BNY Mellon launches Stock Connect tri-party collateralisation 05 June 2018Hong Kong Reporter: Brian Bollen
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BNY Mellon has become the first tri-party agent to provide collateral services for securities settled through Hong Kong (HK) Stock Connect.
The agreement will support growing cross-border trade volumes into and out of China.
It expands the range of eligible collateral available to investors and coincided with the inclusion for the first time of China A-shares listed on the Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE) in relevant MSCI indices, including the MSCI Emerging Markets Index.
MSCI released details of the changes in mid-May, when it said that as part of its May 2018 Semi-Annual Index Review for the MSCI Equity Indexes, it would implement the first step of the partial inclusion of China A shares in its China Index.
The inclusion will extend to other relevant global and regional composite indices, such as the MSCI Emerging Markets Index as well as relevant global and regional composite indices, such as the MSCI Emerging Markets Index.
MSCI said there would be 234 China A shares added at 2.5 percent of their foreign inclusion factor-adjusted market capitalisation. These represent aggregate weights of 1.26 percent and 0.39 percent, respectively, in its China Index and its Emerging Markets Index.
MSCI added that the second step of the inclusion will coincide with its August 2018 Quarterly Index Review, when the representation of the foreign inclusion factor-adjusted market capitalisation of China A shares will increase to 5 percent.
The three largest additions to the MSCI Emerging Markets Index measured by full company market capitalisation are ICBC A (China), China Construction Bank A (China) and Petrochina Co A (China).
According to BNY Mellon, the addition of Chinese equities to the indices will significantly increase portfolio allocations to China A shares.
The bank cited an MSCI prediction that the inclusion of China-A shares will drive an initial flow of around $20 billion to shift and track the China A-shares market.
Natalie Wallder, head of collateral management for Asia Pacific at BNY Mellon, said: "BNY Mellon Markets is always looking for ways to increase liquidity for our clients.鈥�
She added: 鈥淥ur Stock Connect solution does just that, by unlocking the ability to utilise these assets as collateral, bank and broker dealer clients now have an additional avenue to finance inventory and reduce funding costs via tri-party collateral management.鈥�
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