Clearstream has supported the first use of offshore Chinese government bonds as collateral for initial margin segregation, according to a Clearstream press release.
Crédit Agricole CIB, CITIC Securities Company Limited and Shanghai Pudong Development Bank are described as the first group of firms to implement this setup using offshore Chinese sovereign bonds within Clearstream’s infrastructure.
Clearstream states in their press release that China’s bond market is the second largest in the world, with about USD 26 trillion outstanding. Foreign access has expanded through initiatives such as Bond Connect, linking mainland China and Hong Kong, and through the opening of the interbank repo market to qualified foreign institutions.
Post-trade and risk frameworks
As more Chinese government bonds are held outside mainland China, the issue becomes how they can be used within established post-trade and risk frameworks. Clearstream’s role, as described, is to allow offshore Chinese government bonds to be used for regulatory initial margin segregation in OTC derivatives.
In many jurisdictions, initial margin segregation is required for collateral posted upfront in uncleared derivatives. Clearstream says it provides margining services for both cleared and uncleared OTC derivatives from a single collateral pool, supporting multiple currencies and asset classes.
