China Central Depository & Clearing Co., Ltd. (CCDC) serves as a core financial infrastructure of China, plays a crucial role in leading and driving the development of the Chinese bond market with innovative efforts, and is a strategic supporter of China’s financial reform and growth. In line with the spirit of the 18th National Congress of the CPC as well as its Third, Fourth and Fifth Plenary Sessions and also the requirements of the “13th Five-Year Plan”, CCDC has formulated this Strategic Plan based on research and judgment of internal and external conditions, following the Principles for Financial Market Infrastructures (PFMI) and drawing on the practices of Chinese and foreign peers.
The Strategic Plan is the common program to instruct concerted and strenuous efforts of all the employees and delineates the road map for development of CCDC in the coming five years.
Chapter I Development Overview
I. Historic Significance
The year 2016 marks the 20th anniversary of CCDC. Since its establishment, under the leadership and support of competent authorities, CCDC has been faithfully functioning as the country’s financial infrastructure and taking part into the whole process of cultivating and constructing the China interbank bond market in line with the principle of serving the market and regulation, thus offering a series of milestone contributions which are fundamental and groundbreaking to the advancement of China’s bond market.
Ushering in a paperless era for Chinese bonds and establishing the central depository system. Upon its founding, CCDC took the lead in China to introduce the paperless centralized registration and depository system for bonds and pooled the remaining physical bonds together for centralized deposit, thus addressing the issue of a scattered depository system and safeguarding national credit and financial stability. The practice shows that this system has sharply enhanced the market efficiency while substantially decreasing the cost and risk of bond issuing and trading, laying a solid foundation for the following speedy and well-regulated development of the Chinese bond market.
Establishing safe and convenient depository and settlement methods that support quote-driven transactions. Learning from international experience and considering the domestic conditions, CCDC independently designed and established a wholesale market service mode of central depository and multi-tiered real-time gross settlement (RTGS) for institutions, and an OTC service mode for retail investors. In addition, CCDC has meticulously implemented a risk control mechanism. Thanks to these efforts, all kinds of investors can have easy and safe access to the bond market. Also CCDC has put in place favorable conditions to facilitate the opening-up of the market while maintaining the order of bond depository and settlement. It turns out that this set of service modes has vigorously supported the rapid rise of the interbank bond market as the major part of China’s bond market.
Unprecedentedly launching remote tendering of bonds and establishing a service system throughout the life cycle of bonds. In 1998, CCDC was the first one in China to establish the service system for remote tendering of bonds, which facilitated market-orientation and normalization of bond issuance, driving Chinese bond market toward a new stage. CCDC independently developed the ChinaBond Integrated Operation Platform (CIOP), through which it offers a complete set of services during the entire life of bonds by integrating a variety of functions, including bond issuance, registration, depository, settlement, interest payment, principal redemption and collateral management. This move has further reduced the market operating cost and the function integration & data exchange risk in an effective way and realized the modernization of China’s bond market infrastructure.
Building China’s first DVP settlement mechanism. Under the impetus of the People’s Bank of China (PBC), the CIOP was connected to the PBC’s High-value Payment System (HVPS) in 2004, enabling the real-time gross DVP settlement mechanism using the central bank currency. As a result, principal default risk is eradicated, while the automatic pledge financing mechanism provides robust guarantee for the stable and efficient operation of the payment system. This marks the fact that China’s financial infrastructure has reached an internationally advanced level.
Taking the lead in compiling and publishing the RMB bond yield curves. CCDC compiled and published the world’s first RMB government bond yield curve in 1999. Since then, it has worked out a whole set of ChinaBond pricing products comprising the yield curves of bonds at all credit ratings, valuation, indices and value at risk (VaR), which has effectively promoted the formation of fair value for bonds and the increase of market transparency while also bolstering interest rate liberalization and RMB internationalization. CCDC has also pioneered the approach of providing third-party valuation as a Central Securities Depository (CSD) in the world, which has been widely applauded by Chinese and foreign counterparts.
II. Development Status
Innumerable great achievements have been made in the past two decades. As a Systemically Important Financial Institution, CCDC has invested unremitting, precise and coordinated efforts and established seven core service platforms:
Bond market operation platform. The full-life-cycle bond service system has successfully supported the explosive growth of the bond market size and the implementation of all kinds of innovations while continuously reducing operational risk and cost. It is able to interconnect and integrate different markets and improve the transparency and standardization of the markets. Since its establishment, cumulatively, CCDC has supported bond issuances of almost RMB90 trillion, registered a total amount of bond settlement of more than RMB3,700 trillion and made interest and principal payment of RMB60 trillion on an agency basis. At the end of 2015, the bond under depository of CCDC had surpassed RMB35 trillion.
Platform that supports the implementation of macro-control policies. CCDC provides business and technical support for open market operations. Cumulatively, it has supported the issuance of central bank bills and open market operations at an amount of about RMB80 trillion, purveyed full-life-cycle services for RMB23 trillion of government and local government bonds and supported over RMB4 trillion of cash management operations of central and local treasuries. CCDC has likewise offered issuing technology assessment, centralized issue support and credit system development services for enterprise bonds.
Benchmark pricing platform for the financial market. As of the end of 2015, ChinaBond released over 1,300 curves, over 40,000 valuations, over 50 bond indices and about four million indices each day. The ChinaBond pricing products have become reference for implementation of fiscal and monetary policies and been widely used by market participants in their pricing analysis, accounting, risk measurement and performance evaluation. The Ministry of Finance (MOF) and the PBC publish the ChinaBond yield curves on their websites. The three-month Government Bond Yield Curve has been included into the SDR interest rate basket. The Third Plenary Session of the 18th CPC Central Committee has proposed “to improve the government bond yield curve that could reflect the supply-demand relationship”, while the“13th Five-year Plan” has put forward the requirement of “better leveraging the pricing benchmark role of the government bond yield curve”. The ChinaBond pricing products are expected to play an increasingly important role.
Risk management platform for the financial market. CCDC has always deemed maintaining the safety and stability of the market as its duty. It embeds risk control mechanism into the design of all business/service models and is making attempts to establish a risk management mechanism for the market. It provides specialized, intelligent and integrated collateral management services. In particular, its Collateral Management System has been extensively applied. With more than RMB9 trillion in bond collateral under management, the Collateral Management System has gradually played a pivotal role in market liquidity and risk management. The ChinaBond pricing products are a powerful tool for institutions to identify and measure internal risks of their portfolio. In terms of regulation, CCDC always performs the frontline surveillance function in an effective way in order to provide a basis for prevention of systemic and regional financial risks.
Platform for opening up the bond market. CCDC supports international financial institutions to issue Panda Bonds in China and provides bond depository and settlement services for all sorts of overseas institutional investors. As of the end of 2015, over 300 overseas institutions had opened accounts with CCDC, holding bonds worth more than RMB600 billion, over 90% of all onshore bonds held by overseas institutions. ChinaBond pricing products have been adopted by overseas institutions, and ChinaBond-based ETFs are publically traded on the New York Stock Exchange and the Stock Exchange of Hong Kong. CCDC is actively studying cross-border linkage models for the bond market, and trying to build an upgraded open bond market. It is also looking to spread its network to multiple locations, backing the financial reform in the free trade zone and the development of international financial centers.
R&D platform for innovations of the bond market. To promote innovation in the bond market, CCDC provides R&D supports for the introduction of new bond types and new settlement methods. CCDC provided consultancy on many projects carried out by the World Bank and the Asian Development Bank and wrapped up a series of important research achievements in assistance to the PBC, MOF and other administrative authorities. The annual report on the bond market and that on wealth management market released by CCDC have attracted broad attention across industries and sectors. What’s more, the CCDC Bond magazine is China’s sole authoritative and professional periodical on bonds, and the CCDC Online Training Platform is China's first online training platform in the securities sector.
Diversified financial market services platform. Under the guidance and promotion of relevant departments, CCDC has successively provided registration and other basic services for credit assets, trust products and wealth management products, and also established China Credit Assets Registration & Exchange Co., Ltd. (CCRE) as well as China Banking Wealth Management Registration & Depository Center. As of the end of 2015, the value of registered financial products exceeded RMB70 trillion. CCDC has thus played an active role in securing the sound development of the market, raising the effectiveness of regulation, protecting the rights and interests of investors and reducing the organizational cost of the financial market. In addition, it rolled out the ChinaBond Cash Management System, aimed at supporting the treasury business and wealth management business management of small and medium-sized financial institutions.
Chapter II Strategic Goal and Basic Principles
I. Strategic Goal
The next five years will be a decisive period for China’s initiative of building a moderately well-off society as well as an important period of strategic opportunity for CCDC’s reform and development. Facing opportunities and challenges, we need to engage in meticulous planning and carry out such plans in a practical manner.
From 2016 to 2020, CCDC will stick to the mission of “providing safe, efficient and professional financial infrastructure services” and core values of “Integrity, Responsibility and Service”, and pursue the strategic goal of the new era by investing unremitting efforts and exceeding current capabilities.
The strategic goal of CCDC for 2016-2020 is as follows: in active response to the national strategy and on the basis of central registration, depository and settlement, to speed up transformation and development of CCDC and implement the strategies of “Diversification, Conglomeration & Internationalization” to be a safe, efficient, open and transparent infrastructure service provider in major international financial markets.
II. Basic Principles
In implementation of the strategy, we will always remain dedicated to the country’s strategic financial orientation, abide by objective rules, adhere to clients’ demands and commit ourselves to promoting win-win cooperation and to fulfilling social responsibilities.
Chapter III Strategic Tasks
CCDC will adhere to the core businesses of central depository and settlement, continuously promote the “Two Transformations”, give play to its strengths of professionalism and large scale, and upgrade its refined and standard services. In addition, CCDC will achieve more breakthroughs in terms of the product, market, service, client and capital, foster new growth points, and enhance its leading role in promoting the integrated development of financial infrastructures. The major tasks include:
Continuing and improving core bond services. CCDC will improve its issuance service system to support market-oriented bond reforms, development of a credit system and expanded operational functions for policy implementation. It will also build a central depository system covering multiple markets and products to support the integrated interconnection within the bond market and encourage expansion of the OTC market. Efforts will be made to research depository services, build a DVP settlement mechanism that accommodates multiple currencies and channels, and improve settlement risk management mechanisms.
Expanding the application of ChinaBond pricing products. CCDC will build a new generation ChinaBond pricing products, accelerate the serial and international development of products, and expand market segments. It will constantly improve bond yield curves, expand ChinaBond valuation services to non-bond asset sectors, enrich the customized indices, and promote application in featured fields.
Upgrading collateral management services. CCDC will provide multi-functional, trans-market and internationalized collateral management while building ChinaBond into a strong collateral management brand. It will promote diversification of the collateral management services, support innovative application, expand its collateral management functions, and facilitate rapid disposal of collateral.
Exploring comprehensive services for various financial products. CCDC will enhance loan market services, wealth management depository services and trust registration services, widen the presence and influence of the ChinaBond Cash Management System, and support development of transfer and settlement platforms for innovative products and financial assets.
Deepening services for innovative R&D. CCDC will build professional and targeted think tanks to cater for financial reform, innovation and regulation. It will also support regulated growth of internet finance, innovative development of green finance and the development of local financial infrastructures. Greater efforts will be made to study macroeconomic policies and enhance surveillance and statistics.
Heightening data service functionality. Implementing the data strategy, CCDC will enhance the role of data in supporting business, technology and management innovation. It will establish a data sharing mechanism and expand data application both horizontally and vertically so as to effectively meet the needs of internal decision-making, external macro oversight and control, as well as other market services.
CCDC will enhance resource coordination and corporate synergy, stand as a conglomerate providing comprehensive financial infrastructure services and realize leap-forward development of the conglomerate’s comprehensive strength based on the framework of “one partial ownership, three controlled subsidiaries and three business locations” while remaining dedicated to the important orientations of conglomeration expansion and management. The major tasks include:
Upgrading organizational structure. CCDC will define functional modules including bond operation, strategic innovation, client service, IT and comprehensive guarantees. It will accelerate the development of the financial infrastructure conglomerate and refine the IT service center mechanism. Efforts will also be made to refine the geographical network by setting up Shanghai headquarters, giving Shenzhen customer service center a bigger role, developing service centers in other regions and building offices overseas as appropriate.
Promoting strategic synergy. CCDC will give general consideration to the strategic positioning of subsidiaries and seek to achieve high-level strategic synergy, management integration and resource sharing. The headquarters will play the roles of comprehensive management, monitoring and control, and service support, while facilitating basic bond operation business. The subsidiaries will focus on innovation in special fields as well as business operation, demands development and special marketing projects in value-added fields.
Building new modes of client service. A group-level client service system will be created. CCDC will decide on conglomerate brand image strategy, enhance standardization, normalization and classification of products and services. A conglomerate training system will be enacted. CCDC will give wide latitude to the “research, publicity and service” function of the magazine, and build a group of websites.
CCDC will plan for the frontiers of financial opening-up. Considering both the onshore and offshore RMB bond markets and drawing on capacity building, CCDC will advance a point-to-area expansion of international services in due course, so as to become a core financial infrastructure with cross-border linkage, global reach and growing international competitiveness and profile, which is in consistence with the international status of RMB. The major tasks include:
Enhancing capacity building to offer international services. CCDC will promote cross-border Straight-Through Processing (STP) and provide international investors with tax services and English version of service information. It will likewise grow its international network and take active part in the development of multilateral organizations to upgrade its international exchange to higher-level practical and effective cooperation.
Facilitating the multi-dimensional layout of cross-border business. CCDC will boost centralized issuance, pricing and depository of RMB bonds, and promote cross-border settlement. It will try to build an upgraded open bond market featuring enhanced connectivity between CSDs to facilitate both “bringing in” and “going abroad”, thus supporting the overall market opening-up layout. It will promote cross-border utilization of RMB bonds as collateral, support connection between the onshore and offshore markets, and deepen cross-border information cooperation. It will likewise help overseas institutions with market information, enhance overseas promotion of ChinaBond pricing products and try to take the lead in third-party valuation.
Building an international gateway. CCDC will build a platform for cross-border issuance of RMB bonds, allowing multiple issuance modes for both onshore and offshore issuance. It will also advance global RMB collateral management and provide collateral management services for cross-border transactions. CCDC will seek to connect to cross-border payment systems, improve cross-border settlement platforms, and connect to international trading platforms in practical cooperation with offshore platforms.
Financial infrastructure construction has thus far been promoted to the level of a national strategy. Facing new situations and new missions, we will remain dedicated to our original ambitions, forge ahead with a determined mind, and invest concerted efforts to explore new frontiers in financial infrastructure development based on this plan.