Clearstream, Deutsche Börse Group’s post-trade business, has opened up new possibilities for international investors to use offshore Chinese government bonds as collateral.

The company supported Crédit Agricole CIB, CITIC Securities Company Limited, and Shanghai Pudong Development Bank in becoming the first group of institutions to use offshore Chinese government bonds for initial margin segregation.

China’s vast bond market, the second largest in the world at US$ 26 trillion in volume outstanding, is becoming increasingly accessible to international investors. This has been facilitated through initiatives like Bond Connect, a cross-border investment program that links the Mainland China and Hong Kong bond markets, and the opening of China’s interbank repo market to qualified foreign institutions. As Chinese collateral becomes more mobile, it will be critical that market participants holding this collateral outside of China can use it efficiently within the established infrastructure of global capital markets, including for initial margin segregation.

“Connecting global markets has always sat at the heart of Clearstream’s strategy, and this pioneering step, taken in partnership with Crédit Agricole CIB, CITIC Securities Company Limited and Shanghai Pudong Development Bank, is a testament to that,” said Philip Brown, CEO at Clearstream Banking S.A. “At Clearstream, a key purpose is to provide the market with innovative solutions embedded within a deeply trusted environment. With this effort, we do just that; providing the reliable framework that allows clients to confidently integrate Chinese collateral into their global strategies, translating a historic market development into a tangible opportunity for greater capital efficiency.”

In many jurisdictions, initial margin segregation is a key regulatory requirement for collateral posted upfront to cover over-the-counter (OTC) derivatives transactions. Clearstream offers initial margining services for both cleared and uncleared OTC derivatives from a single collateral pool, enabling clients to hold multiple currencies and asset classes in a single location.