Tencent Holdings is joining forces with a finance startup to create a system for over-the-counter bond deals, banking on its appeal to the army of traders that already rely on its popular messaging services.
China’s biggest social media and gaming company and its partner is launching the service after almost two years of fine-tuning. As envisioned, the QTrade service will help traders meet online and negotiate prices. It verifies both parties’ identities and logs their conversations and transactions for at least five years, thus complying fully with securities regulations, said Zhou Jingyu, a co-founder of the Shenzhen-registered startup.
Tencent’s potentially offering a way out for brokers grappling with tightening scrutiny from China’s securities watchdog, which from December is banning traders from using individual e-mail and messaging accounts to place orders – their main transaction avenue. While the government has its own chat system for dealers, more than 70% of bond trades are now conducted over personal messaging accounts such as Tencent’s QQ messaging service, QTrade estimates. That’s a source of growing concern for regulators wary of financial and security risks, given China issued bonds worth 40.8tn yuan ($6.3tn) last year.
“There’s been a discrepancy between where traders complete their deals and where they negotiate,” said Fiona Liu, another co-founder of the company. “We want to provide a safe and compliant instant messenger to make sure that trading activity is regulatory compliant.”
The service is targeted at professional investors. While deals can be negotiated through the platform, all transactions still have to be processed through official channels, such as the China Foreign Exchange Trade System, also known as CFETS.
QTrade will also provide analysis tools that allow regulators to search by users or timeline and format trading data, said Zhou, whose company is registered as Shenzhen Pingguo Shuju Keji in Chinese but doesn’t have an English name. Bloomberg LP, the parent of Bloomberg News, also provides data, news and analytics for bond trading in China.
The stepped-up scrutiny on traders using social media isn’t unique to mainland China. Hong Kong’s securities watchdog banned a brokerage employee from the industry for four months after he used his phone and Tencent’s WeChat to take orders from clients. Last year, a former Jefferies Group banker was fined in the UK for sharing confidential data on WhatsApp.
Tencent, whose QQ has more than 800mn active users, said in a statement the platform will leverage its messaging, big data and machine learning technology, while complying with regulations to lower risk.