The Financial Market Department of the People's Bank of China ("PBC") has recently distributed the Circular on Matters Concerning the Administration of Short-term Financing Bills Issued by Securities Companies (the "Circular"), immediately effective from the issue date.
The Circular requires that, to issue short-term financing bills, a securities company shall not only meet conditions specified in Article 9 of the Administrative Measures for Financing Bills of Securities Companies, but also have relatively strong capability of liquidity management to ensure the reasonable and adequate liquidity, have a liquidity coverage ratio that is constantly higher than the average level of the industry, carry out asset management business in a lawful manner and satisfy regulatory requirements over asset management business, such as standardizing the capital pool and calling compulsory repayments to a halt. According to the Circular, a securities company's offering of short-term financing bills shall be subject to the control over the balance, and the maximum outstanding balance of short-term financing bills, plus the balance of other short-term financing instruments offered by such securities company, shall be up to 60 percent of its net capital. Furthermore, the Circular notes that a securities company shall step up liquidity risk management and establish a thorough liquidity risk management system, to effectively identify, measure, monitor and control liquidity risks.