Clearstream Eyes China

Terry Flanagan

Clearstream expects renminbi services to become more important as the international central securities depository launches settlement and custody for China A-shares next week.

Marc Robert-Nicoud, member of the executive committee at Clearstream International, said at a media briefing last week that assets under custody had not grown in Asia at the same rate as in other regions so most of the securities it holds are in euros or US dollars.

“There is a fixed pool of offshore renminbi so we find it hard to find enough liquidity to support RMB transactions. The internationalisation of RMB will be very relevant in coming few years,” he added.

The internationalisation of the renminbi and the Chinese capital markets will be boosted by regulators today approving the launch of the Shanghai-Hong Kong Stock Connect Program between the Shanghai Stock Exchange, the Stock Exchange of Hong Kong, China Securities Depository & Clearing Corporation and Hong Kong Securities Clearing Company.

The connection 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.

The Chinese government had previously placed tight restrictions on overseas investors trading A-shares, RMB-denominated stock issued by companies in mainland China traded on Chinese stock exchanges.

The Hong Kong and Chinese financial regulators said in a statement that trading through Stock Connect will begin on 17 November. On that date Clearstream will offer a range of settlement and custody services for China A-shares via its existing Hong Kong link, Citibank, for the first time.

Ashmore, the law firm, said in a briefing note that success of Stock Connect will depend on the level of foreign demand. “There are good reasons to believe demand will be strong,” added Ashmore.

The note said the China A-share market is among the largest equity markets in the world with a value of $3 trillion, much larger than the H-share market of mainland Chinese companies listed in Hong Kong which have a value of $633bn.

Anne-Pascale Malréchauffé, head of network management at Clearstream said in a statement: “We have been supporting the internationalisation of the renminbi since the early days and welcome this program as a further step towards a further development of an international renminbi market and the Chinese capital markets in general.”

In September 2010, RMB held outside mainland China became a full settlement currency in Clearstream. In March this year Clearstream’s owner, Deutsche Börse, and the Bank of China extended their strategic partnership which includes developing financial infrastructure to support the internationalization of the renminbi by promoting Frankfurt as the European offshore centre for the currency.

Robert-Nicoud said customers in Asia are increasingly using Clearstream as a regional cross-border settlement and custody system to access North American and European markets.

At the end of the second quarter of this year Clearstream had €12.1 trillion in assets under custody, with €6.4 trillion in international assets according to Robert-Nicoud. He expects inflows of non-European assets from customers shifting global portfolios and from increased regional business, especially in Asia.

This should increase with the introduction of Target2-Securities, which aims to harmonize securities settlement in Europe, which Clearstream will join in 2016.

Settlement volumes on Clearstream were €10.6 trillion at the end of the second quarter of this year with international settlements of €6.9 trillion, an increase of 7% over 2013. To boost volumes Clearstream is extending its processing capability to cover the US operational business day and preparing for significant RMB issuance volumes by building infrastructure for off-shore RMB.

Robert-Nicoud said collateral management and custody have become high intensity areas of development. “They were sleeping for many years but there have been many changes in the last five years,” he added.

Featured image via Mstyslav Chernov/Wikimedia Commons

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