Citibank facilitates SBL trades in China A-share market under new QFII
02 November 2020 Shanghai
Image: fanjianhua/adobe.stock.com
Citibank has become one of the first custodian banks in China to facilitate securities lending transactions in the China A-share market under the newly-refined Qualified Foreign Institutional Investors (QFII) scheme.
The bank’s Direct Custody & Clearing (DCC) business completed a series of stock loan trades on 1 November, the first day that the regime governing foreign investor activity in China was reformed to allow securities lending and bond repos to be conducted, among other major changes.
Citi was unable to name the other counterparts in the trade but said it was acting on behalf of a “prominent global client”.
QFII was first launched in 2002 and has seen several key amendments in the past year to make it quicker and easier for foreign investors to apply for and gain QFII status.
For example, the China Securities Regulatory Commission review period has been shortened from 20 to 10 business days.
The latest reforms are by far the most comprehensive and radically expand the breadth of trading activities foreign investors can conduct in the market which has remained largely closed off for decades.
Among the key changes include the merging of the QFII scheme with the RMB Qualified Foreign Institutional Investor, which launched in 2011, to streamline and simplify the system.
As well as securities financing financial futures listed and traded on the China Financial Futures Exchange are now no longer limited to stock index futures but also include bond futures.
Other changes include the removal of the asset under management threshold for qualification.
David Russell, Citi’s Asia Pacific head of securities services and Hong Kong Head of markets, says: “We are pleased to have implemented the securities lending transactions as a custodian on the first trading day when the new QFII regulation became effective.”
“The relaxed QFII regulation provides exciting new ways for global investors to participate in China’s capital markets,” he adds.
Citi is assisting a “wave” of new foreign investors to apply for their QFII qualifications, including more successful applications for qualified hedge funds and private equity funds, according to Ji Yang, Citi’s China head of markets and securities services.
This includes a quantitative hedge fund, which Yang notes is the first-of-its-kind under the QFII scheme and represents “another testimony of further China opening-up”.
“With this new QFII regulation, we expect that global brokers and hedge funds can finally play an active role in China’s A-share margin trading and securities financing, while private equity funds can enjoy a low-cost channel to invest in onshore companies with flexible repatriation, and asset owners and asset managers can lend out their securities for higher portfolio yield,” he adds.
Citi was among the first banks to receive approval from China regulators in 2003 to act as a QFII custodian.
In subsequent years, Citi obtained the Bond Settlement Agent (BSA) license and the Futures Margin Depositary Bank licence.
Recently, Citi obtained the domestic fund custody licence, enabling it to service onshore mutual funds and private funds, including the private fund managers funds, which is now under the permitted investment scope of QFII.
The opening up of China's A-share market comes shortly after J.P. Morgan became the first known agent lender to accept China A-shares as collateral for a securities finance transaction conducted through the Hong Kong/China Stock Connect.
The wider use of China A-shares as collateral marked 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.
The bank’s Direct Custody & Clearing (DCC) business completed a series of stock loan trades on 1 November, the first day that the regime governing foreign investor activity in China was reformed to allow securities lending and bond repos to be conducted, among other major changes.
Citi was unable to name the other counterparts in the trade but said it was acting on behalf of a “prominent global client”.
QFII was first launched in 2002 and has seen several key amendments in the past year to make it quicker and easier for foreign investors to apply for and gain QFII status.
For example, the China Securities Regulatory Commission review period has been shortened from 20 to 10 business days.
The latest reforms are by far the most comprehensive and radically expand the breadth of trading activities foreign investors can conduct in the market which has remained largely closed off for decades.
Among the key changes include the merging of the QFII scheme with the RMB Qualified Foreign Institutional Investor, which launched in 2011, to streamline and simplify the system.
As well as securities financing financial futures listed and traded on the China Financial Futures Exchange are now no longer limited to stock index futures but also include bond futures.
Other changes include the removal of the asset under management threshold for qualification.
David Russell, Citi’s Asia Pacific head of securities services and Hong Kong Head of markets, says: “We are pleased to have implemented the securities lending transactions as a custodian on the first trading day when the new QFII regulation became effective.”
“The relaxed QFII regulation provides exciting new ways for global investors to participate in China’s capital markets,” he adds.
Citi is assisting a “wave” of new foreign investors to apply for their QFII qualifications, including more successful applications for qualified hedge funds and private equity funds, according to Ji Yang, Citi’s China head of markets and securities services.
This includes a quantitative hedge fund, which Yang notes is the first-of-its-kind under the QFII scheme and represents “another testimony of further China opening-up”.
“With this new QFII regulation, we expect that global brokers and hedge funds can finally play an active role in China’s A-share margin trading and securities financing, while private equity funds can enjoy a low-cost channel to invest in onshore companies with flexible repatriation, and asset owners and asset managers can lend out their securities for higher portfolio yield,” he adds.
Citi was among the first banks to receive approval from China regulators in 2003 to act as a QFII custodian.
In subsequent years, Citi obtained the Bond Settlement Agent (BSA) license and the Futures Margin Depositary Bank licence.
Recently, Citi obtained the domestic fund custody licence, enabling it to service onshore mutual funds and private funds, including the private fund managers funds, which is now under the permitted investment scope of QFII.
The opening up of China's A-share market comes shortly after J.P. Morgan became the first known agent lender to accept China A-shares as collateral for a securities finance transaction conducted through the Hong Kong/China Stock Connect.
The wider use of China A-shares as collateral marked 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.
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HSBC completes first securities loans by an offshore investor in China
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