NAFMII organized market members to formulate the Master Agreement for Bond Repurchase Transactions in China's Inter-bank Market (2013) (hereinafter referred to as the “Master Agreement"). The Master Agreement was reviewed and adopted at the second meeting of the NAFMII Second Executive Council and promulgated on January 21, 2013 in accordance with the relevant requirements in [2012] No. 17 announcement of the People's Bank of China (PBC).

After more than 10 years of development and practice, China’s interbank bond repo market has expanded continuously in breadth and depth. The market saw rapid growth, with annual turnover rising from RMB 30,987 million in 1997 to RMB 151.7 trillion in 2012; participating organizations were increasingly diversified to include more than 2200 financial and non-financial institutional investors such as banks, insurance companies, securities houses, trusts and mutual funds, compared to only 16 commercial banks at the beginning. At present, the bond repo market has become the main market for market players to raise short-term funds and manage liquidity as well as an important channel for the PBC to conduct open market operations and enable monetary policy transmission mechanism.

The new version was drafted with full demonstration and thorough consideration in aspects such as framework structure, core mechanism arrangement, risk event response and signing method, taking into account practicality and innovation and fully embodying the characteristics of "continuity, applicability, and perspectiveness”. First, in terms of structure design, the Master Agreement adopts a “general terms + special terms” structure, with general terms to define what is in common for pledged repo, outright repo and other types of repo transactions and with special terms to specify personalized contents, which enables the structure of single agreement, thereby reducing cost in deal negotiation and document management while reserving space for future innovation in repurchase transaction mechanism. Second, in terms of core mechanism arrangement, the Master Agreement enriches market participants’ risk managing means through introduction of adjustment mechanism on market-to-market repurchase bonds; increases liquidity of repurchase bonds via collateral bond swap; conducts meaningful exploration in mechanisms for effectively preventing regional and systemic risks of the financial market through establishment of single agreement for outright repo and close-out netting. Third, in terms of identification and handling of risk events, the Master Agreement details identification criteria, handling procedure and indemnity for default and termination events, providing a clear institutional basis for market participants when carrying out repo transactions and safeguarding the legitimate rights and interests of both sides. Fourth, in terms of the arrangement for signing of the agreement, the Master Agreement is a multilateral agreement effective after being signed by all market members concerned and the supplemental agreement is a bilateral agreement effective after being signed by both parties concerned if needed. Such signing pattern considers convenience and flexibility, as well as embodies the general requirements of market management and satisfies the personalized needs of trading entities in risk management.

The Master Agreement constitutes basic institutional arrangement for bond repo market operation and as an important institutional innovation in the repo market, is a milestone in the healthy and orderly development of the entire bond market. First, it establishes a basic framework of bond repo agreement. Second, it strengthens price discovery function of the bond market, conducive to the liberalization of interest rate. Third, it constructs a scientific risk prevention system to maintain financial stability. Fourth, it improves the competitiveness of financial institutions and deepens the reform of financial market liberalization.