HSBC is custodian to the Europe’s first Renminbi Qualified Foreign Institutional Investor (RQFII) ETF, which listed on the London Stock Exchange yesterday. The CSOP Source FTSE China A50 UCITS ETF uses an investment quota approved under the RQFII pilot scheme, a program launched in 2011 to open up investment in Renminbi-denominated Chinese securities to overseas investors. Hong Kong-based CSOP is responsible for investment management and European exchange traded product provider Source acts as the fund promoter and manager through its Irish subsidiary. Cian Burke, global co-head at HSBC Securities Services talks to Global Custodian about what the latest development means for investment services providers.
How long have you been engaged with those providers?
CB: The choice of organizations involved is fairly natural when you understand their pedigree and their background. Source is a very dominant ETF provider globally and CSOP is a very dominant provider of China A50 ETFs in the Hong Kong market.
We have had a fairly long established relationship with CSOP. When RQFII as a pilot scheme and a quota system was launched in Hong Kong in December 2011, we were the original partner that worked with CSOP to get them the RQFII quotas and licenses approved. We were their partner-of-choice in Hong Kong and we have a very good relationship with them there. Source is a relatively new relationship for us and came as a consequence of the relationship with CSOP, subsequently built and developed with Source to distribute their ETF product that is now listed on the London Stock Exchange.
Who is the product for?
CB: It’s primarily targeting UK and European investors, both retail and institutional. The whole point was to launch a product traded on the London Stock Exchange and to try source funding in this market. The investment product is denominated in Sterling and Dollars so you may well argue that there could be a U.S. angle to that but it’s primarily aimed at U.K. and European investors.
What was involved in helping CSOP get RQFII approval?
CB: There’s a bit of history to it: investment into China is still highly regulated, its constrained and its quota driven. So it’s the initial quota-driven system that was set up was a system called QFII, which was for foreign institutional investors. That was launched in 2003 and HSBC as an onshore custodian in China has maintained a dominant market position in terms of helping foreign asset managers access the China market through that QFII quota system. We currently have 35% of the entire QFII quota and we are custodian for that business in China. To be given that license to trade in China and to be given a quota to fill you need to appoint an onshore custodian. So our role is very much around bringing the asset managers to China and managing the application process for them. So whether it’s a QFII or RQFII [application], they are all written in Chinese and as asset manager you need a custodian, who is effectively your representative to walk you through that application process through the regulators: the China Securities Regulatory Commission (CSRC) gives you the license to trade and SAFE (the State Administration for Foreign Exchange) grants the quota but to get those processes done you need an onshore custodian.
When RQFII became the second pilot scheme to launch in December 2011 we were to a large extent the go to provider for getting the RQFII licenses and quotas. So we have a larger position in that we have about 41% market share for RQFII. Therefore that relationship we build and develop with CSOP, when they went into the RQFII market was, to a large extent premised on the pedigree that we built up around QFII. So not only are we a custodian, we are a fundamental part of the licensing and quota process.
Are there any differences in services this particular brand of ETF in comparison to some of the others you service?
CB: In principle it’s very similar. It’s a London listed ETF, a Dublin UCITS product, so there’s a lot of collaboration between the U.K. and the Irish government and it references the China A50, which is an established FTSE index. In terms of servicing it we bring together a proposition in Dublin where we service a lot of ETFs as the trustee the fund administrator, the global custodian and then what we leverage is our onshore footprint in China to service the domestic and onshore investments. These are all physically backed ETFs. They are investing in the underlying stocks of the A50 market in China. We will hold those assets in safe custody.
What else can we expect in terms of opportunities to service further RQFII ETFs?
CB: There are two related but separate events here: one is the first listing of an ETF referencing China A-share in the U.K. market and second, was the issue on Tuesday with Ashmore being granted the first RQFII London. RQFII was originally a Hong Kong quota system that has now been extended to London, with the city being granted an RMB80 billion (USD12.7 billion) quota – that’s the first renminbi center to be granted a quota outside Asia. That’s very important and with Ashmore being given the first license and HSBC being the onshore custodian this is a very interesting and exciting milestone in terms of the evolution and the opening up of the Chinese market.
GC Friday Interview: Cian Burke, Global Co-head, HSBC Securities Services
HSBC is custodian to the Europe’s first Renminbi Qualified Foreign Institutional Investor (RQFII) ETF, which listed on the London Stock Exchange yesterday. The CSOP Source FTSE China A50 UCITS ETF uses an investment quota approved under the RQFII pilot scheme, a program launched in 2011 to open up investment in Renminbi-denominated Chinese securities to overseas investors. Hong Kong-based CSOP is responsible for investment management and European exchange traded product provider Source acts as the fund promoter and manager through its Irish subsidiary. Cian Burke, global co-head at HSBC Securities Services talks to Global Custodian about what the latest development means for investment services providers.
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