China Said to Plan Trading Platform for Credit-Default Swaps

  • The trading platform for CDS may start soon, people said
  • Move comes as demand for hedging tools increase amid defaults

China is planning to start a trading platform for credit-default swaps after the transactions began between banks from last month, according to people familiar with the matter.

The China Foreign Exchange Trade System, regulator of the interbank market, may start the platform soon, according to two of the people, who asked not to be identified because the details haven’t been announced. CFETS said that if a credit event is triggered, the buyers of CDS should get 75 percent of the notional amount of the CDS contract, said the people. It said the rate hasn’t been finalized and is subject to further changes, they said.

The platform would help boost development of the CDS market as investor demand rose for tools hedging against credit risks after at least 21 onshore bonds defaulted this year, compared with seven in 2015. On the first day of transactions on Oct. 31, 10 institutions including China’s four biggest banks conducted 15 default swap deals with a combined 300 million yuan ($44 million) of notional principal, according to a statement on the website of the National Association of Financial Market Institutional Investors.

An official at the press department of CFETS declined to comment.

Commercial banks were the main participants in the new credit-default swap market as regulators have yet to allow insurers or mutual funds to take part, according to the International Swaps and Derivatives Association, an industry group whose members include the world’s biggest banks.

— With assistance by Xize Kang, Shuqin Ding, and Judy Chen

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