introduction of free trade zone rmb bond business...corporate bonds with full range of credit...
TRANSCRIPT
Contents
Company Overview
Business Background
Business Model
Future Plan
第四章
• A test ground of simplified foreign trade
supervision procedures and China’s
financial reform
• Free movement of cash/capital between
FTZ and offshore RMB market
A brief look into Shanghai Free Trade Zone
Company Overview
Company Overview
Established on 28 Nov 2009, Shanghai Clearing House (SHCH) is
authorised and directed by People’s Bank of China (PBOC)
China’s first Central Counterparty (CCP) in OTC market
One of the three Central Securities Depositories (CSDs) in China’s
financial market
• As of 31 March 2016, the amount of bonds outstanding in China: CNY 53.5 trillion
(USD 8 trillion approximately)
• In China’s Interbank bond market: CNY 48.8 trillion
• Registered and deposited at SHCH: CNY 12.2 trillion
(1/4 of China’s interbank market)
CSD Business
Company Overview
As of 31 March 2016,
• Number of issuer accounts: 3,398
• Number of investor accounts: 10,440
• In 2015, SHCH provided settlement service
for 1 million transactions (spot and repo), with
total value of CNY 83 trillion, accounting for
12% of China’s bonds settlement.
0.020.4
1.7
2.7
5.6
10.3
12.2
The outstanding volume of bonds
deposited at SHCH
(CNY trillions)
Dec.2011 Dec.2015Dec.2010 Dec.2012 Dec.2013 Dec.2014 March.2016
CSD Business
Company Overview
• Issuance (Auction), registration, depository
and real time gross settlement services
• Corporate Bonds,
• Financial Institution Bonds,
• Money Market Instruments
• and Structured Products
• National Center of registration, depository
and settlement for Corporate Bonds
Half of China’s corporate bonds outstanding.
70% of newly issued corporate bonds in Q1 2016.
CSD
CP
SCP
MTN
SMECN
ABN
PPNSecurity Firm CP
PRN
ABS
Financial AMC Bond
NCD
CRMW
CCP Business
Company Overview
Covers FICC products
2010 2011 2012 2013 2014 2015
0 0.2 2
11
20
43
0
113
23
46
126The amount of CCP clearing
The amount of total clearing
(CNY trillions)
CCP
Interest Rate
Derivatives
FX and
Exchange Rate
Derivatives
Freight and
Commodity
Derivatives
Bond
Cash bond
Repo
RMP Interest
Swap
FX Spot
FX Forward
FX Swap
RMB FFA
RMB Iron-ore
Swap
RMB Stream-
coal Swap
Company Overview
International Communication
International organisations
• CCP12, ACG, ICMA
International authorities and regulators
• European Clearing Group, Deustsche Boerse, London Clearing House, Chicago Mercantile Exchange Group
Global institutions
• New York and Chicago Federal Reserve Bank, EU Council, AMF, US Securities and Exchange Commission
Business Background
Business Background
An experiment
window for the
fully opening-up of
China’s bond
market
To boost the
process of RMB
internationalisation
To facilitate the
establishment of an
international
financial market
1 2 3
Three objectives
RMB formally joined SDR
The acceptance of RMB as reserve currency has increased
RMB assets become more desirable to global investors
RMB bond is an important choice to form RMB asset portfolio
FTZ RMB bond business provides access to RMB bonds
By the end of 2015, total volume of RMB bonds held by foreign
institutions were CNY 0.7trillion, represents less than 2% of total
RMB bonds outstanding at that time.
Taiwan: 5%-10%
Korea: 5%-10%
To boost the process of RMB internationalisation
Business Background
By the end of 2015, the total volume of offshore RMB asset
was around CNH 1.53 trillion.
Hong Kong accounted for the largest proportion for over 60%.
Each of Taiwan and Singapore accounted for around 10%, with
significant growth.
2012-01
2012-03
2012-05
2012-07
2012-09
2012-11
2013-01
2013-03
2013-05
2013-07
2013-09
2013-11
2014-01
2014-03
2014-05
2014-07
2014-09
2014-11
2015-01
2015-03
2015-05
2015-07
2015-09
2015-11
2016-01
Offshore RMB asset (CNY trillions)
Hong Kong: RMB offshore deposit Taiwan: RMB offshore deposit
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0
To facilitate the establishment of an international financial market
Business Background
In line with State Council’s objective to “establish an international financial market”.
To promote Shanghai as an International Financial Center.
To improve the participation degree of international investors.
Business Background
An experiment window for the fully opening-up of China’s bond market
18 September
2013
The State Council approved
the document of “(Shanghai)
free trade zone overall
arrangements”
2 December
2013
PBOC released the
document of “Opinions
on to support the
construction of
(Shanghai) free trade
zone”
8 April
2015
The State Council
approved the document of
“To further implement
‘(Shanghai) free trade
zone overall
arrangements”
30 October
2015
PBOC announced
“Further arrangements
to boost (Shanghai) free
trade zone innovation
and accelerate
international financial
center construction”
Business Model
Business Model
Shanghai Clearing House preparatory work
Ready
Sep 2013, the State Council
approved the establishment
of Shanghai FTZ.
SHCH communicated
with regulators, market
participants, and
international CSDs.
SHCH conducted
feasibility studies and
developed plans.
SHCH communicated with
potential issuers and
investors, connecting capital
supply side and demand side;
SHCH developed a technical
system for FTZ bond
business.
2015.12, PBOC formally
approved SHCH to launch
FTZ RMB bond business
(Yin Fa [2015] No. 506)).
1 2
3
Cash
Account
Settlement
Account
Business
Model New issue model;
FTZ Commercial Bank Counter model
Business Model
Overview
Open accounts with SHCH
Use account of ICSD/CSD-SHCH Link
Technical system with Free Trade Unit
Fixed-income products
Overall
Framework
Foreign investors: use FT or NRA account
Domestic investors: use FT account
Business Model
New Issue Model
New Issue Model Introduction
• Domestic and foreign
issuers filed with PBOC or
registered with NAFMII
(Chinese domestic law)
• Issuance
• Book Building
• Distribution through SHCH
• Registration, depository,
clearing, and settlement
• Collateral management
• Issuance disclosure - SHCH
• Secondary market transactions
• CFETS
• Overseas electronic trading platform
• Interest and principal payment
1 2
3 4
5 6
Issuance, trading, clearing and settlement
New Issue Model Introduction
Trading Platforms
Input
Instruction
Buyer Seller
Transfer
Instruction
SHCH
CFETS
Input
Instruction
trade
Seller
SHCH
Overseas
electronic
trading platform
trade
Input settlement
instructions
Input settlement
instructions
Buyer
Clear and Settle Clear and Settle
New Issue Model Introduction
Settlement Accounts
Open accounts with SHCH Open a FT or NRA account with a commercial bank
Participate directly with technical connection to SHCH
Participate through a settlement agent
Use an ICSD-SHCH LinkICSD opens an omnibus account with a commercial bank
ICSD opens an omnibus account with SHCH
One point of access
Internal settlements allowed
New Issue Model Introduction
Investors who open their
accounts with SHCH
Foreign investors
ICSD
Bond transfer
Cash transfer
(Or a local CSD which
links with SHCH)
Trade
SHCHAn Example
New Issue Model Introduction
International
custodian
institution
(Omnibus
account)
SHCH
1. Receive/Generate
settlement
instructions
Seller
(Open
accounts
with
SHCH)
2.Send confirmation of
the matching
settlement instructions
2.Send confirmation
of the matching
settlement
instructions
Foreign
investors
(Buyer，participates
through
internationa
l custodian
institutions
)6. International
custodian institutions
inform the buyers of
the results
1. Input settlement
instructions
Clearing and Settlement
4.Transfer money
and bond through
DVP
2. Match settlement
instructions
3. Enough bond and
cash
5.Finish Transfer
1.Input settlement
instructions
(Transactions through
international trading
platform)
1. Transfer settlement
instructions
5.Settlement results 5.Settlement results
New Issue Model Introduction
Interest and principal payment
Interest and
principal payment
on day T
SHCH
ICSD
Pay the interest and
principal on day T-1.
Interest and principal
payment on day T
Issuer
Foreign investors participate through ICSD-SHCH Link
Foreign investors with
accounts in SHCH
Business Model
FTZ Commercial Bank Counter model
FTZ Commercial Bank Counter Model Introduction
General Arrangements
• Approved pilot commercial
banks – FTZ branches
• Over-the-counter
• transfer the existing
bonds from domestic
market to the FTZ
• Issue new bonds over
the counter of FTZ
branches
FTZ investors open
sub- accounts in
these commercial
banks
bilateral bidding and
liquidity services,
Interest and principal
payments
1
2
3
4
FTZ Commercial Bank Counter Model Introduction
Settlement Accounts
SHCH
The approved pilot
commercial banks
Investors open sub-accounts with
approved pilot commercial banks
Trade and settlement
Foreign
investors
the approved pilot
commercial banks,
Market Maker
SHCH
Ask for
quotes
Ask for
quotes
Secondary depository data
transfer
Investors trade and settle with
their commercial banks
FTZ Commercial Bank Counter Model Introduction
Interest and principal payment
Transfer the interest
and principal on
day T-1
SHCHthe approved pilot
commercial banks
Pay the interest
and principal on
day T-2.
Interest and principal
payment on day T
Issuer
FTZ Commercial Bank Counter Model Introduction
FTZ Commercial Bank Counter business is an extension
of domestic Commercial Bank Counter Market.
FTZ Commercial Bank Counter model and the New
Issue Model complement each other.
FTZ Commercial Bank Counter model
FTZ Commercial Bank Counter Model Introduction
Business Model
Advantages of FTZ RMB Bond Business
Diversification
Provides a new market for offshore RMB.
Corporate bonds with full range of credit profiles and yield to fulfill investment objectives.
Flexibility
Choice of settlement path and cash account arrangements.
Innovative clearing and settlement process provides greater flexibility on post-trade execution.
Simplicity
Registration made convenient.
Simpler way to participate, lower participation cost.
Settlement process made simple and effective.
Closer to international bond market practices.
Pilot advantage
The foreign investors will get a head start to enter into China’s domestic bond market.
Connectivity
Connect to enterprises in China which may lead to further opportunities worldwide.
Future Plan
Next Step
Planned Launch Time:
May 2016
• Will continually promote
FTZ RMB bond business
to domestic and foreign
issuers and investors.
• Will Focus on market
development and liquidity
improvement.
Yanyan WU +8621-23198676
Contacts
Jianping PI +8621-23198671
Chenyu LIAO +8621-23198684
Ye TAO +8621-23198721
Kangkang LU+8621-23198728
Lu XU +8621-23198710