PBOC Finalises Rules on ‘Standardised Note’ Issuance

Source: Regulation Asia Editors, Regulation Asia 2020-07-03

Standardised notes will be considered money market instruments, backed by commercial paper which generates cash flows for distribution to investors in the instrument.

The PBOC (People’s Bank of China) has finalised its rules for ‘standardised notes’, seeking to improve their utility as a financial channel for SMEs.

‘Standardised notes’ refer to tradable beneficiary certificates backed by commercial paper to form an asset pool, where the cash flows generated from the underlying assets support income distribution to holders of the instrument.

The first issuance of standardised notes was carried out in August 2019 on a pilot basis. Such instruments were seen as a way to ease liquidity pressure on small and midsize financial institutions, while also supporting the financing needs of SMEs.

Draft rules were published for consultation in February, setting out the requirements for commercial banks and securities companies to participate as depository institutions for the issuance of standardised notes, among other provisions. The consultation received responses from 47 institutions and individuals.

The rules, now finalised, clarify the definition of standardized notes as money market instruments, where the basic asset pool must be formed with underlying commercial paper with similar core credit elements and maturities.

The original bearer of the underlying commercial paper is responsible for the authenticity, legality, and effectiveness of the assets, which depository institutions and bill brokerage institutions should also review and verify.

Depositary institutions are required to make complete, timely and accurate disclosures regarding information that could have a material impact on the investment value of standardised notes before and during their creation.

Existing regulations governing China’s interbank bond market will apply to standardised notes in relation to underwriting, registration, custody, and trading.

The final rules, available here, will take effect from 28 July.

People’s Bank of China

PBOC Finalises Rules on ‘Standardised Note’ Issuance

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