June 20, 2012

The Monetary Authority has signed bilateral agreements with Euroclear Bank and JP Morgan to co-operate in delivering a new cross-border collateral management service from June 25.
 
The new service enables international financial institutions to use securities held with Euroclear Bank or JP Morgan as collateral in triparty repo transactions with members of the authority’s Central Moneymarkets Unit, to access liquidity from Hong Kong, in particular the Hong Kong dollar and offshore renminbi.
 
Euroclear Bank or JP Morgan will act as triparty collateral management agents to the repo transactions, ensuring administrative obligations, such as collateral valuations, eligibility, haircuts, and substitutions are carried out automatically on behalf of the two counterparties to the securitised deal.
 
The arrangement is the first add-on service following the March launch of the pilot platform for the cross-border investment and settlement of debt securities.
 
Further collateral management developments are foreseen with the authority to further expand the cross-border collateral management service to allow local financial institutions to use their securities as collateral to obtain foreign currency liquidity such as the US dollar from international financial institutions in the second half of this year.
 
The collateral management service aims to develop and promote a cost effective and efficient repo market in Hong Kong. This in turn helps enhance financial stability through the greater use of collateral to cover exposures in secured lending and borrowing. It also opens an efficient channel for financial institutions to widen their liquidity sources and obtain offshore renminbi liquidity from Hong Kong.