HSBC facilitates the first T+3 trade in Chinese bond market

The first T+3 trade occurs on China Interbank Bond Market (CIBM) after ‘important step’ to extend settlement cycle.

By Jonathan Watkins

HSBC has facilitated the first T+3 trade in the China Interbank Bond Market (CIBM), following a decision to extend the bond settlement cycle for overseas institutional investors (OIIs).

The extension was approved on 23 August by the China Central Depository & Clearing (CCDC), Shanghai Clearing House (SCH) and the China Foreign Exchange Trade System (CFETS).

HSBC described the decision as “an important step which was long hoped for by foreign investors”.

The T+3 settlement cycle will be applicable to cash bond trading, pledged repo, outright repo, and bond borrowing and lending.

The bank added that the rules could further benefit OIIs in saving of funding costs as well as CIBM primary market participation.

“We believe this development demonstrated China regulators’ commitment to further opening up its financial market, making domestic capital markets more accessible to international investors,” said Ivy Zhang, EVP and co-head of global markets for HSBC in China.

“The extension of settlement cycle in CIBM, which provides more convenience for OIIs to track the related indices, will help expedite the inclusion process of Chinese bonds into major global bond indices, such as FTSE Russell. We foresee the momentum of foreign entry to the worlds’ second largest bond market to continue.”

HSBC has been an active custodian when it comes to providing services to foreign investors into the Chinese market. As of July 2019, HSBC has 33.14% market share in terms of number of OIIs in custodian services under CIBM Direct regime, and ranks top among foreign banks in terms of the total depository balance of OIIs.

Last week, the bank recruited a China access expert in New York to help drive sales for US asset managers and owners wanting to invest in the country.

In March 2018, Luxembourg-based fund manager Harvest Global Investments became one of the first overseas investors to trade on China’s Bond Connect, through HSBC Securities Services.

The Chinese government is working on more favourable policies for foreign investors to trade Chinese bonds, as the country continues to liberalise its capital markets to international investment.