AS it continues to open to foreign participation, China’s domestic financial market has seen a sharp rise in market size and number of players. Over the past five years, the onshore bond market has grown by 18% annually to reach around 110 trillion yuan (US$16.85 trillion) at the end of 2020, up from the 2015 year-end reading of around 50 trillion yuan.
Given the rapid growth of the market, there is much room for improvement, particularly in the matter of trading mechanism, says Michael Qian, head of the financial trading department at Ping An Bank.
“Firstly, unlike in international markets, the financial trading market is still relatively dispersed in China in terms of number of players,” Qian tells The Asset in an interview. “Secondly, there is a lack of quality market makers, which means that there is not enough liquidity in the market and price discovery is not functioning in many products.
“No single financial institution is able to complete a block trade without affecting the market prices. These problems have already led to a negative feedback mechanism in the market, meaning the lack of liquidity is further tightening secondary market liquidity.”
As a leading joint-stock commercial bank in China, Ping An Bank has beefed up investment in its FICC (fixed income, currencies and commodities) business over the past few years, particularly in terms of fintech innovation, international talents recruitment, and training of a competitive trading team. All this is part of its ambition to become the country’s top FICC market maker and dealer while improving market liquidity and trading efficiency.
Currently, Ping An Bank’s FICC business mainly focuses on investment, trading and client services in fixed income, foreign exchange and commodities. The bank has expanded its FICC business rapidly and has become one of the most active market makers covering multiple financial products. It has also extended and broadened its financial institution and corporate services with a diversified FICC product suite.
The FICC trading business has become a new source of profit growth for the bank. In 2020, Ping An Bank “actively explored the FICC market-making business, continuously provided liquidity to the market, and effectively consolidated its leading position in the market-making business”, according to its annual report for that year. In particular, the fixed-income business recorded a net income of 4.3 billion yuan, up 33.9% from the previous year.
Through its “Finance + Technology” strategy, Ping An Bank became the first bank to launch a multi-asset digital trading platform covering bonds, interest rates, FX and commodities. The platform, integrating big data, quantitative analysis and real-time risk management system, has achieved data visibility, real-time control, online processing and trading automation in the trading business, resulting in a larger trading size, enhanced trading security, and higher efficiency in trading execution.
Under the “trader + quantitative analysis + technology” trading framework, the bank’s experienced trading team works closely, agilely and efficiently with the quantitative analysis and system development teams. With quantitative analysis support for traders and an efficiently functioning trading system, the human and system collaboration ensures agility and accuracy in the bank’s trading executions.
As China accelerates the opening of its onshore bond market, a growing number of financial institutions are keen on participating in the world’s second largest bond market. From October 2021, the FTSE World Government Bond Index will officially include China government bonds, which means that all the top three international index providers will have covered the country’s onshore bonds. It is expected that around US$125 billion to US$150 billion will be flowing into the China bond market in the near future.
“Overseas investors do not have a deep understanding of the China market,” says Qian. “Therefore, finding the right financial institutions to provide the best relevant information, market-making capability and business support is key to them. For Ping An Bank, it is the best time to share with them what’s happening in the China market. And to overseas investors, Ping An Bank is also their best choice to help them explore and understand the China market more deeply.”
Ping An Bank has established a trading team with vast experience in both domestic and overseas markets. Seasoned professionals from Wall Street contribute their advanced trading techniques and expertise, while domestic trading experts draw on their long years of hands-on experience and deep understanding of the China market. The bank is also speeding up its business expansion in the global financial market as part of its efforts to form a bridge between international investors and the China market. The business integration of its Shenzhen, Shanghai and Hong Kong offices is a move towards this end.
In recognition of its trading capability and platform advantage, Ping An Bank was awarded several financial trading awards in the local currency market by the China Foreign Exchange Trade System in 2019 and 2020. Last year, The Asset named Ping An Bank as “Best Bank for Investment Solutions, Interest Rate” in China. According to The Asset editorial team, Ping An Bank, as an active participant in China’s interest rate market, has offered a series of interest rate solutions highly appreciated by its clients.
Going forward, Qian believes that as China’s trading mechanism continues to improve, its financial market is likely to expand in size in a rapid manner. “The direction that China’s FICC market is moving towards is quite clear and the momentum is unstoppable. By 2026, electronic trading and automatic trading will become mainstream. With evolving technology and capital investment, the market is likely to be more concentrated. Meanwhile, as new asset management rules are reshaping the industry, market participants are gradually completing their net asset value-based product transformation. In this sense, financial institutions with competitive trading capability will stand out in the competition.”
For Ping An Bank, the vast opportunities in China’s FICC market will only encourage the organization to enhance its technological advantages and financial trading capabilities, thereby helping improve market liquidity and efficiency. At the same time, the bank will continue providing clients with a one-stop shop financial trading solutions while optimizing asset allocation and lowering financing costs for corporates.
Contact: Ya Yin
Ping An Bank Co., Ltd
Tel: +86-755-81928137/ Email: [email protected]
Vincent Wang
Ping An Bank Co., Ltd Hong Kong Branch
Tel: +852-37629596/Email: [email protected]
