The three major "misconceptions" in the bond market urgently need to be clarified, strict investigation of illegal transactions to help market high-quality development - Interview with Xu Zhong, Deputy Secretary-General of the Bank Of China Interbank Market Dealers Association.

found suspicious trading activities in four rural commercial banks, including potential market manipulation and profit transfer. Therefore, the association has initiated investigations into these institutions in order to maintain market order and crack down on illegal activities. The specific violations have not been confirmed yet, as the investigations are still ongoing.It was also found that four rural commercial banks were involved in obvious market manipulation and suspected of interest transfer. The Futures Industry Association conducted a self-regulatory investigation based on its self-regulatory rules, and the relevant issues are still under further investigation.From the violations in the self-discipline investigation, it can be seen that the management of some small and medium-sized financial institutions is not familiar with the financial market business, the internal controls are not strict, and the incentive mechanisms are excessively flexible, giving employees opportunities for misconduct. Some traders take advantage of this to collude with private equity funds off the market for the transfer of benefits. In addition, high-frequency trading and other strategies are common practices for overseas hedge funds, with high investment risks, while domestic small and medium-sized financial institutions use deposits from LBX Pharmacy Chain Joint Stock to bet on directions and speculate on price differences. Data shows that the bond income of some small and medium-sized financial institutions accounts for over 30% of operating income, with some even exceeding 50%. Such aggressive trading strategies obviously exceed their risk management capabilities. In recent years, China's interbank bond market has developed rapidly, with a bond trading volume of nearly 200 trillion yuan in 2023 and more than 50,000 market participants, playing an important role in promoting price discovery and optimizing resource allocation. However, with the growth of the market, some irregularities have also emerged, such as lax internal control management, distorted incentive mechanisms, aggressive business styles, disregarding risks, and even using the downward trend of market interest rates to engage in violations such as holding bonds on behalf, manipulating the market, lending accounts, and conducting benefit transfers, "earning for oneself, losing for the institution", harming the legitimate rights and interests of investors in the interbank bond market, and seriously interfering with the market price discovery function and monetary market transmission. Under the guidance of the People's Bank of China, the Securities Dealers Association has continuously strengthened self-discipline management in the interbank bond market to maintain and regulate market order. Firstly, it has formulated self-discipline rules to guide market institutions to operate in compliance. Specific self-discipline guidelines have been issued for key market participants such as market makers and brokers, with clear requirements for using real-name traceable communication tools in key aspects such as quoting and inquiries to strengthen the standardization of monetary brokerage quotations and govern fictitious and undisclosed transactions. Secondly, it has intensified inspections and investigations to punish violations. Regular inspections of market makers, brokers, and small and medium-sized financial institutions are conducted, and self-discipline measures are taken against violations, strictly enforcing market discipline. Up to now, more than 40 self-discipline penalties have been imposed for violations such as bond holding on behalf, lending accounts, and broker false matching, and some institutions and individuals with serious violations have faced serious measures such as suspension of business permits and market bans. In addition, the Securities Dealers Association has established a law enforcement linkage mechanism with the securities regulatory authorities and public security agencies, and has transferred clues of suspicious cases of large-scale benefit transfers involving asset management products to the public security department. Next, the Securities Dealers Association will resolutely implement the relevant requirements of the Central Financial Work Meeting, and in conjunction with the market development situation, continue to promote the optimization of the secondary market system in the interbank market, increase the investigation and punishment of illegal and irregular transactions in the interbank bond market, help prevent and resolve financial risks, promote high-quality market development, and maintain a good trading order in the bond market. We have noticed that some domestic and foreign media believe that the downward trend in long-term interest rates in China also reflects issues of insufficient development foundation, insufficient total demand, and weak expectations in economic operation. In fact, the Central Committee and the State Council have acknowledged these issues and have begun systematic planning to address them. The Third Plenum of the Twentieth Central Committee has clearly defined the reform direction in improving the financial relationship between the central and local governments, expanding domestic demand with a focus on boosting consumption, enhancing the consistency of macro policy orientation, including increasing the financial resources of local governments, promoting the matching of financial rights and responsibilities, and balancing investment and consumption. The country is also accelerating the comprehensive transformation to green economy and social development, deploying orderly exit mechanisms for inefficient capacity and emphasizing the firm completion of annual economic and social development goals. As various policy deployments solidify, the foundation for economic recovery and reform development will be further consolidated, and social expectations will also improve. Furthermore, the recent acceleration in the issuance progress of national and local bonds will further balance the supply and demand in the bond market. It is also important to recognize that promoting high-quality development and structural reforms is a long-term process that requires continuous efforts. This article is reprinted from "Financial Times", author: Ma Meiruo; GMTEight editor: Liu Jiayin.