Regulating Bond Valuation Services for the High-Quality Development of the Bond Market
To regulate bond valuation services in the interbank bond market, protect investors, and build a stable and healthy bond market, the People's Bank of China (PBOC) has recently announced the release of the Measures for the Administration of Bond Valuation Services in the Interbank Bond Market.
Combining the experience of mature bond markets with the practices in China, the Measures underscores the importance of neutrality, fairness, professionalism, and transparency of valuation firms. In particular, it specifies the basic criteria for internal controls, operations, and technology at valuation firms; clarifies the requirements for internal governance, the selection and use of data sources, the valuation methodology, information disclosure, and the handling of conflict of interest; requires greater technology use and transparency in the valuation process; and encourages diversified competition in the industry.
The Measures requires valuation firms to maintain objectivity and neutrality, improve the fairness of their valuation products on an ongoing basis, and establish clear, regulated, and transparent data usage standards and hierarchy such that the selected data can truthfully reflect the market conditions. Particular care is to be given to the source of data and the reliability of prices in periods of major market volatility. Furthermore, the Measures requires valuation firms to disclose information about their products, such as methodology, data sources and usage hierarchy, and change of methodology and termination and transfer of the products, in a truthful, accurate, complete, and timely manner. They should also publicly release quality assessment reports for their valuation products and address market concerns.
The Measures represents a key response to the Central Financial Work Conference’s call for promoting the high-quality development of the bond market, and helps raise the service standard of valuation firms and improve the pricing mechanism in the bond market. The People's Bank of China will continue to strengthen the management of bond valuation services and improve the valuation systems, the functions of the bond market, and the benchmark and transmission functions of bond market pricing, as a step toward building a modern financial system.
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