J.P. Morgan accepts China A shares collateral for the first time
14 October Hong Kong
Image: GormaKuma/Adobe.com
J.P. Morgan Trading Services has executed its first Hong Kong/China Stock Connect trade where China A shares were posted as collateral for a securities financing transaction, SLT understands.
This is thought to be the first instance of an agent lender accepting this form of collateral on behalf of its beneficial owner clients.
The trade, executed on Friday, was also a first for J.P. Morgan Triparty which facilitated the execution of the trade as collateral manager.
The wider use of China A shares marks a significant step forward in the internationalisation of the Hong Kong/China Stock Connect which launched in 2014 but has so far been slow to stimulate major activity from global investors.
As of August, foreign ownership of China A shares via this scheme was estimated at more than $290 billion, according to the CEO of the Hong Kong Exchange Charles Li.
The potentially first-of-its-kind trade comes shortly after the Risk Management Association hosted a webinar on Latin American securities finance markets in which Manmohan Singh, senior economist at the International Monetary Fund, said there was an opportunity for an emerging market to meet the growing global demand for collateral by making its bonds readily available.
Singh explained that Latin American market regulators should move quickly to capitalise on the regulatory-driven need for high-quality collateral in global markets or risk missing out to an Asian market, specifically China, which may act first.
“Chinese securities might get into the global plumbing soon to satisfy collateral needs by using the Hong Kong or Singapore exchanges,” he stated, noting that although Japanese and South Korean government bonds were more acceptable internationally today, they were limited in their versatility.
This is thought to be the first instance of an agent lender accepting this form of collateral on behalf of its beneficial owner clients.
The trade, executed on Friday, was also a first for J.P. Morgan Triparty which facilitated the execution of the trade as collateral manager.
The wider use of China A shares marks a significant step forward in the internationalisation of the Hong Kong/China Stock Connect which launched in 2014 but has so far been slow to stimulate major activity from global investors.
As of August, foreign ownership of China A shares via this scheme was estimated at more than $290 billion, according to the CEO of the Hong Kong Exchange Charles Li.
The potentially first-of-its-kind trade comes shortly after the Risk Management Association hosted a webinar on Latin American securities finance markets in which Manmohan Singh, senior economist at the International Monetary Fund, said there was an opportunity for an emerging market to meet the growing global demand for collateral by making its bonds readily available.
Singh explained that Latin American market regulators should move quickly to capitalise on the regulatory-driven need for high-quality collateral in global markets or risk missing out to an Asian market, specifically China, which may act first.
“Chinese securities might get into the global plumbing soon to satisfy collateral needs by using the Hong Kong or Singapore exchanges,” he stated, noting that although Japanese and South Korean government bonds were more acceptable internationally today, they were limited in their versatility.
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