BNY Mellon is the first tri-party agent to provide collateral services for securities settled through Hong Kong Stock Connect, supporting growing cross-border trade volumes into and out of China. The bespoke solution expands the range of eligible collateral available to investors, just as international interest in Stock Connect gathers steam. The tri-party arrangement for Stock Connect securities was a collaboration between various parts of BNY Mellon including Markets, Asset Servicing and Pershing, with each one involved at different stages of the investment lifecycle.
Beginning June 1, 2018, China A-shares listed on the Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE) will be included in relevant MSCI indices, including the MSCI Emerging Markets Index, for the first time. The addition of these equities to the indices will significantly increase portfolio allocations to China A shares. MSCI predicts that the inclusion of China-A shares will drive an initial flow of around US$20 billion to shift and track the China A-shares market.
While triparty solutions are commonly available in most major markets, such a service did not exist for China A-shares prior to BNY Mellon’s offering. This was because collateralizing SSE and SZSE A-shares required considerable adjustments to collateralization models to integrate with local legal and market infrastructure. BNY Mellon’s triparty collateral service enables portfolio utilization of China A-shares held through HK Stock Connect for market participants.