Hong Kong yuan business boosted by banks’ appointments as liquidity providers
Banks offered repo line to grow market-making activities for their offshore renminbi products
Seven banks were appointed primary liquidity providers for offshore yuan business in Hong Kong yesterday to cement the city’s leading role as an offshore yuan centre, even as the market regulator urged international fund managers to apply through their overseas units for fresh yuan investment quotas.
Bank of China, BNP Paribas, China Construction Bank, Citibank, HSBC, Industrial and Commercial Bank of China and Standard Chartered Bank beat nine other banks, the Hong Kong Monetary Authority said in a statement yesterday.
The move is aimed at helping to alleviate an expected yuan cash squeeze when the stock connect scheme between Hong Kong and Shanghai starts, and is being viewed as a sign that the long-awaited scheme is still on track. Beijing failed to launch the scheme last month.
Each provider will be offered a repo line – the quota of collateral such as government bonds the regulator agrees to buy from a bank – of two billion yuan (HK$2.52 billion) so that the banks will be able to smoothly expand their market-making activities for offshore yuan products, including options and swaps.
The appointments are valid for two years, with effect from Monday last week.
Standard Chartered Hong Kong chief executive May Tan said the designation of the primary providers was “a critical measure introduced by the HKMA to further strengthen [yuan] market liquidity”.
“We believe this will accelerate the development of the [yuan foreign exchange], interest rate and derivative markets,” she said.
The move also underscores efforts by the Hong Kong regulator to cement the city’s market share in the offshore yuan business, an area where competitors such as London and Singapore are rapidly catching up.
As a primary liquidity provider, a bank will have to be “committed to using and developing Hong Kong as the global platform for supporting their offshore renminbi businesses”, the HKMA said.
Beijing is seen to be levelling the playing field by shifting its policy from favouring a highly Hong Kong-centric offshore yuan market to one of encouraging other centres to catch up.
The city has run out of its 270 billion yuan of renminbi qualified foreign institutional investor quota, which enables foreign fund managers to invest in the mainland market. Despited calls from foreign asset houses for fresh quotas, there has been little sign that Beijing intends to grant more soon.
Alexa Lam Cheung, deputy chief executive of the Securities and Futures Commission, said Beijing’s intention was to encourage foreign asset managers to apply for quota through cities other than Hong Kong. Although Hong Kong had used up its share, the 200 billion yuan quota granted to other cities had barely been touched, she said.
