[ U P D AT E ]
China CSD goes
live with DvP
settlement for
Bond Connect,
catching the
eyes of foreign
investors
THE ADOPTION OF THE
NEW SETTLEMENT SYSTEM
COULD SIGNIFICANTLY BOOST
FOREIGN INVESTMENT INTO
THE CHINESE DOMESTIC BOND
MARKET.
has become available for bonds transacted
on Bond Connect and settled by the China
Central Depository and Clearing (CDCC).
The adoption of the new settlement
system could significantly boost foreign
investment into the Chinese domestic bond
market.
Under the previous model, foreign inves-
tors wanting to trade Chinese rates products
were required to pre-fund their onshore
broker before the bond is delivered.
With the adoption of DvP settlement, for-
eign investors will no longer be required to
pay their correspondent bank directly to the
counterparty’s Mainland settlement bank.
“This is a significant step forward for the
Bond Connect scheme since its launch on 1
July last year, and we anticipate that it will
spark further interest from international
investors wanting to capture a slice of the
Chinese bond market which is now the
second largest in the world having recently
overtaken Japan,” said Gary O’Brien, regional
head of custody product, APAC, BNP Paribas
Securities Services.
“This enhancement to reduce counterparty
risk, as well as the expected launch of the
London – Shanghai Stock Connect by the
end of the year continues to demonstrate
the improved investment opportunities for
both onshore and offshore investors.”
Industry experts have also expressed
mixed opinions about the actual workabil-
ity of a London-Shanghai Stock Connect.
Glaring red flags which may impede the
idea’s success include Chinese limitations
on short-selling; divergent settlement time-
frames; the use of renminbi in settlements,
not to mention capital controls and frequent
share trading suspensions on the mainland.
However, China has a number of other
Connect-esque initiatives in the develop-
ment stages. ETF (exchange traded fund)
Connect has been touted for launch in late
2018, although ongoing issues remain,
namely an absence of a consolidated settle-
ment time-frame for ETFs on the Shanghai
and Shenzhen exchanges, and ongoing reg-
ulatory debate within China as to whether
an ETF is a fund or a security.
C
hina’s main central securities depository
(CSD) has gone live with delivery versus
payment (DvP) settlement for its cross-bor-
der fixed income trading platform.
The Hong Kong Monetary Authority
(HKMA) announced that DvP settlement
Fall 2018
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