Hong Kong bond connect scheme moves to DVP
24 August 2018 Hong Kong
Image: Shutterstock
Hong Kong bond connect scheme has moved to Delivery-Versus-Payment (DVP), the Hong Kong Monetary Authority (HKMA) revealed.
Due to the implementation of Cross-Border Interbank Payment System 2.0, DVP settlement mode will now be made available for bonds that should be settled in CCDC.
Under this new DVP settlement mode, overseas investors are no longer required to initiate the payment via its correspondent bank directly to the counterparty’s settlement bank in Mainland, BNP Paribas revealed.
It is now required for payment to be made to the CMU’s Renminbi (RMB) account in favour of the relevant CMU sub-account for the settlement purpose.
Meanwhile, participants are still required to ensure that payment amount in the CMU’s RMB account is sufficient for the DVP settlement purpose.
It was revealed that if the CMU’s RMB account had insufficient funds, then the payment instruction would be placed in a queue pending for payment until sufficient funding is performed.
Additionally, all bond transactions in CCDC can be settled on a DVP basis and market cut-off time for both settlement instructions and funding are extended to 12:00 noon (HK time).
Gary O’Brien, regional head of Custody Product, Asia Pacific (APAC), BNP Paribas Securities Services, commented: “This is a significant step forward for the Bond Connect scheme since its launch on 1 July last year, and we anticipate that it will spark further interest from international investors wanting to capture a slice of the Chinese bond market which is now the second largest in the world having recently overtaken Japan.”
He added: “This enhancement to reduce counterparty risk, as well as the expected launch of the London—Shanghai Stock Connect by the end of the year, continues to demonstrate the improved investment opportunities for both onshore and offshore investors.”
Due to the implementation of Cross-Border Interbank Payment System 2.0, DVP settlement mode will now be made available for bonds that should be settled in CCDC.
Under this new DVP settlement mode, overseas investors are no longer required to initiate the payment via its correspondent bank directly to the counterparty’s settlement bank in Mainland, BNP Paribas revealed.
It is now required for payment to be made to the CMU’s Renminbi (RMB) account in favour of the relevant CMU sub-account for the settlement purpose.
Meanwhile, participants are still required to ensure that payment amount in the CMU’s RMB account is sufficient for the DVP settlement purpose.
It was revealed that if the CMU’s RMB account had insufficient funds, then the payment instruction would be placed in a queue pending for payment until sufficient funding is performed.
Additionally, all bond transactions in CCDC can be settled on a DVP basis and market cut-off time for both settlement instructions and funding are extended to 12:00 noon (HK time).
Gary O’Brien, regional head of Custody Product, Asia Pacific (APAC), BNP Paribas Securities Services, commented: “This is a significant step forward for the Bond Connect scheme since its launch on 1 July last year, and we anticipate that it will spark further interest from international investors wanting to capture a slice of the Chinese bond market which is now the second largest in the world having recently overtaken Japan.”
He added: “This enhancement to reduce counterparty risk, as well as the expected launch of the London—Shanghai Stock Connect by the end of the year, continues to demonstrate the improved investment opportunities for both onshore and offshore investors.”
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