January 2021

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Recent actions by Chinese authorities show that revenue opportunities for international firms in mainland securities finance and collateral markets could start to be realized. This dynamic is complex and relies on multiple actors, including government, asset managers, banks and market infrastructure, all with their own incentives, to deliver a hoped-for end result. If successful, the opening of China’s securities finance market to international firms, and the global use of Chinese bonds as collateral in OTC derivatives and repo transactions, could introduce important new asset classes to collateralized markets. The growth of Chinese assets for collateralized transactions would impact markets from New York to Tokyo.

The drive for the internalization of Chinese bonds as collateral and the availability of Chinese securities through Stock Connect and Bond Connect is long standing. China’s November 2020 reform of its Qualified Foreign Institutional Investor (QFII) rules may mark a turning point. The idea that large international asset managers can now set up local funds may bring a wave of institutionalization and reduced volatility to domestic markets.

This report looks at where the Chinese securities finance and collateral markets are now, regulatory and business dynamics driving the market, and how developments may play out over the next two years. We assess the variables that speak to the desire of investors to utilize Chinese bonds as collateral, alongside the actions of both mainland and international infrastructure providers.

This report should be read by securities finance and collateral professionals worldwide. It is a business-oriented analysis of the markets and competitive dynamics for future growth.

Table of Contents

  • Executive Summary
  • The Upward Growth Curve
    • – Data and Market Developments
  • The New QFII Rules
  • Opportunities for Agency Securities Lending
  • Chinese Bonds as Global Collateral
  • Expectations for the Next Two Years
  • About the Author
  • About Finadium LLC

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