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Hong Kong Monetary Authority, Euroclear Bank and J.P. Morgan open cross-border liquidity and secured lending channels in Hong Kong

The Hong Kong Monetary Authority (HKMA) today (June 20) signed bilateral agreements with Euroclear Bank and J.P. Morgan Worldwide Securities Services (J.P.Morgan) respectively to co-operate in delivering an innovative cross-border collateral management service on June 25, 2012. Bilateral agreements were signed today by the Deputy Chief Executive of the HKMA, Mr Peter Pang, with the General Manager, Regional Head, Asia-Pacific of Euroclear Bank, Mr Olivier Grimonpont; and the Managing Director, Head of Technical Sales, Asia ex-Japan of J.P. Morgan, Mr Kirit Bhatia respectively.

The new service enables international financial institutions to use securities held with Euroclear Bank or J.P. Morgan as collateral in triparty repo transactions with members of HKMA's Central Moneymarkets Unit (CMU), to access liquidity from Hong Kong, in particular the Hong Kong dollar and offshore renminbi. Euroclear Bank or J.P. Morgan will act as triparty collateral management agents to the repo transactions, ensuring that administrative obligations, such as collateral valuations, eligibility, haircuts and substitutions are carried out automatically on behalf of the two counterparties to the securitised deal.

This arrangement is the first add-on service following the March launch of the pilot platform for the cross-border investment and settlement of debt securities. Further collateral management developments are foreseen with the HKMA to further expand the cross-border collateral management service to allow local financial institutions to use their securities as collateral to obtain foreign currency liquidity such as the US dollar from international financial institutions in the second half of 2012.

The collateral management service aims to develop and promote a cost effective and efficient repo market in Hong Kong. In turn, this helps enhance financial stability through the greater use of collateral to cover exposures in secured lending and borrowing. Finally, it also opens an efficient channel for financial institutions to widen their liquidity sources and obtain offshore renminbi liquidity from Hong Kong. Many institutions have indicated interest in utilising the service when it becomes available to the market.

Mr Pang said, "The launch of the cross-border collateral management service is a timely and an effective solution for the market which will provide a solid foundation for the repo market development in future and enhance stability of our financial system. It will also facilitate the expansion of cross-market renminbi funding activities through the cross-border collateral management arrangement, and further strengthen Hong Kong's role as the global hub for offshore renminbi business."

Mr Grimonpont said, "I praise the work the HKMA has done and is continuing to do to maintain Hong Kong as one of the most vibrant financial centres in Asia. This initiative will no doubt pave the way for other Asian economies to benefit from a similar processing solution. It has taken years of dedicated work at the HKMA and the market as a whole to achieve this accolade. Euroclear Bank is honoured to be able to support this important centre as a partner and provider of expertise with a collateral management solution that has enjoyed over 20 years of market trust."

Mr Bhatia said "J.P. Morgan is delighted to have partnered with the HKMA in developing this innovative repo platform for Hong Kong's capital markets. The prospect of global financial institutions accessing HKD, USD, Euro and offshore renminbi from members of Hong Kong's Central Moneymarkets Unit against a broad suite of collateral is exciting and marks a major milestone for Hong Kong and the region."