investors can still participate in the repo trading in their original trading habits or patterns.
The extension of the auction trading time is currently only implemented on the bond collateralized repo products on the SSE, and does not involve the adjustment to the auction trading time for other securities products such as stocks, bonds or funds. Specifically, the investors can continue to participate in the collateralized repo trading after the closing of the auction trading of the other securities products, so as to effectively improve the economical efficiency in current capital management.
3. With a product of auction trading having the trading hours extended for the first time, what issues should the market participants pay attention to?
During the formulation of the plan for adjusting the trading hours for the bond collateralized repo, the SSE comprehensively listened to the valuable opinions and suggestions of the market institutions, and the market institutions generally supported the adjustment of the business. Therefore, with the efforts of all parties concerned, the SSE made all preparations effectively. After being put into operation on the market, the improved and adjusted repo trading mechanism will play a more positive role in reality.
The path of implementing the business of extending the trading hours for the repo will involve the parties concerned such as the members, the counter system, the quotation providers and other market participants. All market participants shall make effective efforts in business and technical implementation, fully check the time limits for placing the orders for different products according to the adjusted requirements for trading hours, adequately manage the entrustment and order placing of the investors, and guide the investors in vigorously participating and avoiding entrusting and placing orders for other products of auction trading in non-trading hours, so as to ensure the normal and orderly operation of the market.