March 27, 2018 / 8:01 AM / a year ago

China securities regulator restricts bond fund investments in NCDs - sources

SHANGHAI, March 27 (Reuters) - China has imposed new limits on investments by some mutual funds into negotiable certificates of deposit (NCDs), people with knowledge of the matter said, as the popular debt instrument draws regulatory scrutiny amid an ongoing deleveraging campaign.

The China Securities Regulatory Commission (CSRC) advised mutual fund companies through so-called “window guidance” that a newly established bond fund’s total investment allocation to NCDs cannot exceed 20 percent of its portfolio.

The same guidance also said newly established bond funds could comprise less than 80 percent bonds.

A message seen by Reuters and confirmed by two sources said the window guidance was issued in response to concern about excessive allocation of NCDs by mutual fund companies in their bond funds.

The message was directed at mutual fund companies in Shanghai. It was unclear whether companies based outside of Shanghai are also covered by the restrictions.

The limits were previously reported by China Securities Journal, citing unnamed sources.

Issuance of NCDs, a popular interbank instrument, has remained strong despite regulatory efforts to rein it in. The value of outstanding NCDs currently stands at a record high, and issuance is set to break quarterly records.

Window guidance refers to informal instructions from regulators that are often communicated orally with no written notice.

The CSRC did not immediately respond to a Reuters request for comment.

Reporting by Andrew Galbraith and Engen Tham; Editing by Sam Holmes

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