As we look back at the bond market in 2024, the term "bull market" undoubtedly captures the essence of the yearHowever, the story behind this optimistic narrative is layered, featuring clever financial maneuvers alongside serious regulatory violationsThus, the concept of stringent regulatory oversight emerged as a crucial theme throughout the year.

From issuance and fundraising to investment and trading, it is important to scrutinize which entities engaged in wrongful conduct, thereby disrupting market orderIn response to numerous violations, relevant authorities greatly intensified their scrutiny in 2024. A considerable number of cases brought to light showcased both longstanding issues and new complications that arose due to market fluctuationsThis included instances of banks engaging in arbitrage during the bond acquisition process and asset management institutions, such as trusts and funds, becoming mere conduits that undermined investor interests.

As 2025 commenced with a robust opening for the bond market, it soon faced corrections

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Industry insiders from various organizations indicated that the signs of capital 'rushing out,' or rapidly withdrawing investments, would lead to increased disturbances in the bond marketRegulatory trends appeared to indicate that the focus would solely be on tightening measures rather than easing restrictionsAccording to an announcement from the China Interbank Market Dealers Association, the organization convened a symposium for financial market investors, emphasizing the need for enhanced self-regulatory measures going forwardIn November 2024, the secretariat of the association announced the establishment of a second self-regulatory investigation division.

Small to medium-sized institutions made their presence felt within this bond market bullishnessAs 2024 drew to a close, the central bank imposed hefty fines on three institutions for their wrongdoing in the bond market, highlighting a zero-tolerance policy towards illicit activities

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Notably, Shanghai Dongya Futures Co., Hunan Xupu Rural Commercial Bank, and Tianjin Xintang Currency Brokerage Cofaced penalties totaling nearly seventy million yuan for violating interbank bond market regulations and failing to adhere to customer identification obligations.

Before these penalties were announced, several malpractices were spotlighted in a self-regulatory investigation by the Dealers AssociationSmaller financial institutions became emblematic of the alarming trend of significant banks lending while smaller banks purchased bonds, a scenario characterized by reckless financial behaviorFor instance, according to the earlier communication from the Dealers Association, various banks including Jiangsu Changshu Bank and Jiangnan Rural Commercial Bank exhibited inadequate internal controls over bond trading and excessive incentives for tradersThis led to distorted trading behaviors such as preferential buying and selling, insider trading, and frequent price manipulations that undermined the integrity of bond pricing.

During a recent symposium hosted by the Dealers Association, attending institutions voiced their concerns regarding risks in the current market landscape

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One major point of discussion focused on the apprehensions surrounding smaller institutions, particularly in light of a phenomenon known as the "herd effect." Some entities expressed that the interbank market, being dominated by qualified institutional investors, was increasingly at risk as many smaller players lacked adequate capabilities in interest rate risk managementThe call for stronger regulatory oversight was echoed, as the conduct of some smaller institutions seemed misaligned with their operational capacities, partly attributed to improper services from brokerage advisory businesses.

The announcement also mentioned that many participating entities believed that the influx of funds into the bond market since the beginning of 2024 had led to a rapid decline in market interest rates, resulting in growing interest rate risksHowever, investors' anxiety of missing out on opportunities fueled a pronounced herd mentality, emphasizing the need for clearer guidance from regulatory and self-regulatory bodies

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Some institutions cautioned against overstretching expectations for monetary policy easing in 2025, as implementing proactive fiscal policy entails fulfilling several processes that require additional coordination.

The discussion progressed towards speeding up the development of derivatives and broadening the range of market participants to meet reasonable hedging demandsMoreover, there was a consensus that regulatory agencies should take strong action against misleading information being circulated in capital markets, eliminating any platforms that allow for such unfounded narratives to persist.

One increasingly troubling trend has been the misuse of asset management functionsAsset management products represent a significant group of investors in the interbank market, especially under the recent transition towards comprehensive net worth managementIn this context, the volume and proportion of bonds held have surged over the years.

However, there have been troubling reports of asset managers taking drastic measures to exploit situations for personal gain

Evidence shared by the Dealers Association revealed that certain malpractices, including environmental factors such as "self-financing," "rebates," and "proxy holdings," have evolved to become more complex and clandestine due to the involvement of asset management productsSuch actions not only disrupt market pricing but also harm investors’ interests.

One primary avenue through which these violations manifest is in undermining issuance order and disrupt pricingCases of "self-financing" have emerged, where issuers engaged in collusion to assure their bonds would be successfully issued; they would partner with associated parties to establish or subscribe to asset management products, ultimately leading to unethical practices of financial maneuvering.

Additionally, some issuers provided additional "rebates" outside of the nominal interest rates, attempting to minimize their rates through unofficial compensation methods

Findings have indicated that many asset managers are secretly signing supplementary agreements to make up for predicted income disparities while employing various other convoluted structures to circumvent regulatory scrutiny.

Furthermore, the ways in which asset management institutions execute trades are diverse and often counterproductive, undermining market pricing and eliciting frequent complaints from investorsExamples include an asset manager "proxy-holding" bonds on behalf of counterparts, thereby facilitating illicit profits while exposing investors to risks of loss and counterparty defaultsAdditionally, in these proxy trades, pre-determined pricing led to severe distortions in price signals as transactions bypassed the necessary market inquiry procedures.

Some asset managers also commingle earnings across different products, impacting fairness to investorsReports disclosed that managers would engage in high-stakes transactions across accounts without conducting honest market inquiries, resulting in significant profit losses for individual investors.

Instances arose where management responsibilities were contracted out or poorly managed, inadvertently allowing for violations to flourish

Many asset managers exhibited a lack of familiarity with interbank market intricacies and delegated responsibilities to less competent teams, often failing to scrutinize dubious trades, focusing only on ultimate returns, thereby allowing for numerous violations.

In the wake of these challenges, the call for enhanced self-regulatory measures continued to growThe repercussions of these problems did not solely lie with asset management institutionsFor example, a disclosure from the Dealers Association in December 2024 highlighted that Hubei Bank was sanctioned for disbursing funds for an issuer despite knowing that the use of those funds was prohibited by the offering documents—a grave breach of fiduciary responsibility.

Incomplete statistics reported by industry insights indicated numerous financial institutions had received disciplinary actions for misconduct in bond issuance, transactions, and management