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China INE to Accept Chinese Government Bond as Margin

 On September 2, Shanghai International Energy Exchange (INE), a subsidiary of Shanghai Futures Exchange (SHFE), has released the amended Clearing Rules of the Shanghai International Energy Exchange and Delivery Rules of the Shanghai International Energy Exchange, formally accepting Chinese government bonds as margin collaterals. The two amended rules will come into effect on October 18, 2021.

There are three major additions to the updated Clearing Rules. First, the provision that “book-entry Chinese government bonds issued in the Chinese Mainland by the Ministry of Finance of the People’s Republic of China” can be used as margin. Second, the provision that “Any Client, Overseas Intermediary, or OSP that posts assets as margin is deemed to have given consent to its carrying FF Member to post the assets at the Exchange [i.e., INE] as margin,” and the related consent clause, which states “Any Client, OSP, Overseas Intermediary, or Member that posts assets as margin is deemed to have authorized the Exchange to complete the transfer or pledge of those assets.” Third, the rule that “in each instance where Chinese government bonds are posted as margin, the total face value thereof shall not be less than one million yuan (RMB 1,000,000).”

The updated Clearing Rules also contains revised and more specific rules regarding the procedures for posting marketable securities as margin, attribution of interest for bonds being used as margin, and the time limit for marketable securities used. For the Delivery Rules, the provision on the use of standard warrants as margin has been removed.

Market observers see government bonds as high-quality collaterals due to their stable value and high liquidity. SHFE launched this service on October 19, 2020. It has been running smoothly, with active interest from investors and rising bond deposit volume.


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