The Hong Kong Monetary Authority (HKMA) has signed bilateral agreements with Euroclear Bank and J.P. Morgan Worldwide Securities Services, respectively, to co-operate on collateral management services.
The new service, effective from 25 June, will enable international financial institutions to use securities held with Euroclear Bank and J.P. Morgan as collateral in triparty repo transactions with members of HKMA’s Central Moneymarkets Unit (CMU), to access liquidity from Hong Kong, in particular the Hong Kong dollar and offshore renminbi.
Euroclear Bank or J.P. Morgan will act as triparty collateral management agents to the repo transaction, ensuring that administrative obligations, such as collateral valuations, eligibility, haircuts and substitutions are carried out automatically on behalf of the two counterparties to the securitised deal.
The arrangement builds on the March launch of the pilot platform for the cross-border investment and settlement of debt securities. At the same time, J.P. Morgan and HKMA partnered to launch a repo financing collateral management platform in Hong Kong. Further collateral management developments are foreseen with the HKMA keen to further expand its collateral management service to allow local financial institutions to use their securities as collateral to allow local financial institutions to use their securities as collateral to obtain foreign currency liquidity from international financial institutions in the in the second half of 2012.
The aims of the collateral management service is twofold: to promote a cost effective and efficient repo market in Hong Kong, through greater use of collateral to cover exposures in secured lending and borrowing; and to open up the channel for financial institutions to widen their liquidity sources and obtain offshore renminbi liquidity from Hong Kong.
Signatories to the bilateral agreements - Peter Pang, deputy chief executive of the HKMA, Olivier Grimonpont, general manager, Regional Head, Asia-Pacific of Euroclear Bank and Kirit Bhatia, managing director, Head of Technical Sales, Asia ex-Japan of J.P. Morgan were present in Hong Kong today to sign the agreements.
Reporting by Janet du Chenne, Global Custodian, an Asset International publication.