China Inter-bank Bond Market, The Market Maker Function Studies

After established in 1997,the inter-bank bonds market has developed quickly, and now has became the main issue and trading place of the treasury bonds, financial bonds and others. Up to now about 70% bonds have been trading at this market. As the main part in bonds market, the function is more intensely cared by the People's Bank of China and the Ministry of Finance. In July 2001, PBC authorized nine commercial banks as the market maker of the inter-bank bonds market, to quote double-side price to the other trader in the market, which indicate the establish of mechanism of market maker in China inter-bank bonds market. The target of this action is aimed to enhance the liquidity of trading bonds and improve the development of the market, which can facilitate the execution of the money policy for PBC. Not only theory field, but also supervision stratums recognize the importance of the new mechanism. Now it is a very urgent problem and becomes key problem of restraining the further development of bonds market. By choosing the dealing data in the inter-bank bonds market after the establish of the market maker, using the econometric tools, this paper analyzes the function of the market maker in increasing the liquidity and guiding the bonds price in order to get to the bottom of the existent problems.Chapter one introduces the researching background, the meaning of selecting title and the research methods. Chapter two defines the relative concept in the paper. Chapter three gives the common characteristics of inter-bank bonds market and the dealer in this market, on the basis of the security microstructure theory. Chapter four tests the function of improvement the liquidity and the price discovery for dealer in the market. Chapter six draws some conclusions and gives some possible suggestions for further improvement of the dealer system.