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China Moves Toward Launching Credit-Default-Swap Market 

August 5, 2016

Shen Hong, The Wall Street Journal

China is edging closer to launching its own version of a popular hedging tool that protects investors in case of defaults, as the world’s No. 2 economy struggles to cope with slowing growth and record numbers of companies not paying back debt.

The National Association of Financial Market Institutional Investors, an industry body backed by China’s central bank, has consulted major banks and brokerage firms in recent weeks about the planned rollout of credit default swaps, three people familiar with the situation said. The swaps would pay out if the issuer of a bond or a loan defaults, said the people, who were briefed by the regulator on the matter.

The regulator, which oversees China’s $8.5 trillion interbank bond market, has drafted guidelines and standardized contracts for the product, one that has in the past two decades become a key tool in global markets to hedge government and corporate debt, the people said.

NAFMII has hired a group of lawyers to help align its CDS rules with internationally accepted practices and is expected to ask the People’s Bank of China for formal approval to launch the market soon, one of the people said. Read more

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