[2] In the context of a repurchase agreement, the secured debtor is also referred to as a “redemption” or “seller” and the secured creditor is referred to as a “redemption” or “buyer”. A party enters into a credit agreement or derivative instrument (“underlying agreement”) with a bank and creates a lien on the government bonds it holds in the CIBM to secure its obligations under the underlying agreement. A default event occurs later under the underlying agreement. The documents consist of a multilateral amendment agreement that allows market participants to integrate fallback solutions into their old uncleared derivatives with other counterparties that choose to sign the agreement and updated definitions of IEBs with fallback solutions that institutions can refer to when entering into new onshore derivatives transactions under the NAFMII Framework Agreement. The new definitions will come into force on October 29, 2021. No, the secured creditor cannot rely on the standard rules to enforce the guarantee in the event of default by the secured creditor. Instead, the non-defaulting secured creditor may request the return of the security by operation of law or in accordance with the agreement between the parties. For example, according to the NAFMII Master Repurchase Agreement (2013 version) (Pledge-Style), in the event of a reverse redemption default, the redemption may prematurely terminate ongoing transactions, repay debts (or the amount of early termination) and take back the guarantee. [1] PRC law prohibits a “fluidity clause” (禁止流质), according to which the parties agree at the time of conclusion of the collateral agreement that ownership of the security right will pass to the secured creditor in the event of default by the secured creditor (in fact, a self-executing transfer of ownership). The standard rules deal only with the scenario in which the secured creditor defaults and not with the default of the issuer of the CIBM bonds. If a credit event occurs in connection with the CIBM bonds used as collateral, resulting in a significant decrease in the value of the collateral, the secured creditor may make a margin call or substitution request as provided for in the agreements between them (e.B. NAFMII pledge type repurchase agreements). We summarize the SFC`s latest report on its regulatory priorities.
The vast majority of OTC interest rate derivatives transactions between onshore companies in China are documented in the 2009 NAFMII Framework Agreement, which is not covered by the ISDA IBOR Fallback Protocol and the IBOR Supplement on Fallback Solutions. The publication of separate documents for china`s onshore derivatives market will help reduce the disruptions that could occur if China`s benchmark transition efforts are not completed before the majority of LIBOR attitudes cease or become unrepresentative by the end of this year. In general, the rights of the secured creditor are not affected or otherwise affected by the standard rules. Christopher Faimali, ISDA London, +44 20 3808 9736, cfaimali@isda.org This article was written by Richard Mazzochi, Minny Siu, Stanley Zhou, Stella Wang, David Mu and Jia Zhihang. [3] Invitation by price, offer at full price (or sale price) and acceptance at multiple prices” means: The following chart shows which standard rules apply: The following default rules were published in June to address concerns about performing rights: Unlike the offshore structure, where all repurchased securities and margin facilities (cash margin and margin securities) are provided by direct transfer (e.B. under the Global Framework Takeover Agreement). (“GMRA”)), NAFMII transfer type pensions are a hybrid and complex instrument – pension obligations are subject to a transfer of ownership, but cash margin or margin securities are provided as collateral. You can return to our homepage by clicking here, or you can try searching for the content you are looking for by clicking here. We summarize the changes to the bond listing rules as published by HKEx last week. Following an announcement by the FCA on 5 March confirming the timing of the cessation or loss of representativeness of the 35 liboral parameters, adjustments to the fallback differences reflecting some of the structural differences between IBOR and RFRs have been set for all LIBOR maturities in euro, in pounds sterling, in Swiss francs, US dollars and yen. The fallback solutions will apply to 30 currencies and LIBOR maturities on the first London banking day after 1 January 2022 and to the remaining five maturities in US dollars on the first London banking day after 1 July 2023.
King & Wood Mallesons advised on the wording of the default rules. Please contact us if you have any questions. [4] Unlike the mechanism used by CCDC and SHCH (“invitation by price, offer at full price (or sale price) and acceptance at multiple prices”), CFETS calculates a single auction price at which all successful bidders purchase the respective amounts of the auctioned bonds. Fallback solutions for a particular currency apply after a permanent termination of the IBOR in that currency. For derivatives referring to LIBOR, fallbacks in the currency in question would also apply after the United Kingdom`s Financial Conduct Authority (FCA) has determined that LIBOR in that currency is no longer representative of the underlying market. The question for foreign investors now is not whether, but by what means they should have access to the large and liquid Chinese bond market. We explore key issues considered by clients looking to unlock investment opportunities in the People`s Republic of China. There are now well-established channels for foreign investors to access the market, as shown below. Click here to read the Supplementary Agreement on IBOR Fallback Solutions to the 2009 NAFMII Framework Agreement (in Chinese only). . We couldn`t find the page we were looking for. This is explained either by the fact that the default rules apply in principle to self-regulation applied by a foreign lien creditor, or by an onshore lien against a defaulting foreign lien.
Procedures may vary depending on the enforcement agency and may be subject to the regulation of the cross-border channel used, e.B. (R)QFII or CIBM Direct. There were two barriers for foreign investors to provide collateral on their HOLDINGS of CIBM bonds: The following table provides a comparison of the standard rules published by the three law enforcement agencies: Nikki Lu, ISDA Hong Kong, +852 2200 5901, nlu@isda.org Nick Sawyer, ISDA London, +44 20 3808 9740, nsawyer@isda.org First, the standard rules published by the CCDC apply since the CCDC is the institution for registering government bonds in the CIBM. “The ISDA IBOR Backup Protocol has been one of our most successful protocols of all time with over 14,200 parties to membership around the world. The large-scale implementation of the Protocol has been very effective in mitigating the systemic risk that would arise after the disappearance of LIBOR or another important IBOR. In close collaboration with NAFMII, we developed these documents to bring the benefits of fallback solutions to the Chinese onshore market,” said Scott O`Malia, Director General of ISDA. Click here for more information on fallbacks and customization methodology. ISDA and the National Association of Financial Market Institutional Investors (NAFMII) have published two documents in Chinese that allow companies to include contractual fallback solutions for certain offered interbank rates (IEBs) in onshore derivatives transactions documented in China under the 2009 NAFMII Framework Agreement.
Foreign investors who hold an onshore account through (R)QFII or CIBM Direct may participate in private sale proceedings as third-party buyers or auction proceedings as bidders. Foreign investors trading through Bond Connect can only participate if trading platforms (e.B. Tradeweb or Bloomberg) allow to participate in onshore law enforcement. .