SHANGHAI, March 27 (Reuters) - Chinese regulators are urging brokerages to pay strong attention to risks in their bond repurchase, or repo, businesses, after some borrowers failed to answer margin calls, two sources said on Wednesday.
Ten institutions which borrow money using bonds as collateral in the repo business failed to increase deposits after margin calls were triggered, prompting five brokerages to use 242 million yuan ($36 million) worth of their own money to plug the hole, according the China Securities Investor Protection Fund Corp, supervised by China’s securities watchdog.
The Investor Protection fund warned that risks from frequent bond defaults could spread to the bond repo business, according to the source.
Defaults could hit the value of collateralized bonds, triggering margin calls and increase the risks at brokerages, which lend the money.
Chinese regulators have issued a flurry of warnings in recent months over an apparent resurgence in riskier types of financial activity, as policymakers shift their focus from a debt clampdown to boosting the slowing economy.
China’s securities regulator announced measures on Monday to restrict convertible bond subscriptions after surging demand for the instruments, prompted by this year’s stock market rally, raised concerns over market liquidity.
$1 = 6.7222 Chinese yuan renminbi Reporting by Li Hongwei and John Ruwitch; Writing by Samuel Shen; Editing by Kim Coghill