GLOBAL - Two major custodian banks have been granted licenses to operate in China's lucrative A-share market, marking a significant opening for foreign investors.
Both HSBC and Citibank have received the go-ahead from Chinese regulators to offer custodian services to Qualified Foreign Institutional Investors (QFII).
The China A-share market has a capitalisation of about US$500bn compared to the B-share market valued at US$10bn. Until now it was off-limits to foreign investors and foreign custodian banks who were only permitted to invest in or handle Chinese B-shares, a state-owned enterprise.
QFIIs include overseas fund managers, insurance companies, securities companies or commercial banks which are permitted to invest in A-shares and treasury bonds listed on the Shenzhen and Shanghai stock exchanges.
Since 1993, HSBC has been providing onshore B-share custodian services in China, capturing 50% of the market.
Dicky Yip, chief executive China business for HSBC, said: “We are in a position to offer immediate services to our clients. Our clients can also benefit from HSBC’s expertise and knowledge gained from our experience as a QFII custodian in Taiwan and South Korea.”
As QFII license holders, both HSBC and Citibank can now start handling applications from overseas investors for QFII status; custody; foreign exchange conversion; RMB (Renminbi) clearing; securities and cash settlement services; safekeeping of securities, supervising QFII investment activities, reporting and recordkeeping.
Citibank has also been actively involved in the Chinese B-share market since 1991, when the bank advised on the design of the Shanghai B-share clearing system. In 1992, it was appointed technical advisor for the B-share clearing systems and since then, has become the sole USD clearing bank for China Securities Depository and Clearing Company, Shanghai.
Richard Ernesti, region head of Citibank Global Securities Services Asia, said: “The QFII scheme further opens up China’s local securities markets to foreign investors, and it will attract long term investment from top tier institutional investors such as broker dealers and fund managers into A-shares, government bonds and convertible bonds.
“We expect more investors will submit their QFIIs applications in the next few months.”
Citibank is also a custodian for B-shares and is one of the three clearing banks for the Shenzhen market. The bank is also a receiving bank player in both the Shanghai and Shenzhen markets of B-share rights issues.
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