HSBC and UBS use Euroclear Bank and HKMA for inaugural cross-border RMB Repo

5 December 2012

UBS AG in London and HSBC’s Hong Kong branch, have conducted their first ever renminbi (RMB) tri-party repo trade, respectively using Euroclear Bank and the Hong Kong Monetary Authority (HKMA) as collateral management agents.

The bilateral agreement in place between the HKMA and Euroclear Bank enabled the transfer of securities as collateral from UBS AG London’s account in Euroclear Bank, via Euroclear’s global ‘Collateral Highway’, to the HSBC Hong Kong branch’s account in HKMA to support the RMB repo.

The joint service was initiated to provide the ability for international financial institutions to use securities held with Euroclear Bank as collateral in tri-party repo transactions with members of the HKMA, and to access liquidity from Hong Kong in RMB Hong Kong dollars and other currencies.

“HSBC estimates that by the end of 2015, the level of RMB deposits in Hong Kong will increase to a total of 30% from the current 9% of all Hong Kong deposits,” said Justin Chan, HSBC’s deputy head of global markets Asia Pacific and head of Hong Kong trading. “Firms that manage these growing RMB reserves will naturally seek to optimise their cash balances through the repo markets with an international counterparty base. It was easy and efficient to finalise the repo with UBS AG London, working through our local central securities depository (CSD) account, operated by the HKMA."

Bernard Chin, executive director, emerging market Asia-Pacific repo trading, at UBS added: “This inaugural transaction represents a significant advance in liquidity and collateral management in Hong Kong. It is operationally efficient and further integrates collateralised lending and borrowing between the domestic market in Hong Kong and the international market.”

The HKMA reports that RMB cross-border settlement expanded fourfold from RMB50bn in August 2010 to almost RMB200bn in October 2012. There are further signs that these strong growth rates will continue over the long term.

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