China gets credit.pdfVIP

SPECIAL REPORT CHINA The National Association of Financial Market Institutional Investors published new guidelines last year that pave the way for the launch of a credit derivatives market in China. What are the hurdles to growth? By Benjamin Liu, Chin-Chong Liew, Simon Zhang and Chris Zhao China gets credit After months of anticipation, structures to be introduced later, only Although not expressly stated, it seems the National Association CRM contracts and CRM warrants are clear loans would fall within the ambit of of Financial Market Institutional contemplated at this stage. “other similar debts” and would qualify as Investors Nafmii published the a reference obligation. However, it is Guidelines for interbank market credit risk CRM contracts doubtful if other types of payment mitigation instruments pilot scheme on A CRM contract is an agreement under obligations, such as trade receivables and October 29, 2010. his is a major which the credit protection buyer pays a swap obligations, could qualify as milestone in the China interbank market premium to the seller, and the seller reference obligations. and paves the way for the launch of an provides credit risk protection on a Given the requirement of credit onshore credit derivatives market. reference obligation. Although not linkage to a reference obligation, CRM he instruments introduced under the expressly stated, it would seem that contracts are akin to ‘Ref Ob Only’ pilot scheme are relatively simple. At this settlement of a CRM contract whether by CDSs traded in the international stage, only two types of products are cash settlement, physical delivery or markets. However, it is uncertain allowed: credit risk mitigation CRM auction settlement has to be conducted in whether other permutations will be contracts, which are efectively over-the- connection with the reference obligation. acceptable to Nafmii and the interbank markets. Would parties be able to conduct CRM contracts on reference In terms of the