BNY Mellon’s triparty platform now accepts Chinese bonds as collateral through Hong Kong’s Bond Connect, allowing investors to use the assets as collateral in transactions with counterparties across the globe. The triparty solution is entirely custody-agnostic, meaning that clients can use BNY Mellon as triparty agent without custodying the assets at the firm.
Bond Connect allows international investors to access the US$13.9 trillion China Interbank Bond Market (CIBM) through a market infrastructure linkage in Hong Kong. Until now, however, there has been no mechanism allowing participants to use Chinese fixed-income assets as collateral.
In the first trade, which printed last week, a broker-dealer client was able to collateralize Chinese government securities through the bank’s triparty solution. BNY Mellon accessed the client’s bonds, which were under custody at HSBC, and reflected the assets in the triparty platform, enabling the client to use the collateral for financing and other purposes.
“Enabling clients to collateralize Chinese bonds through triparty is a service that has the potential to revolutionize the global collateral landscape,” says Natalie Wallder, Asia-Pacific head of clearance & collateral management at BNY Mellon. “China is a hugely important market and one that will only become more integral to investors in the years ahead. Having the ability to utilize Chinese stocks, and now bonds, as collateral promises to be transformative for clients.”
“Supporting a solution enabling clients to utilize a triparty agent such as BNY Mellon for assets not held within their custody chain will have significant utility,” says Nigel Rangel, senior product manager for banks and broker dealers, markets and securities services, at HSBC. “Bond Connect was the first market in which this was achieved and we anticipate this will have practical applications in other markets.”
BNY Mellon’s Bond Connect solution follows its Stock Connect product, a collateralization service for Chinese stocks. Launched in early 2018, BNY Mellon’s triparty solution for Stock Connect enables clients outside of mainland China to collateralize A-shares traded on the Shanghai and Shenzhen Stock Exchanges through triparty in Hong Kong.
Since the launch of the service, BNY Mellon’s Stock Connect solution has become an important element in the global collateral ecosystem for institutional investors across the world.