BNP Paribas To Support UCITS Funds For Stock Connect Access

BNP Paribas Securities Services has launched a new service to support UCITS funds that want to invest in Chinese A-shares via the Shanghai-Hong Kong Stock Connect program.

A number of Europe’s asset and fund managers have been frustrated with European regulatory hurdles that have prevented them in participating in the Stock Connect scheme. However, following the approval of the first UCITS fund by Luxembourg’s fund regulator, this could act as a stimulus for institutional investors wishing to gain exposure to China’s domestic stock market.

Under the Stock Connect rules, traders wanting to invest in China face a pre-trade check before placing selling orders. Investors are then required to transfer their stocks from their custodians to their brokers prior to execution, which creates risk.

With BNP Paribas’ solution, if investors’ assets stay in custody with BNP Paribas Securities Services, there is no need to further deliver securities before selling.

“The Association of the Luxembourg Fund Industry (ALFI) stated that UCITS funds should give due consideration to a number of factors before participating in the Stock Connect. Our integrated solution addresses precisely these concerns,” says Lawrence Au, head of BNP Paribas Securities Services Asia Pacific.

These factors include segregated accounts between the UCITs fund and the sub-custodian in Hong Kong, the adoption of a broker model involving delivery verses payment settlement to limit counterparty risk, and a prospectus informing investors of the legal risks linked to compulsory requirements of the local clearing houses and CSDs in China and Hong Kong.

BNP Paribas Securities Services is one of three global custodians that offer a broker-custodian solution for Stock Connect which encompasses execution, clearing and custody.

“We are fully operational and have on-boarded a lot of asset management clients in Asia Pacific and Europe since the program went live. Our client base has been growing day by day,” adds Hugo Leung, deputy CEO of BNP Paribas Securities (Asia).