Bank of America Merrill Lynch has launched Renminbi prime brokerage services in a move to strengthen their offering in the Chinese market.
Hedge fund clients will be able to deposit Renminbi-denominated securities into custody accounts held with Merrill Lynch.
Speaking to Bloomberg, Ben Williams, Asia-Pacific financing sales team for Merrill Lynch, said: Large international hedge funds used to use non-deliverable yuan forward contracts to make such bets. These new services allow them to make the same bets through the potentially cheaper offshore yuan market.
Custodians have been busy expanding renminbi-offerings to take advantage of new rulings from the Chinese government, relaxing restrictions of the offshore movement of renminbi. BNP Paribas Securities Services recently launched clearing and settlement for Renminbi-denominated bonds in Hong Kong, and Clearstream and Euroclear have also launched similar services since the Peoples Bank of China and Chinese regulators announced an expansion of the Renminbi trade settlement scheme in July 2010
Previously, foreign investors could only settle in Hong Kong dollars if the security was listed on the Shenzhen Stock Exchange, or U.S. dollars if listed on the Shanghai Stock Exchange. Since 2004, the Peoples Bank of China has allowed Hong Kong investors to purchase or sell RMB, enforcing a limit of only RMB20,000 per day.
According to the Hong Kong Monetary Authority, settlement volumes rose to a monthly average of just over $1 billion since February 2010. McDonalds, the fast-food giant, recently became the first corporate to issue a RMB denominated bond. The bond issuance, managed by Standard Chartered, sold in less than two hours, according to Sundeep Bhandari, Standard Chartereds regional head of global markets.