The Hong Kong Monetary Authority (HKMA) and international central securities depository Clearstream have joined forces to offer collateral management and liquidity services in Hong Kong.
The new service, due for launch in Q1 2013, will allow financial institutions, which are typically collateral givers, to use margin stored in Clearstream to conduct repo transactions with from HKMA’s Central Money Markets Unit.
Clearstream – which has a collateral pool of over €550 billion comprising fixed income, equities, investment funds and other assets – says the service will be particularly beneficial for international firms seeking liquid collateral in Hong Kong dollars and off-shore renminbi.
Local institutions will have access to a broader range of international securities, while customers of Clearstream’s Global Liquidity Hub will also have the opportunity to optimise collateral.
“The expanded coverage of the cross-border collateral management services will further promote the development of a cost effective and efficient repo market in Hong Kong and enhance financial stability through the wider use of collateral to reduce credit risk among financial institutions,” said HKMA deputy chief executive Peter Pang.
Optimal management of collateral will be a key concern for buy- and sell-side firms following the 2013 introduction of new rules for OTC derivatives, which will require firms to hold a greater amount of margin against swaps trades. The core principles of the rules require OTC derivatives to be traded on exchange-like platforms and cleared through central counterparties.
NYSE seeks Asian expansion with BoC
Meantime, Bank of China (BoC) is exploring a number of business opportunities with NYSE Euronext, including the potential to use renminbi as collateral at the exchange’s soon-to-be-built clearing house in London.
Through the memorandum of understanding signed today, BoC will also seek guidance from NYSE Euronext to become a general clearing member of the bourse’s London-based Liffe derivatives market.
The two companies will also explore ways to facilitate more trading flow from China to NYSE Euronext and establish distribution channels for exchange-traded products via Bank of China’s network.
“Flows from Asia continue to build liquidity in our existing markets and our non-Asian customers are devoting significant thought into how they can connect to these exciting markets,” said Dominique Cerutti, president and deputy CEO, NYSE Euronext.