Recently, the China Central Depository & Clearing Co., Ltd. ("CCDC") has formulated the Rules of the China Central Depository & Clearing Co., Ltd. on the Registration, Custody, Clearing and Settlement Business for the Northbound Trading under the Bond Connect (Draft for Comment) (the "Draft for Comment") for public comments before June 26, 2017.
The Draft for Comment clearly sets forth that overseas investors planning to invest in the Mainland interbank bond market through the Northbound Trading should satisfy PBC's requirements on the scope of overseas investors, types of bonds that could be traded, and the range of bonds that could be invested. Also, the Draft for Comment prescribes that the aggregate amount of bonds registered by the Hong Kong Monetary Authority ("HKMA") CMU under a bondholder that has opened a bond account with it shall be equal to the balance of bonds registered by the CCDC in the bond account of the HKMA. According to the Draft for Comment, settlement will be made on a delivery versus payment (DVP) basis for bond transactions under the Northbound Trading. Funds and bonds that are pending for payment at the stage of bond settlement and will be delivered, as well as the pledge for the settlement concerned should be used for this settlement only. Settlement of bonds cannot be cancelled once completed.