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For the first time, BNY Mellon’s clients are able to use Chinese bonds as collateral for a variety of purposes via its triparty platform.
The service allows investors to better utilise their Chinese fixed-income assets by leveraging Hong Kong's Bond Connect, which allows international investors to access the $13.9 trillion China Interbank Bond Market.
BNY Mellon's new solution enables clients to begin utilising these assets as collateral.
According to BNY Mellon, until now, there has been no mechanism to allow participants to use Bond Connect assets as collateral.
The investment banking firm says that demand for an assets-as-collateral solution had been growing due to anticipated growth in the Chinese fixed income market.
Once the assets are within the triparty platform, clients can mobilise and optimise the securities as collateral in transactions with counterparties across the globe, the bank says.
Importantly, BNY Mellon says the new platform is entirely custody agnostic, so clients can use it as a triparty agent without custodying assets.
The first trade, printed last week, enabled a broker-dealer client to collateralise Chinese government securities through the new triparty solution, the bank says.
Under the transaction, it accessed the client's bonds, which were under custody at HSBC, and reflected the assets in BNY Mellon triparty, enabling the client to use the collateral for financing and other purposes.
Asia Pacific head of clearance and collateral management Natalie Wallder says: “Enabling clients to collateralise Chinese bonds through triparty is a service that has the potential to revolutionise the global collateral landscape.
“China is a hugely important market and one that will only become more integral to investors in the years ahead. Having the ability to utilise Chinese stocks, and now bonds, as collateral promises to be transformative for clients."
HSBC’s senior product manager for banks and broker-dealers within markets and securities services Nigel Rangel adds: “Supporting a solution enabling clients to utilise a triparty agent such as BNY Mellon for assets not held within their custody chain will have significant utility.”
BNY Mellon's Bond Connect solution follows in the wake of a Stock Connect product, which it describes as a “similarly groundbreaking” collateralisation service for Chinese stocks.
Launched in early 2018, BNY Mellon's triparty solution for Stock Connect enables clients outside of mainland China to collateralise A-shares traded on the Shanghai and Shenzhen Stock Exchanges through triparty in Hong Kong.
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