By staff reporter Cao Zhen

(Caijing.com.cn) China's banks have moved a step closer to resuming bond trading on the nations' stock exchanges with the regulator unveiling the requirements for banks to participate in a trial program.

To participate in the trial program, banks will need to set up internal controls and risk management policies and meet a capital adequacy ratio standard, according to the China Banking Regulatory Commission's statement posted on the official China bond website July 2. Details of these requirements were not provided.

Other requirements were specified. The manager of a bank's bond trading section must have at least seven years' experience and be supported by at least three traders with a minimum of 5 years' experience.

Banks will not be allowed to trade securities that have an equity component, such as convertible bonds, and the CBRC will have the power to suspend the bank's trading license if it is found to have shortcomings in risk management and other requirements, according to the statement.

Banks wishing to participate in the trial will need to register with the China Government Securities Depository Trust and Clearing Co. They will also need to disclose their bond trading performance for the last three years and their current trading positions in bonds. They will also need to make a detailed forecast of bond trading volume.

The trial program was initially announced in January 2009.

The State Council banned commercial lenders from trading on exchanges 1997 after they were found to be illegally investing funds from bond repurchase agreements into the stock market. Since then, the bond market has been divided into the interbank market and the exchange market, each with different regulations.

China's bond market is dominated by interbank trading, with only around 7 percent of trades taking place in exchanges.

Full article in Chinese: http://www.caijing.com.cn/2009-07-02/110192488.html