Investors are now able to better utilize their Chinese fixed income assets following the introduction of the bonds as eligible collateral on BNY Mellon’s triparty platform through Hong Kong’s Bond Connect.
Bond Connect allows international investors to access the $13.9 trillion China Interbank Bond Market (CIBM) through a market infrastructure linkage in Hong Kong. BNY Mellon’s new solution enables clients to utilize these assets as collateral. Once the assets are within our triparty platform, clients can mobilize and optimize the securities as collateral in transactions with counterparties across the globe.
Until now, there has been no mechanism to allow participants to use Bond Connect assets as collateral, however, with the Chinese fixed income market only expected to grow, demand has been mounting for such a solution.
BNY Mellon triparty solves this problem, enabling investors to use Chinese bonds as collateral for a variety of purposes. Further, the platform is entirely custody agnostic meaning that clients are able to utilize BNY Mellon as triparty agent without custodying assets at the firm.
In the first trade, which printed last week, a broker-dealer client was able to collateralize Chinese government securities through BNY Mellon’s triparty solution. Under the transaction, BNY Mellon accessed the client’s bonds, which were under custody at HSBC, and reflected the assets in BNY Mellon triparty, enabling the client to use the collateral for financing and other purposes.
“Enabling clients to collateralize Chinese bonds through triparty is a service that has the potential to revolutionize the global collateral landscape,” says Natalie Wallder, Asia Pacific Head of Clearance & Collateral Management at BNY Mellon. “China is a hugely important market and one that will only become more integral to investors in the years ahead. Having the ability to utilize Chinese stocks, and now bonds, as collateral promises to be transformative for clients.”
“Supporting a solution enabling clients to utilize a triparty agent such as BNY Mellon for assets not held within their custody chain will have significant utility,” says Nigel Rangel, Senior Product Manager for Banks and Broker Dealers within Markets and Securities Services at HSBC. “Bond Connect was the first market in which this was achieved and we anticipate this will have practical applications in other markets.”
BNY Mellon’s Bond Connect solution follows in the wake of our Stock Connect product, a similarly groundbreaking collateralization service for Chinese stocks. Launched in early 2018, BNY Mellon’s triparty solution for Stock Connect enables clients outside of mainland China to collateralize A-shares traded on the Shanghai and Shenzhen Stock Exchanges through triparty in Hong Kong. Since the launch of the service, BNY Mellon’s Stock Connect solution has become an important element in the global collateral ecosystem for institutional investors across the world.