Bank of China joins Deutsche Börse

Terry Flanagan

The Bank of China Frankfurt Branch has become the first Chinese clearing participant at Deutsche Börse based in the euro area as the renminbi becomes more international.

On November 14 the Bank of China, via its Frankfurt branch, was authorised as a trading and clearing participant on the Deutsche Börse Group cash market.

LI Guang, president of Bank of China Frankfurt branch, said in a statement: “We are pleased to be able to offer our Chinese issuers direct access to one of Europe’s most liquid trading venues from now on. They offer our clients attractive opportunities for expanding their presence in Europe.’

Andreas Preuss, deputy chief executive of Deutsche Börse, said in a statement: “This is a next essential milestone for the close strategic cooperation between Deutsche Börse and the Bank of China. It is also another key milestone in our extensive value chain in Asia.”

For example, Clearstream, Deutsche Börse’s international securities depository, has today launched a range of settlement and custody services for China A-shares via its existing Hong Kong link, Citibank, for the first time.

The move comes as the Shanghai-Hong Kong Stock Connect link opened today. The connection between the Shanghai Stock Exchange, the Stock Exchange of Hong Kong, China Securities Depository & Clearing Corporation and Hong Kong Securities Clearing Company allows investors with access in one market to buy and sell eligible shares listed on the other within certain restrictions. For example, a Hong Kong-based client can buy a stock listed in Shanghai while clearing and settlement remains in Hong Kong and vice versa.

Marc Robert-Nicoud, member of the executive committee at Clearstream International, said at a media briefing this month that he expects renminbi services to become increasingly important. Robert-Nicoud said: “The internationalisation of RMB will be very relevant in coming few years.”

Dr Joachim Nagel, member of the executive board of the Deutsche Bundesbank said in a speech at the European-Chinese Banking Day at Euro Finance Week in Frankfurt today that November 17 is a significant date in global trade as the Suez Canal opened on that date 145 years ago.

“But today, on 17 November 2014, the focus isn’t primarily on the movement of people or goods, but on payment transactions.Today we want to celebrate the fact that it is now possible to settle transactions in Chinese renminbi via a local clearing bank here in Frankfurt,” Nagel added. “From now on, it will no longer be necessary to make use of other trading centres like Hong Kong or other trading hubs for this purpose.”

The establishment of the renminbi clearing bank in Frankfurt is only the first step.

“Just as the once very narrow Suez Canal was gradually widened to accommodate enormous container ships – and is now due to be expanded further by building a new canal alongside the existing waterway – the aim here is to expand the clearing bank to form a clearing house in future, too,” Nagel said. “This would offer all banks in Germany the opportunity not only to use clearing services but also to shape the design and further development of the clearing house as its co-owners.”

Nagel added that in his opinion the RMB has already reached the level of an investment currency. He said volume of dim sum bonds, RMB-denominated bonds traded outside mainland China, has reached a new record of 451bn yuan in the first nine months of 2014 compared to 376bn yuan for the whole of 2013.

“Dim sum bonds have been issued in Frankfurt already. The trend was started by KfW in April 2014 followed by the Agricultural Bank of China and the China Construction Bank and I am sure other issues will follow,” he said.

Commerzbank is part of the introduction of the Renminbi Clearing Centre in Frankfurt and said in a statement it expects the launch to lead to an increase in trade in RMB-denominated currency and interest rate hedging instruments.

Featured image via Bitter/Dollar Photo Club

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